United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q
(Mark One)

Form 10-Qx


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20072008

OR

[ ]¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______to______.

Commission File No. 0-22088

[Missing Graphic Reference]

MONARCH CASINO & RESORT, INC.
(Exact name of registrant as specified in its charter)

Nevada
88-0300760
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
  
3800 S. Virginia St.
Reno, Nevada
 
Reno, Nevada
89502
(Address of Principal Executive Offices)(ZIP Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

(775)  335-4600
(Registrant's telephone number, including area code:
___________________code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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

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

Large Accelerated Filer o                        Accelerated Filer x                         Non-Accelerated Filer oSmaller Reporting Company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YesoNo x


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common stock, $0.01 par value 19,089,68616,122,048 shares
Class Outstanding at November 7, 20074, 2008

14

 
2
 


TABLETABLE OF CONTENTS



Item
Page Number
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007 and 2006 (unaudited)
4
Condensed Consolidated Balance Sheets at September 30, 20072008 (unaudited) and December 31, 20062007
5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 and 2006 (unaudited)
6
Notes to Condensed Consolidated Financial Statements (unaudited)
7
  
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
1415
  
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2224
  
Item 4. Controls and Procedures
22
PART II - OTHER INFORMATION22
Item 1. Legal Proceedings2324
  
PART II - OTHER INFORMATION
24
Item 1. Legal Proceedings
24
Item 1A. Risk Factors
2325
  
Item 6. Exhibits
2425
  
Signatures
25
Exhibit 31.1 Certification of John Farahi pursuant to Section 302 of the Sarbanes-Oxley Act of 200226
Exhibit 31.2 Certification of Ronald Rowan pursuant to Section 302 of the Sarbanes-OxleySarbanes- Oxley Act of 200227
Exhibit 32.1 Certification of John Farahi pursuant to Section 906 of the Sarbanes-Oxley Act of 200228
Exhibit 32.2 Certification of Ronald Rowan pursuant to Section 906 of the Sarbanes-OxleySarbanes- Oxley Act of 200229


14

3


PARTPart I. FINANCIAL INFORMATIONFinancial Information

ITEM 1. FINANCIAL STATEMENTS

Monarch CasinoMONARCH CASINO & Resort, Inc.RESORT, INC.
Condensed Consolidated Statements of Income
(Unaudited)

  
Three Months Ended
September 30, 
Nine Months Ended
September 30,
   2007  2006  2007  2006 
Revenues             
Casino $29,936,988 $27,716,814 $84,512,978 $77,621,373 
Food and beverage  11,011,808  10,889,609  32,084,196  30,769,768 
Hotel  8,002,564  8,101,167  21,857,687  20,580,811 
Other  1,229,521  1,254,264  3,703,972  3,648,862 
Gross revenues  50,180,881  47,961,854  142,158,833  132,620,814 
Less promotional allowances  (6,557,585) (6,213,477) (19,192,626) (17,644,527)
Net revenues  43,623,296  41,748,377  122,966,207  114,976,287 
              
Operating expenses             
Casino  9,232,990  8,991,885  26,970,411  25,483,766 
Food and beverage  5,381,681  5,143,751  15,217,367  14,634,537 
Hotel  2,161,564  2,206,631  6,416,669  6,312,500 
Other  386,056  384,033  1,127,113  1,116,317 
Selling, general and administrative  12,731,275  11,681,175  37,054,086  35,156,852 
Depreciation and amortization  1,982,184  2,139,592  6,122,600  6,430,831 
Total operating expenses  31,875,750  30,547,067  92,908,246  89,134,803 
Income from operations  11,747,546  11,201,310  30,057,961  25,841,484 
Other income (expense)             
Interest income  568,462  154,230  1,385,883  190,732 
Interest expense  -  (15,401) (152,274) (74,845)
Total other income (expense)  568,462  138,829  1,233,609  115,887 
              
Income before income taxes  12,316,008  11,340,139  31,291,570  25,957,371 
Provision for income taxes  (4,280,000) (3,969,098) (10,860,000) (8,996,000)
Net income $8,036,008 $7,371,041 $20,431,570 $16,961,371 
              
Earnings per share of common stock             
Net income             
Basic $0.42 $0.39 $1.07 $0.89 
Diluted $0.41 $0.38 $1.06 $0.88 
              
Weighted average number of common shares and potential common shares outstanding             
Basic  19,079,062  19,058,896  19,080,347  18,965,694 
Diluted  19,366,043  19,245,639  19,352,064  19,263,869 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.


14


Monarch Casino & Resort, Inc.
Condensed Consolidated Balance Sheets

      September 30,   December 31, 
      2007   2006 
ASSETS (Unaudited)     
Current assets       
   Cash and cash equivalents   $ 52,949,354   $ 36,985,187 
   Receivables, net   4,590,222   3,268,970 
   Inventories   1,478,542   1,471,667 
   Prepaid expenses   3,572,182   2,833,126 
   Deferred income taxes               1,547,144   965,025 
      Total current assets     64,137,444   45,523,975 
Property and equipment       
   Land   10,339,530   10,339,530 
   Land improvements   3,166,107   3,166,107 
Buildings   78,955,538     78,955,538 
Building improvements   10,435,062     10,435,062 
Furniture and equipment   71,746,192     72,708,061 
Leasehold improvements   1,346,965     1,346,965 
         175,989,394     176,951,263 
Less accumulated depreciation and amortization   (90,245,245)    (84,325,578)
         85,744,149     92,625,685 
Construction in progress   10,968,149     - 
Net property and equipment        96,712,298     92,625,685 
Other assets, net 84,822     231,247 
Total assets  $160,934,564    $138,380,907 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY         
Current liabilities         
Accounts payable  $8,053,256    $8,590,669 
Construction payable   1,525,987     - 
Accrued expenses   8,770,601     9,878,851 
Federal income taxes payable   1,371,747     16,457 
Total current liabilities        19,721,591     18,485,977 
Deferred income taxes 3,708,614     4,248,614 
Total Liabilities 23,430,205     22,734,591 
Commitments and contingencies
Stockholders' equity
      
Preferred stock, $.01 par value, 10,000,000   -     - 
shares authorized; none issued
Common stock, $.01 par value, 30,000,000 shares           
authorized; 19,096,300 shares issued;           
19,067,518 outstanding at 9/30/07           
19,065,968 outstanding at 12/31/06   190,963     190,726 
Additional paid-in capital   25,285,175     23,205,045 
Treasury stock, 28,782 shares at 9/30/07           
6,582 shares at 12/31/06, at cost   (678,039)    (24,145)
Retained earnings   112,706,260     92,274,690 
Total stockholders' equity        137,504,359     115,646,316 
Total liabilities and stockholder's equity  $160,934,564    $138,380,907 
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2008  2007  2008  2007 
             
Revenues            
Casino $27,612,822  $29,936,988  $77,041,679  $84,512,978 
Food and beverage  10,582,809   11,011,808   29,891,424   32,084,196 
Hotel  6,301,547   8,002,564   17,677,248   21,857,687 
Other  1,181,343   1,229,521   3,598,915   3,703,972 
Gross revenues  45,678,521   50,180,881   128,209,266   142,158,833 
Less promotional allowances  (6,891,322)  (6,557,585)  (19,804,909)  (19,192,626)
Net revenues  38,787,199   43,623,296   108,404,357   122,966,207 
Operating expenses                
Casino  9,991,844   9,232,990   28,005,260   26,970,411 
Food and beverage  5,218,032   5,381,681   14,513,679   15,217,367 
Hotel  1,983,818   2,161,564   6,056,911   6,416,669 
Other  338,847   386,056   998,498   1,127,113 
Selling, general and administrative  12,732,367   12,731,275   38,713,980   37,054,086 
Depreciation and amortization  2,353,562   1,982,184   6,388,848   6,122,600 
Total operating expenses  32,618,470   31,875,750   94,677,176   92,908,246 
Income from operations  6,168,729   11,747,546   13,727,181   30,057,961 
Other (expense) income                
Interest income  36,107   568,462   333,689   1,385,883 
Interest expense, net  (82,981)  -   (82,981)  (152,274)
Total other (expense) income  (46,874)  568,462   250,708   1,233,609 
Income before income taxes  6,121,855   12,316,008   13,977,889   31,291,570 
                 
Provision for income taxes  (2,096,160)  (4,280,000)  (4,847,260)  (10,860,000)
                 
Net income $4,025,695  $8,036,008  $9,130,629  $20,431,570 
                 
Earnings per share of common stock                
Net income                
Basic $0.25  $0.42  $0.53  $1.07 
Diluted $0.25  $0.41  $0.53  $1.06 
                 
Weighted average number of common shares and potential common shares outstanding                
Basic  16,122,048   19,079,062   17,238,273   19,080,347 
Diluted  16,141,830   19,366,043   17,314,438   19,352,064 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

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4


Monarch CasinoMONARCH CASINO & Resort, Inc.RESORT, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)Balance Sheets

    Nine Months Ended
    September 30,
    2007 2006
Cash flows from operating activities:   
 Net income$ 20,431,570 $ 16,961,371
 Adjustments to reconcile net income to net   
 cash provided by operating activities:   
  Depreciation and amortization6,122,600 6,430,831
  Amortization of deferred loan costs148,838 15,402
  Share-based compensation1,663,197 2,748,635
  Provision for bad debts242,126 937,762
  (Gain) loss on disposal of assets(6,969) 49,259
  Deferred income taxes(1,122,118) (1,142,819)
 Changes in operating assets and liabilities:   
  Receivables(1,563,378) (561,759)
  Inventories(6,875) (33,180)
  Prepaid expenses(739,056) (653,236)
  Other assets(2,413) -
  Accounts payable(537,412) (252,968)
  Accrued expenses(1,108,250) (523,191)
  Federal income taxes payable1,355,290 1,338,218
   Net cash provided by operating activities24,877,150 25,314,325
       
Cash flows from investing activities:   
 Proceeds from sale of assets6,969 38,280
 Change in construction payable1,525,987 -
 Acquisition of property and equipment(10,209,214) (4,235,862)
   Net cash used in investing activities(8,676,258) (4,197,582)
       
Cash flows from financing activities:   
 Proceeds from exercise of stock options340,682 2,141,262
 Tax benefit of stock option exercise178,904 613,841
 Principal payments on long-term debt- (8,100,000)
 Purchase of treasury stock(756,311) -
   Net cash used in financing activities(236,725) (5,344,897)
   Net increase in cash15,964,167 15,771,846
Cash and cash equivalents at beginning of period36,985,187 12,886,494
Cash and cash equivalents at end of period$ 52,949,354 $ 28,658,340
       
Supplemental disclosure of cash flow information:   
 Cash paid for interest$ 3,437 $ 66,659
 Cash paid for income taxes$ 10,447,923 $ 7,900,000
  September 30,  December 31, 
  2008  2007 
ASSETS (Unaudited)    
Current assets      
Cash and cash equivalents $10,643,000  $38,835,820 
Receivables, net  3,445,614   4,134,099 
Federal income tax refund receivable  -   998,123 
Inventories  1,591,575   1,496,046 
Prepaid expenses  3,544,082   3,144,374 
Deferred income taxes  325,221   1,084,284 
Total current assets  19,549,492   49,692,746 
Property and equipment        
Land  12,162,522   10,339,530 
Land improvements  3,511,484   3,166,107 
Buildings  113,655,538   78,955,538 
Building improvements  10,435,062   10,435,062 
Furniture and equipment  92,373,657   72,511,165 
Leasehold improvements  1,346,965   1,346,965 
   233,485,228   176,754,367 
Less accumulated depreciation and amortization  (98,500,079)  (92,215,149)
   134,985,149   84,539,218 
Construction in progress  15,508,180   17,236,062 
Net property and equipment  150,493,329   101,775,280 
Other assets, net  2,817,842   2,817,842 
Total assets $172,860,663  $154,285,868 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities        
Borrowings under credit facility $42,500,000  $- 
Accounts payable  11,045,878   10,840,318 
Construction payable  2,441,246   1,971,022 
Accrued expenses  9,214,424   9,230,157 
Federal income taxes payable  190,074   - 
Total current liabilities  65,391,622   22,041,497 
Deferred income taxes  2,825,433   2,825,433 
Total liabilities  68,217,055   24,866,930 
Stockholders' equity        
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued  -   - 
Common stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 16,122,048 outstanding at 9/30/08, 18,566,540 outstanding at 12/31/07  190,963   190,963 
Additional paid-in capital  27,510,467   25,741,972 
Treasury stock, 2,974,252 shares at 9/30/08, 529,760 shares at 12/31/07, at cost  (48,943,359)  (13,268,905)
Retained earnings  125,885,537   116,754,908 
Total stockholders' equity  104,643,608   129,418,938 
Total liability and stockholder's equity $172,860,663  $154,285,868 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

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5


MONARCHMONARCH CASINO & RESORT, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)


  Nine Months Ended September 30, 
  2008  2007 
       
Cash flows from operating activities:      
Net income $9,130,629  $20,431,570 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  6,388,848   6,122,600 
Amortization of deferred loan costs  -   148,838 
Share based compensation  1,768,495   1,663,197 
Provision for bad debts  818,696   242,126 
Gain on disposal of assets  (10,200)  (6,969)
Deferred income taxes  759,063   (1,122,118)
Changes in operating assets and liabilities        
Receivables, net  867,912   (1,563,378)
Inventories  (95,529)  (6,875)
Prepaid expenses  (399,708)  (739,056)
Other assets  -   (2,413)
Accounts payable  205,560   (537,412)
Accrued expenses  (15,733)  (1,108,250)
Federal income taxes payable  190,074   1,355,290 
Net cash provided by operating activities  19,608,107   24,877,150 
Cash flows from investing activities:        
Proceeds from sale of assets  10,200   6,969 
Acquisition of property and equipment  (55,106,897)  (10,209,214)
Changes in payable construction  470,224   1,525,987 
         
Net cash used in investing activities  (54,626,473)  (8,676,258)
Cash flows from financing activities:        
Proceeds from exercise of stock options  -   340,682 
Tax benefit of stock option exercise  -   178,904 
Borrowings under credit facility  42,500,000   - 
Purchase of treasury stock  (35,674,454)  (756,311)
         
Net cash provided by (used in) financing activities  6,825,546   (236,725)
Net (decrease) increase in cash  (28,192,820)  15,964,167 
Cash and cash equivalents at beginning of period  38,835,820   36,985,187 
Cash and cash equivalents at end of period $10,643,000  $52,949,354 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest net of $452,019 and $0 capitalized, respectively $82,981  $3,437 
Cash paid for income taxes $2,900,000  $10,447,923 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

6
MONARCH CASINO & RESORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:Presentation:

Monarch Casino & Resort, Inc. ("Monarch"), a Nevada corporation, was incorporated in 1993.  Monarch's wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("Golden Road"), operates the Atlantis Casino Resort (the "Atlantis"), a hotel/casino facility in Reno, Nevada. Unless stated otherwise, the "Company" refers collectively to Monarch and its Golden Road subsidiary.

The condensed consolidated financial statements include the accounts of Monarch and Golden Road. Intercompany balances and transactions are eliminated.

Interim Financial Statements:Statements:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management of the Company, all adjustments considered necessary for a fair presentation are included.  Operating results for the three months and nine months ended September 30, 20072008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.2008.

The balance sheet at December 31, 20062007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2006.2007.

Use of Estimates:Estimates:

In preparing these financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the respective periods. Actual results could differ from those estimates.

Self-insurance Reserves:Reserves:

The Company reviews self-insurance reserves at least quarterly. The amount of reserve is determined by reviewing the actual expenditures for the previous twelve-month period and reviewing reports prepared by third party plan administrators for any significant unpaid claims. The reserve is accrued at an amount needed to pay both reported and unreported claims as of the balance sheet dates, which management believes are adequate.

Inventories:Inventories:

Inventories, consisting primarily of food, beverages, and retail merchandise, are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis.


7

Property and Equipment:Equipment:

Property and equipment are stated at cost, less accumulated depreciation and amortization. Since inception, property and equipment have been depreciated principally on a straight line basis over the estimated service lives as follows:


Land improvements:15-40 years
Buildings:30-40 years
Building improvements:15-40 years
Furniture:  5-10 years
Equipment:  5-20 years


In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets," the Company evaluates the carrying value of its long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable from related future undiscounted cash flows. Indicators which could trigger an impairment review include legal and regulatory factors, market conditions and operational performance. Any resulting impairment loss, measured as the difference between the carrying amount and the fair value of the assets, could have a material adverse impact on the Company's financial condition and results of operations.

For assets to be disposed of, the Company recognizes the asset to be sold at the lower of carrying value or fair market value less costs of disposal.  Fair market value for assets to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model.

Casino Revenues:Revenues:

Casino revenues represent the net win from gaming activity, which is the difference between wins and losses. Additionally, net win is reduced by a provision for anticipated payouts on slot participation fees, progressive jackpots and any pre-arranged marker discounts.

Promotional Allowances:Allowances:

The Company’s frequent player program, Club Paradise, allows members, through the frequency of their play at the casino, to earn and accumulate point values, which may be redeemed for a variety of goods and services at the Atlantis Casino Resort. Point values may be applied toward room stays at the hotel, food and beverage consumption at any of the food outlets, gift shop items as well as goods and services at the spa and beauty salon. Point values earned may also be applied toward off-property events such as concerts, shows and sporting events. Point values may not be redeemed for cash.

Awards under the Company’s frequent player program are recognized as promotional expenses at the time of redemption.

The retail value of hotel, food and beverage services provided to customers without charge is included in gross revenue and deducted as promotional allowances. The cost associated with complimentary food, beverage, rooms and merchandise redeemed under the program is recorded in casino costs and expenses.


8

Income Taxes:Taxes:

Income taxes are recorded in accordance with the liability method specified by SFAS No. 109, "Accounting for Income Taxes."  Under the asset and liability approach for financial accounting and reporting for income taxes, the following basic principles are applied in accounting for income taxes at the date of the financial statements: (a) a current liability or asset is recognized for the estimated taxes payable or refundable on taxes for the current year; (b) a deferred income tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards; (c) the measurement of current and deferred tax liabilities and assets is based on the provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated; and (d) the measurement of deferred income taxes is reduced, if necessary, by the amount of any tax benefits that, based upon available evidence, are not expected to be realized.

The Company also applies the requirements of FIN 48 which prescribes minimum recognition thresholds a tax position is required to meet before being recognized in the financial statements.  FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  

Allowance for Doubtful Accounts:Accounts:

The Company extends short-term credit to its gaming customers. Such credit is non-interest bearing and due on demand. In addition, the Company also has receivables due from hotel guests, which are primarily secured with a credit card at the time a customer checks in. An allowance for doubtful accounts is set up for all Company receivables based upon the Company’s historical collection and write-off experience, unless situations warrant a specific identification of a necessary reserve related to certain receivables.  The Company charges off its uncollectible receivables once all efforts have been made to collect such receivables. The book value of receivables approximates fair value due to the short-term nature of the receivables.

Stock Based Compensation:

On January 1, 2006, the Company adopted the provisions of SFAS 123R requiring the measurement and recognition of all share-based compensation under the fair value method. The Company implemented SFAS 123R using the modified prospective transition method.

Concentrations of Credit Risk:Risk:

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of bank deposits and trade receivables. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company believes it is not exposed to any significant credit risk on cash and accounts receivable.

Certain Risks and Uncertainties:Uncertainties:

A significant portion of the Company's revenues and operating income are generated from patrons who are residents of northern California. A change in general economic conditions or the extent and nature of casino gaming in California, Washington or Oregon could adversely affect the Company's operating results. On September 10, 1999, California lawmakers approved a constitutional amendment that gave Indian tribes the right to offer slot machines and a range of house-banked card games. On March 7, 2000, California voters approved the constitutional amendment. Several Native American casinos have opened in Northern California since passage of the constitutional amendment. A large Native American casino facility opened in the Sacramento area, one of the Company’s primary feeder markets, in June of 2003. Other new Native American casinos are under construction in the northern California market, as well as other markets the Company currently serves, that could have an impact on the Company's financial position and results of operations.  TheIn June 2004, five California Indian tribes signed compacts with the state that allow the tribes to increase the number of slot machines beyond the previous 2,000-per-tribe limit in exchange for higher fees from each of the five tribes.  In February 2008, the voters of the State of California has approved compacts with primarilyfour tribes located in Southern California located Native American tribes that increasesincrease the total numberlimit of Native American operated slot machines in the State of California. Opponents to the compacts are working on a referendum to overturn the new gaming compacts to be voted on at the February 5 presidential primaries. Certain tribes in favor

9

In addition, the Company relies on non-conventioneer visitors partially comprised of individuals flying into the Reno area. The threat of terrorist attacks could have an adverse effect on the Company's revenues from this segment. The terrorist attacks that took place in the United States on September 11, 2001, were unprecedented events that created economic and business uncertainties, especially for the travel and tourism industry.  The potential for future terrorist attacks, the national and international responses, and other acts of war or hostility including the ongoing situation in Iraq, have created economic and political uncertainties that could materially adversely affect our business, results of operations, and financial condition in ways we cannot predict.

A change in regulations on land use requirements with regard to development of new hotel casinos in the proximity of the Atlantis could have an adverse impact on our business, results of operations, and financial condition.

The Company also markets to Reno-areanorthern Nevada residents. A major casino-hotel operator that successfully focuses on local resident business in Las Vegas announced plans to develop hotel-casino properties in Reno. The competition for this market segment is likely to increase and could impact the Company’s business.


NOTE 2. STOCK-BASED COMPENSATION

The Company’s three stock option plans, consisting of the Directors' Stock Option Plan, the Executive Long-term Incentive Plan, and the Employee Stock Option Plan (the "Plans"), collectively provide for the granting of options to purchase up to 3,250,000 common shares. The exercise price of stock options granted under the Plans is established by the respective plan committees, but the exercise price may not be less than the market price of the Company's common stock on the date the option is granted. The Company’s stock options typically vest on a graded schedule, typically in equal, one-third increments, although the respective stock option committees have the discretion to impose different vesting periods or modify existing vesting periods. Options expire ten years from the grant date. By their amended terms, the Plans will expire in June 2013 after which no options may be granted.
The Company’s three stock option plans, consisting of the Directors' Stock Option Plan, the Executive Long-term Incentive Plan, and the Employee Stock Option Plan (the "Plans"), collectively provide for the granting of options to purchase up to 3,250,000 common shares. The exercise price of stock options granted under the Plans is established by the respective plan committees, but the exercise price may not be less than the market price of the Company's common stock on the date the option is granted. The Company’s stock options typically vest on a graded schedule, typically in equal, one-third increments, although the respective stock option committees have the discretion to impose different vesting periods or modify existing vesting periods. Options expire ten years from the grant date. By their amended terms, the Plans will expire in June 2013 after which no options may be granted.

A summary of the current year stock option activity as of and for the nine months ended September 30, 20072008 is presented below:

    Weighted Average  
Options Shares Exercise Price Remaining Contractual Term Aggregate Intrinsic Value
Outstanding at beginning of period 1,121,199 $16.49 - -
Granted 59,963 25.78 - -
Exercised (33,662) 10.12 - -
Forfeited (20,000) 18.53 - -
Expired - - - -
Outstanding at end of period 1,127,500 $17.14 7.9 yrs. $12,753,150
Exercisable at end of period 329,867 $12.95 7.2 yrs. $ 5,114,026
     Weighted Average    
Options Shares�� 
Exercise
Price
  
Remaining
Contractual
Term
  
Aggregate
Intrinsic
Value
 
Outstanding at beginning of period  1,295,426  $19.04   -   - 
Granted  85,957   16.67   -   - 
Exercised  -   -   -   - 
Forfeited  (20,000)  24.04   -   - 
Expired  -   -   -   - 
Outstanding at end of period  1,361,383  $18.81  7.3 yrs.  $(10,088,341)
Exercisable at end of period  542,750  $12.60  5.9 yrs.  $( 1,005,315)


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10


A summary of the status of the Company’s nonvested shares as of September 30, 2007,2008, and for the nine months ended September 30, 2007,2008, is presented below:
Nonvested Shares Shares Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2007 774,330 $18.14
Granted 59,963 7.66
Vested (16,660) 4.54
Forfeited (20,000) 7.45
Nonvested at September 30, 2007 797,633 $ 8.83
Nonvested Shares Shares  
Weighted-Average
Grant Date Fair
Value
 
Nonvested at January 1, 2008  782,676  $10.43 
Granted  85,957   6.42 
Vested  (30,000)  6.54 
Forfeited  (20,000)  9.23 
Nonvested at September 30, 2008  818,633  $10.14 











Expense Measurement and Recognition:Recognition:

On January 1, 2006, the Company adopted the provisions of SFAS 123R requiring the measurement and recognition of all share-based compensation under the fair value method. The Company implemented SFAS 123R using the modified prospective transition method.  Accordingly, for the nine months ended September 30, 20072008 and 2006,2007, the Company recognized share-based compensation for all current award grants and for the unvested portion of previous award grants based on grant date fair values. Prior to fiscal 2006, the Company accounted for share-based awards under the disclosure-only provisions of SFAS No. 123, as amended by SFAS No. 148, but applied APB No. 25 and related interpretations in accounting for the Plans, which resulted in pro-forma compensation expense only for stock option awards. Prior period financial statements have not been adjusted to reflect fair value share-based compensation expense under SFAS 123R.  With the adoption of SFAS 123R, the Company changed its method of expense attribution for fair value share-based compensation from the straight-line approach to the accelerated approach for all awards granted. The Company anticipates the accelerated method will provide a more meaningful measure of costs incurred and be most representative of the economic reality associated with unvested stock options outstanding. Unrecognized costs related to all share-based awards outstanding at September 30, 20072008 is approximately $3.2$3.3 million and is expected to be recognized over a weighted average period of 1.361.28 years.

The Company uses historical data and projections to estimate expected employee, executive and director behaviors related to option exercises and forfeitures.

The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the assumptions noted in the following table. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate.  Option valuation assumptions for options granted during the third quarter of 20062008 were as follows (there were no option grants during the third quarter of 2007):

 
Three Months
Ended September 30,
 20072006
Expected volatility-45.5%
Expected dividends--
Expected life (in years)  
Directors’ Plan-2.5
Executive Plan-8.4
Employee Plan-3.2
Weighted average risk free rate-5.1%
Weighted average grant date fair value per share of options granted-$ 6.59
Total intrinsic value of options exercised$105,239$ 28,286
  
Three Months
Ended September 30,
 
  2008  2007 
Expected volatility  65.9%  - 
Expected dividends  -   - 
Expected life (in years)        
Directors’ Plan  2.5   - 
Executive Plan  4.5   - 
Employee Plan  3.1   - 
Weighted average risk free rate  2.9%  - 
Weighted average grant date fair value per share of options granted $5.94   - 
Total intrinsic value of options exercised  -  $105,239 

The risk-free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. The expected lives of options are based on historical data of the Company.  Upon implementation of SFAS 123R, the Company determined that an implied volatility is more reflective of market conditions and a better indicator of expected volatility.

Reported stock based compensation expense was classified as follows:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2007 2006 2007 2006
Casino$ 17,865 $ 7,775 $ 53,839 $ 37,553
Food and beverage14,424 7,579 38,015 39,894
Hotel9,676 7,404 27,734 36,742
Selling, general and administrative549,214 465,778 1,543,609 2,634,447
Total stock-based compensation, before taxes591,179 488,535 1,663,197 2,748,636
Tax benefit(206,913) (170,987) (582,119) (962,022)
Total stock-based compensation, net of tax$ 384,266 $ 317,548 $ 1,081,078 $1,786,614

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2008  2007  2008  2007 
Casino $19,550  $17,865  $60,519  $53,839 
Food and beverage  19,512   14,424   55,095   38,015 
Hotel  5,748   9,676   25,865   27,734 
Selling, general and administrative  573,786   549,214   1,627,016   1,543,609 
Total stock-based compensation, before taxes  618,596   591,179   1,768,495   1,663,197 
Tax benefit  (216,509)  (206,913)  (618,973)  (582,119)
Total stock-based compensation, net of tax $402,087  $384,266  $1,149,522  $1,081,078 

NOTE 3. EARNINGS PER SHARE

The Company reports "basic" earnings per share and "diluted" earnings per share in accordance with the provisions of SFAS No. 128, "Earnings Per Share." Basic earnings per share is computed by dividing reported net earnings by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock options.  The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

  Three Months Ended September 30,
  2007 2006
  Shares Per Share Amount Shares Per Share Amount
Basic 19,079 $0.42 19,059 $0.39
Effect of dilutive stock options 287 (0.01) 187 (0.01)
Diluted 19,366 $0.41 19,246 $0.38
  Three Months Ended September 30, 
  2008  2007 
  Shares  Per Share Amount  Shares  Per Share Amount 
Basic  16,122  $0.25   19,079  $0.42 
Effect of dilutive stock options  20   -   287   (0.01)
Diluted  16,142  $0.25   19,366  $0.41 


  Nine Months Ended September 30,
  2007 2006
  Shares Per Share Amount Shares Per Share Amount
Basic 19,080 $1.07 18,966 $0.89
Effect of dilutive stock options 272 (0.01) 298 (0.01)
Diluted 19,352 $1.06 19,264 $0.88
  Nine Months Ended September 30, 
  2008  2007 
  Shares  Per Share Amount  Shares  Per Share Amount 
Basic  17,238  $0.53   19,080  $1.07 
Effect of dilutive stock options  76   -   272   (0.01)
Diluted  17,314  $0.53   19,352  $1.06 

Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the market price as their effects would be anti-dilutive in the computation of diluted earnings per share.

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NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of SFAS 157 (“FSP FAS 157-2”).  The January 1, 2007FSP amends SFAS 157, to delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The FSP defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of the FSP. The Company has not yet determined the effect on the Company’s consolidated financial statements that adoption of FASB Interpretation 48, AccountingSFAS 157 will have for Uncertainty in Income Taxes, did not affect our financial position. The Company is not subject to foreign or state income tax. The Company files a federal tax return only. Asthose items within the scope of the date of adoption, tax years 2003 through 2006 were subject to examination by the Internal Revenue Service. As of June 30, 2007, the statute of limitation for the 2003 tax year has closed. The Company’s accounting policy with respect to interest and penalties arising from income tax settlements is to recognize them as part of the provision for income taxes.FSP.

In FebruaryDecember 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141 (revised) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, noncontrolling interest in the acquiree and the goodwill acquired. The revision is intended to simplify existing guidance and converge rulemaking under U.S. GAAP with international accounting rules. This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will adopt FAS 141 (revised) in the first quarter of 2009.  The adoption of SFAS No. 141 (revised) is prospective and early adoption is not permitted.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities - includingStatements, an amendment of FASB Statement 115”ARB No. 51.”  This statement establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent and for the deconsolidation of a subsidiary. It also clarifies that provides companies witha noncontrolling interest in a subsidiary is an optionownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 changes the way the consolidated income statement is presented by requiring consolidated net income to report certain financial assetsbe reported at amounts that include the amount attributable to both the parent and liabilities in their entirety at fair value.the noncontrolling interests. The statement also establishes reporting requirements that provide sufficient disclosure that clearly identify and distinguish between the interest of the parent and those of the noncontrolling owners. This statement is effective for fiscal years beginning on or after NovemberDecember 15, 2007.2008. The fair value option may be applied instrument by instrument, and may be applied onlyadoption of SFAS No. 160 is not expected to entire instruments. A business entity would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. We are evaluating our options provided for under this statement and their potentialhave a material impact on itsthe Company’s financial statements when implemented. SFAS 159 is being reviewed in conjunction with the requirementsposition, results of SFAS 157 discussed below.operations or cash flows.

In September 2006,March 2008, the FASB issued SFAS 157, “Fair Value Measurements”161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133”. This statement defines fair value, establishes a frameworkSFAS 161 changes the disclosure requirements for measuring fair valuederivative instruments and hedging activities. Under SFAS 161, entities are required to provide enhanced disclosures about how and why they use derivative instruments, how derivative instruments and related hedged items are accounted for both assets and liabilities through a fair value hierarchythe affect of derivative instruments on the entity’s financial position, financial performance and expands disclosure requirements.cash flows.  SFAS 157161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2007 and interim periods within those fiscal years. We are evaluating2008. The Company will adopt SFAS 157 and161 in the first quarter of 2009. The adoption of SFAS No. 161 is not expected to have not yet determined thea material impact adoption will have on the consolidatedCompany’s financial statements.position, results of operations or cash flows.

In May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles”, which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 will become effective sixty days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”.  The adoption of the provisions of SFAS 162 is not anticipated to materially impact the Company’s financial position, results of operations or cash flows.

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NOTE 5. RELATED PARTY TRANSACTIONS

 On July 26, 2006, the Company submitted a formal offer to Biggest Little Investments, L.P. (“BLI”), formulated and delivered by a committee comprised of the Company’s independent directors (the “Committee”), to purchase the 18.95-acre shopping center (the “Shopping Center”) adjacent to the Atlantis Casino Resort Spa.  On October 16, 2006, the Committee received a letter from counsel to BLI advising the Company that BLI, through its general partner, Maxum, L.L.C., had “decided that such offer is not in the best interest of the Partnership’s limited partners and, therefore, will not be entering into negotiations with Monarch.”  The Board of Directors continues to consider expansion alternatives.

John Farahi, Bob Farahi and Ben Farahi, beneficially own a controlling interest in BLI through their beneficial ownership interest in Western Real Estate Investments, LLC.  John Farahi is Co-Chairman of the Board, Chief Executive Officer, Chief Operating Officer and a Director of Monarch.  Bob Farahi is Co-Chairman of the Board, President, Secretary and a Director of Monarch. Ben Farahi formerly was the Co-Chairman of the Board, Secretary, Treasurer, Chief Financial Officer and a Director of Monarch.  Monarch’s board of directors accepted Ben Farahi’s resignation from these positions on May 23, 2006.

The Company currently rents various spaces in the Shopping Center which it uses as office, storage and parking lot space and paid rent of approximately $13,100 and $181,700 plus common area expenses for the three and nine months ended September 30, 2008, respectively, and approximately $101,200 and $162,600 plus common area expenses for the three and nine months ended September 30, 2007, respectively, and approximately $21,800 and $67,800 plus common area expenses for the three and nine months ended September 30, 2006, respectively.  The Company intends to vacate these spaces by December 31, 2008.

In addition, a driveway that is being shared between the Atlantis and the Shopping Center was completed on September 30, 2004. As part of this project, in January 2004, the Company leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 months based on the Consumer Price Index. The Company began paying rent to the Shopping Center on September 30, 2004. The Company also uses part of the common area of the Shopping Center and pays its proportional share of the common area expense of the Shopping Center. The Company has the option to renew the lease for three five-year terms, and, at the end of the extension periods, the Company has the option to purchase the leased section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by the Company for pedestrian and vehicle access to the Atlantis, and the Company may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; the Company was responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the initial 15-year lease term; some components of the new driveway are being depreciated over a shorter period of time. The Company paid approximately $75,000 plus common area maintenance charges for its leased driveway space at the Shopping Center during each of the three months ended September 30, 2008 and 2007 and 2006.paid $225,000 plus common area maintenance for each of the nine months ended September 30, 2008 and 2007.

The Company is currently leasingleased sign space from the Shopping Center.Center until August 1, 2008. The lease took effect in March 2005 for a monthly cost of $1. The lease was renewed for another year for a monthly lease of $1,000 effective January 1, 2006, and subsequently renewed on June 15, 2007 for a monthly lease of $1,060. The Company paid $3,180$1,060 and $9,240$7,460 for the leased sign at the Shopping Center for the three and nine months ended September 30, 2007,2008, respectively, and paid $3,000$3,180 and $9,000$9,240 for the three and nine months ended September 30, 2006,2007, respectively.

The Company is currently leasing billboard advertising space from affiliates of its controlling stockholders and paid $7,000 and $28,000 for the three and nine months ended September 30, 2008, respectively. The Company paid $17,500 and $38,500 for the three and nine months ended September 30, 2007, respectively. The

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On December 24, 2007, the Company paid $0 and $21,000entered into a lease with Triple “J” Plus, LLC (“Triple J”) for the threeuse of a facility on 2.3 acres of land (jointly the “Property”) across Virginia Street from the Atlantis that the Company currently utilizes for storage.  The managing partner of Triple J is a first-cousin of John and nine months ended September 30, 2006,Bob Farahi, the Company’s Chief Executive Officer and President, respectively.  The term of the lease is two years requiring monthly rental payments of $20,256.  Commensurate with execution of the lease, the Company entered into an agreement that provides the Company with a purchase option on the Property at the expiration of the lease period while also providing Triple J with a put option to cause the Company to purchase the Property during the lease period.  The purchase price of the Property has been established by a third party appraisal company.  Lastly, as a condition of the lease and purchase option, the Company entered into a promissory note (the “Note”) with Triple J whereby the Company advanced a $2.7 million loan to Triple J.  The Note requires interest only payments at 5.25% and matures on the earlier of i) the date the Company acquires the Property or ii) January 1, 2010.

Until December 2006, the Company rented office and storage space from a company affiliated with Monarch’s principal stockholders. The Company expensed $7,000 and $21,000 for the three and nine months ended September 30, 2006, respectively. Effective December 2006, Monarch’s principal stockholders sold this building and, through April 15, 2007, the Company continued to rent space from the new owner who is not a related party to Monarch.


ITEMITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Monarch Casino & Resort, Inc., through its wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("Golden Road"), owns and operates the tropically-themed Atlantis Casino Resort, a hotel/casino facility in Reno, Nevada (the "Atlantis"). Monarch was incorporated in 1993 under Nevada law for the purpose of acquiring all of the stock of Golden Road. The principal asset of Monarch is the stock of Golden Road, which holds all of the assets of the Atlantis.

Our sole operating asset, the Atlantis, is a hotel/casino resort located in Reno, Nevada. Our business strategy is to maximize the Atlantis' revenues, operating income and cash flow primarily through our casino, our food and beverage operations and our hotel operations. We derive our revenues by appealing to tourists, conventioneers and middle to upper-middle income Reno residents, emphasizing slot machine play in our casino. We capitalize on the Atlantis' location for locals, tour and travel visitors and conventioneers by offering exceptional service, value and an appealing theme to our guests. Our hands-on management style focuses on customer service and cost efficiencies.

Unless otherwise indicated, "Monarch," "Company," "we," "our" and "us" refer to Monarch Casino & Resort, Inc. and its Golden Road subsidiary.

OPERATING RESULTS SUMMARY

Below is a summary of our third quarter results for 2008 and 2007:

Amounts in millions, except per share amounts    
          
  
Three Months
Ended September 30,
  Percentage 
  2008  2007  Increase/(Decrease)        
Casino revenues $27.6  $29.9   (7.7)
Food and beverage revenues  10.6   11.0   (3.6)
Hotel revenues  6.3   8.0   (21.3)
Other revenues  1.2   1.2   - 
Net revenues  38.8   43.6   (11.0)
Sales, general and admin exp  12.7   12.7   - 
Income from operations  6.2   11.7   (47.0)
Net Income  4.0   8.0   (50.0)
             
Earnings per share - diluted  0.25   0.41   (39.0)
             
Operating margin  15.9%  26.9% (11.0) pts.

  
Nine Months
Ended September30,
  Percentage 
  2008  2007  Increase/(Decrease)        
Casino revenues $77.0  $84.5   (8.9)
Food and beverage revenues  29.9   32.1   (6.9)
Hotel revenues  17.7   21.9   (19.2)
Other revenues  3.6   3.7   (2.7)
Net revenues  108.4   123.0   (11.9)
Sales, general and admin exp  38.7   37.1   4.3 
Income from operations  13.7   30.1   (54.5)
Net Income  9.1   20.4   (55.4)
             
Earnings per share - diluted  0.53   1.06   (50.0)
             
Operating margin  12.7%  24.4% (11.7) pts.

Our results for the three months ended September 30, 2008 reflect the effects of the challenging operating environment that we have experienced beginning in the three month period ended December 31, 2007.  As in many other areas around the country, the economic downturn in northern Nevada in the fourth quarter of 2007 we exceeded all previously reported Companyhas deepened through the third quarter casino revenues, foodof 2008.  Other factors causing negative financial impact that continued from the fourth quarter of 2007 were disruption from construction related to capital projects (see “COMMITMENTS AND CONTINGENCIES” below) and beverage revenues, net revenues, net incomeaggressive marketing programs by our competitors.  In response to these challenges, we increased marketing and earnings per share.promotional expenditures to attract and retain guests.  We also continued to incur legal expenses associated with the ongoing and previously disclosed Kerzner litigation (see “LEGAL PROCEEDINGS” below).  We anticipate that downward pressure on profits will persist as long as we continue to experience the adverse effects of the negative macroeconomic environment, construction disruption, the aggressive marketing programs of our competitors and the legal defense costs associated with the Kerzner lawsuit.

Amounts in millions, except per share amounts
 
    
 Three Months 
 Ended September 30,Percentage
 20072006Increase/(Decrease)
Casino revenues$29.9$27.77.9
Food and beverage revenues11.010.90.9
Hotel revenues8.08.1(1.2)
Other revenues1.21.3(7.7)
Net revenues43.641.74.6
Sales, general and admin exp12.711.78.5
Income from operations11.711.24.5
    
Net Income8.07.48.1
    
Earnings per share - diluted0.410.387.9
    
Operating margin26.9%26.8%0.1 pts.
These factors were the primary drivers of:


 Nine Months 
 Ended September 30,Percentage
 20072006Increase
Casino revenues$84.5$77.68.9
Food and beverage revenues32.130.84.2
Hotel revenues21.920.66.3
Other revenues3.73.62.8
Net revenues123.0115.07.0
Sales, general and admin exp37.135.25.4
Income from operations30.125.816.7
    
Net Income20.417.020.0
    
Earnings per share - diluted1.060.8820.5
    
Operating margin24.4%22.5%1.9 pts.

Some significant items that affected our third quarter results in 2007 are listed below. These items are discussed in greater detail elsewhere in our discussion of operating results and in the Liquidity and Capital Resources section.

· Increases·Decreases of 7.9%7.7%, 3.6% and 0.9%21.3% in our casino, and food and beverage and hotel revenues, respectively, partially offset by decreasesresulting in a net revenue decrease of 1.2% and 7.7%11.0%.

·A decrease in our hotel and other revenues, led to an increase of 4.6% in net revenues.

·  Ourthird quarter 2008 operating margin remained relatively unchanged as compared to the same period last year.by 11.0 points or 40.9%.

·  Our selling, general and administrative (“SG&A”) expenses increased by 8.5%, primarily due to increased legal expense, payroll and benefit costs and marketing costs.

·  Net interest income increased approximately $430,000 as compared to the third quarter of 2006.

CAPITAL SPENDING AND DEVELOPMENT

Capital expenditures at the Atlantis totaled approximately $10.2$55.1 and $4.2$10.2 million during the first nine months of 2008 and 2007, respectively.  During the nine months ended September 30, 2008, our capital expenditures consisted primarily of construction costs associated with our $50 million expansion project and 2006, respectively.the Atlantis Convention Center Skybridge project (see additional discussion of these projects under “COMMITMENTS AND CONTINGENCIES” below).  Additional capital expenditures during the nine months ended September 30, 2008 were for acquisition of land to be used for administrative offices, acquisition of gaming equipment to upgrade and replace existing equipment and continued renovation and upgrades to the Atlantis facility.  During the nine months ended September 30, 2007, our capital expenditures consisted primarily of construction costs associated with the current expansion phase of the Atlantis that commenced in June 2007 and the acquisition of gaming equipment to upgrade and replace existing gaming equipment. During the first nine months

Future cash needed to finance ongoing maintenance capital spending is expected to be made available from our current cash balance, operating cash flow and the Credit Facility (see "THE CREDIT FACILITY" below) and, if necessary, additional borrowings.

STATEMENT ON FORWARD-LOOKING INFORMATION

When used in this report and elsewhere by management from time to time, the words “believes”, “anticipates” and “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our expansion, development activities, legal proceedings and employee matters.  Certain important factors, including but not limited to, deteriorating macroeconomic trends, financial market risks, competition from other gaming operations, factors affecting our ability to compete, acquisitions of gaming properties, leverage, construction risks, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, and licensing and other regulatory risks, could cause our actual results to differ materially from those expressed in our forward-looking statements.  Further information on potential factors which could affect our financial condition, results of operations and business including, without limitation, our expansion, development activities, legal proceedings and employee matters are included in our filings with the Securities and Exchange Commission.  Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof.  We undertake no obligation to publicly release any revisions to such forward-looking statement to reflect events or circumstances after the date hereof.

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three-Month Periods Ended September 30, 20072008 and 20062007

For the three months ended September 30, 2007,2008, our net income was $4.0 million, or $0.25 per diluted share, on net revenues of $38.8 million, a decrease from net income of $8.0 million, or $0.41 per diluted share, on net revenues of $43.6 million an increase from net income of $7.4 million, or $0.38 per diluted share, on net revenues of $41.7 million for the three months ended September 30, 2006.2007.  Income from operations for the three months ended September 30, 20072008 totaled $11.7$6.2 million a 4.5% increase when compared to $11.2$11.7 million for the same period in 2006. Both net revenues and net income for the third quarter of 2007 represent new third quarter records for the Company.2007.  Net revenues increased 4.6%decreased 11.0%, and net income increased 8.1%decreased 50.0%, when compared to last year's third quarter.

Casino revenues totaled $29.9$27.6 million in the third quarter of 2007,2008, a 7.9% increase7.7% decrease from $27.7the $29.9 million reported in the third quarter of 2006,2007, which was primarily due to increases indecreased slot revenues.revenue. Casino operating expenses amounted to 30.8%36.2% of casino revenues in the third quarter of 2007,2008, compared to 32.4%30.8% in the third quarter of 2006; the improvement2007.  The increase was due primarily due to strong increasedthe decreased casino revenue partially offset bycombined with increased payroll and benefit expenses and complimentary expenses.

Food and beverage revenues totaled $10.6 million in the third quarter of 2008, a 3.6% decrease from $11.0 million in the third quarter of 2007, a 0.9% increase from $10.9 million in the third quarter of 2006, due primarily to a 5.6%6.3% decrease in the number of covers served partially offset by a 2.7% increase in the average revenue per food cover partially offset by a 4.2% decrease in the number of covers served.cover.  Food and beverage operating expenses amounted to 48.9%49.3% of food and beverage revenues during the third quarter of 20072008 as compared to 47.2%48.9% for the third quarter of 2006.2007.  This increase was primarily the result of higher payrollincreased food commodity and benefit expenses and other direct departmental expenses.labor costs.

Hotel revenues were $8.0$6.3 million for the third quarter of 2007,2008, a decrease of 1.2%21.3% from the $8.1$8.0 million reported in the 20062007 third quarter.  This decrease was the result of lower hotel occupancy partially offset by an increasecombined with a decrease in the average daily room rate (“ADR”). Both 20072008 and 20062007 third quarter revenues included a $3 per occupied room energy surcharge. During the third quarter of 2007,2008, the Atlantis experienced a 97.9%91.6% occupancy rate, as compared to 99.9%97.9% during the same period in 2006.2007. The Atlantis' ADR was $68.68 in the third quarter of 2008 compared to $81.11 in the third quarter of 2007 compared to $80.79 in the third quarter of 2006.2007. Hotel operating expenses as a percent of hotel revenues remained relatively unchanged atincreased to 31.5% during the third quarter of 2008 as compared to 27.0% in the 2007 third quarter as compared to 27.2% inquarter.  This increase was primarily the 2006 third quarter.result of the decreased hotel revenues.


Promotional allowances increased to $6.9 million in the third quarter of 2008 compared to $6.6 million in the third quarter of 2007 compared to $6.2 million in the third quarter of 2006.2007. The increase is attributable to continued promotional efforts to generate additional revenues. Promotional allowances as a percentage of gross revenues remained relatively constant atincreased to 15.1% during the third quarter of 2008 as compared to 13.1% during the third quarter of 2007 as compared to 13.0% in the third quarter of 2006.2007.

Other revenues decreased slightly toremained flat at $1.2 million in both the 20072008 third quarter as compared to $1.3 million inand the third quarter of 2006.2007.

Depreciation and amortization expense was $2.4 million in the third quarter of 2008 as compared to $2.0 million in the third quarter of 2007 as compared2007.  The increase in depreciation expense is primarily related to $2.1depreciation expense of the portion on the Expansion assets (see “COMMITMENTS AND CONTINGENCIES” below) that opened in July 2008.

SG&A expense remained flat at $12.7 million in both the third quarters of 2008 and 2007.  Increased marketing expense in the third quarter of 2006. This depreciation expense2008 was offset primarily relates to property and equipment acquired in the ordinary course of business as part of the Company’s ongoing capital expenditures to replace old and obsolete equipment with newer, more current equipment.

SG&A expenses amounted to $12.7 million in the third quarter of 2007, an 8.5% increase from $11.7 million in the third quarter of 2006. The increase was primarily due to increasedby lower payroll and benefit expenses, increased legal, accounting and rental expenses as well as increased marketing expenses. These increases were partially offset by lower bad debt expense. As a percentage of net revenue, SG&A expenses increased to 29.2%32.8% in the third quarter of 20072008 from 28.0%29.2% in the same period in 2006.2007.


NetThrough September 30, 2008, we drew $42.5 million from our $50 million credit facility to pay for share repurchases and to fund ongoing capital projects.  As a result of this borrowing activity, we incurred interest income increasedexpense of $83 thousand during the current quarter, as compared to $568,000no interest expense for the third quarter of 20072007.  We used our invested cash reserves during the first and second quarters of 2008 to fund the $50 million expansion project and share repurchases resulting in a decrease in interest income from $139,000 for the third quarter of 2006. This increase was driven by a greater balance of interest bearing cash and cash equivalents at September 30, 2007 as compared to September 30, 2006. During$568 thousand reported in the second quarter of 2006, we paid off2007 to $36 thousand in the $8.1 million December 31, 2005 bank debt balance and began investing our surplus cash in stable, short-term investments. Our cash and cash equivalents balance increased throughoutcurrent quarter.  Current quarter interest income represents interest earned on the subsequent quarters such that we had cash and cash equivalents of $52.9 million at September 30, 2007 as comparedNote with Triple J (see NOTE 5. RELATED PARTY TRANSACTIONS  to $28.7 million at September 30, 2006.the Company’s consolidated financial statements).

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 20072008 and 2006.2007.

For the nine months ended September 30, 2007,2008, our net income was $9.1 million, or $.53 per diluted share, on net revenues of $108.4 million, a decrease from net income of $20.4 million, or $1.06 per diluted share, on net revenues of $123.0 million an increase from net income of $17.0 million, or $0.88 per diluted share, on net revenues of $115.0 million during the nine months ended September 30, 2006.2007. Income from operations for the 20072008 nine-month period totaled $30.1$13.7 million, compared to $25.8$30.1 million for the same period in 2006.2007. Net revenues increased 7.0%decreased 11.9%, and net income increased 20.0%decreased 55.4% when compared to the nine-month period ended September 30, 2006.2007.

Casino revenues for the nine months ended September 30, 20072008 totaled $84.5$77.0 million, an 8.9% increasedecrease from $77.6$84.5 million for the nine months ended September 30, 2006.2007.  Casino operating expenses amounted to 31.9%36.4% of casino revenues for the nine months ended September 30, 2007,2008, compared to 32.8%31.9% for the same period in 2006,2007, primarily due to the increaseddecreased casino revenue partially offset by increasedcombined with decreased payroll and benefit expenses and other direct departmentaloffset by increased complimentary expenses.

Food and beverage revenues totaled $29.9 million for the nine months ended September 30, 2008, a decrease of 6.9% from the $32.1 million for the nine months ended September 30, 2007, an increase of 4.2% from the $30.8 million for the nine months ended September 30, 2006, due to an approximate 4.6%11.0% decrease in the number of covers served partially offset by an approximate 4.9% increase in the average revenue per cover while the number of covers served remained virtually unchanged.cover. Food and beverage operating expenses amounted to 47.4%48.6% of food and beverage revenues during the 20072008 nine-month period relatively unchanged whenas compared to 47.6%47.4% for the same period in 2006.2007.  This increase was primarily the result of increased food commodity and labor costs.

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Hotel revenues for the nine months ended September 30, 2007 increased 6.3%2008 decreased 19.2% to $21.9$17.7 million from $20.6$21.9 million for the nine months ended September 30, 2006,2007, primarily due to increasesdecreases in the occupancy and ADR at the Atlantis.  Hotel revenues for the nine months of 20072008 and 20062007 include a $3 per occupied room energy surcharge. The Atlantis experienced an increasea decrease in the ADR during the 20072008 nine-month period to $75.20,$67.15, compared to $71.20$75.20 for the same period in 2006.2007.  The occupancy rate increaseddecreased to 96.8%87.9% for the nine-month period in 2007,2008, from 95.4%96.8% for the same period in 2006.2007.  Hotel operating expenses in the first nine months of 20072008 were 29.4% of hotel revenues, an improvement when34.3% as compared to 30.7%29.4% for the same period in 2006.2007.  The improved marginincrease was primarily due to the increased occupancy and ADR, which were partially offset by increased payroll and benefit costs.decreased revenues.

Promotional allowances increased to $19.2$19.8 million in the first nine months of 20072008 compared to $17.6$19.2 million in the same period of 2006.2007.  The increase is attributable to continued efforts to generate additional revenues through promotional efforts. Promotional allowances as a percentage of gross revenues increased slightly to 13.5%15.5% for the first nine months of 20072008 compared to 13.3%13.5% for the same period in 2006.2007.

Other revenues were $3.7$3.6 million for the nine months ended September 30, 2007,2008, a 2.8% increase2.7% decrease from $3.6$3.7 million in the same period in 2006.2007.

Depreciation and amortization expense was $6.1$6.4 million in the first nine months of 2007, a decrease2008, an increase of 4.8%4.9% compared to $6.4$6.1 million in the same period last year. This decreaseThe increase in depreciation expense is primarily attributablerelated to depreciation expense on the portion of the Expansion assets (see “COMMITMENTS AND CONTINGENCIES” below) that became fully depreciated during the period.opened in July 2008.

SG&A expenses increased 5.4%4.3% to $38.7 million in the first nine months of 2008, compared to $37.1 million in the first nine months of 2007, compared to $35.2 million in the first nine months of 2006, primarily as a result of increased payrollmarketing and benefit costs, increased legal, and increased marketing expense all partially offset by decreased bad debt expense and the elimination of the one-time expense of approximately $1.2 million related to the accelerated vesting of stock options of a former company executive during the second quarter of 2006.expense.  As a percentage of net revenue, SG&A expenses decreasedincreased to 30.1%35.7% in the 20072008 nine-month period from 30.6%30.1% in the same period in 2006.2007.

Net interest income for the first nine months of 20072008 totaled $1.2 million,$251 thousand compared to net interest income of $116,000$1.2 million for the same period one year earlier.of the prior year. The difference reflects our reduction in debt outstanding (see "THE CREDIT FACILITY" below) and the increase in interest bearing cash and cash equivalents, combined with increased debt outstanding (see "THE CREDIT FACILITY" below), during the first nine months of 20072008 as compared to same period in 2006.2007.

LIQUIDITY AND CAPITAL RESOURCES

We have historically funded our daily hotel and casino activities with net cash provided by operating activities.

For the nine months ended September 30, 2007,2008, net cash provided by operating activities totaled $24.9$19.6 million, a decrease of 1.7%21.2% compared to the same period last year. Net cash used in investing activities totaled $8.7$54.6 million and $4.2$8.7 million in the nine months ended September 30, 20072008 and 2006,2007, respectively.  During the first nine months of 2007,2008, net cash used in investing activities consisted primarily of construction costs associated with the current expansion phase of the Atlantis that commenced in June 2007 and the acquisition of property and equipment. During the first nine months of 2006,2008, net cash used in investing activities was usedconsisted primarily inof construction costs associated with the purchasecurrent expansion of propertythe Atlantis and the acquisition of gaming equipment to upgrade and continued property renovations and upgrades.replace existing gaming equipment. Net cash provided by financing activities totaled $6.8 million for the first nine months of 2008 compared to net cash used in financing activities totaled $236,725for the first nine months of 2007 compared to $5.3 million$237,000 for the same period in 2006.2007. Net cash used in financing activities for the first nine months of 20072008 was due to our $35.7 million purchase of Monarch common stock pursuant to the Repurchase Plan (see below) partially offset by $42.5 million in credit line draws under the Credit Facility (see “COMMITMENTS AND CONTINGENCIES” below).  Net cash provided by financing activities for the first nine months of 2007 was due to proceeds from the exercise of stock options and the tax benefits associated with such stock option exercises.  During the first nine months of 2006, we paid off the $8.1 million December 31, 2005 bank debt balance and began investing our surplus cash in stable, short-term investments, such as certificates of deposit. At September 30, 2007,2008, we had a cash and cash equivalents balance of $52.9$10.6 million compared to $37.0$38.8 million at December 31, 2006.2007.

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We have a reducing revolving credit facilityhistorically funded our daily hotel and casino activities with net cash provided by operating activities. However, to provide the flexibility to execute the share Repurchase Plan, to fund construction costs associated with our $50 million expansion project and the Atlantis Convention Center Skybridge project (see Commitments and Contingencies section below) and to provide for other capital needs should they arise, we entered into an agreement to amend our Credit Facility (see "THE CREDIT FACILITY" below). on April 14, 2008.  The amendment increased the available borrowings under the facility from $5 million to $50 million and extended the maturity date from February 23, 2009 to April 18, 2009.  At September 30, 2007,2008, we had no balance$42.5 million outstanding on the Credit Facility (as defined below) and had $5$7.5 million available to be drawn under the Credit Facility.  We plan to amend the Credit Facility to extend its maturity beyond April 18, 2009.  Such an amendment will likely result in the amendment of other material provisions of the Credit Facility, such as the interest rate charged and other material covenants.  In the event that we are not able to come to mutually acceptable terms with the Credit Facility lender, we believe that the strength of our balance sheet, combined with our operating cash flow, will provide the basis for a successful refinancing of the Credit Facility with an alternative lender.  However, there is no assurance that we will be able to reach acceptable terms for a Credit Facility amendment or refinancing.  If we are unable to amend or refinance the Credit Facility, we may seek equity or other financing to repay the outstanding principal of the Credit Facility upon its maturity.

OFF BALANCE SHEET ARRANGEMENTS

A driveway was completed and opened on September 30, 2004, that is being shared between the Atlantis and a shopping center (the “Shopping Center”) directly adjacent to the Atlantis. The Shopping Center is controlled by an entity whose owners include our controlling stockholders. As part of this project, in January 2004, we leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 months based on the Consumer Price Index. We also use part of the common area of the Shopping Center and pay our proportional share of the common area expense of the Shopping Center. We have the option to renew the lease for three five-year terms, and at the end of the extension periods, we have the option to purchase the leased section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by us for pedestrian and vehicle access to the Atlantis, and we may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; we were responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the initial 15-year lease term; some components of the new driveway are being depreciated over a shorter period of time. We paid approximately $225,000 in lease payments for the leased driveway space at the Shopping Center during the nine months ended September 30, 2007.2008.

Critical Accounting Policies

A description of our critical accounting policies and estimates can be found in Item 7 -– “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 20062007 (“20062007 Form 10-K”). For a more extensive discussion of our accounting policies, see Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in our 20062007 Form 10-K filed on March 14, 2007.17, 2008.

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OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS

The economy in northern Nevada and our feeder markets, like many other areas around the country, are experiencing the effects of several negative macroeconomic trends, including a possible broad economic recession, higher fuel prices, home mortgage defaults, higher mortgage interest rates and declining residential real estate values.  These negative trends could adversely impact discretionary incomes of our target customers, which, in turn could adversely impact our business.  We believe that as recessionary pressures increase or continue for an extended period of time, target customers may further curtail discretionary spending for leisure activities and businesses may reduce spending for conventions and meetings, both of which would adversely impact our business.  Management continues to monitor these trends and intends, as appropriate, to adopt operating strategies to attempt to mitigate the effects of such adverse conditions.  We can make no assurances that such strategies will be effective.


As discussed below in “COMMITMENTS AND CONTINGENCIES” we commenced construction on an expansion project to the Atlantis, and Skybridge to the Reno-Sparks Convention Center, in the second quarter of 2007.  While most of the expansion was completed in July 2008, construction of the Skybridge is expected to continue into the fourth quarter of 2008, construction of the spa facilities is expected to continue into the first quarter of 2009 and various remodeling of the pre-expansion facilities are expected to continue into the first half of 2009.  During the construction period, there could be disruption to our operations from various construction activities.  In addition, the construction activity may make it inconvenient for our patrons to access certain locations and amenities at the Atlantis which may in turn cause certain patrons to patronize other Reno area casinos rather than deal with construction-related inconveniences.  As a result, our business and our results of operations may be adversely impacted so long as we are experiencing construction related operational disruption.

The constitutional amendment approved by California voters in 1999 allowing the expansion of IndianNative American casinos in California has had an impact on casino revenues in Nevada in general, and many analysts have continued to predict the impact will be more significant on the Reno-Lake Tahoe market.  If other Reno-area casinos continue to suffer business losses due to increased pressure from California IndianNative American casinos, theysuch casinos may intensify their marketing efforts to Reno-areanorthern Nevada residents as well.well, greatly increasing competitive activities for our local customers.

Higher fuel costs may deter California and other drive-in customers from coming to the Atlantis.

We also believe that unlimited land-based casino gaming in or near any major metropolitan area in the Atlantis' key non-Reno marketingfeeder market areas, such as San Francisco or Sacramento, could have a material adverse effect on our business.

In June 2004, five California Indian tribes signed compacts with the state that allow the tribes to increase the number of slot machines beyond the previous 2,000-per-tribe limit in exchange for higher fees from each of the five tribes. The State of California has approved compacts with primarily Southern California located Native American tribes that increases the total number of Native American operated slot machines in the State of California. Opponents to the compacts are working on a referendum to overturn the new gaming compacts to be voted on at the February 5 presidential primaries. Certain tribes in favor of the compacts have sued to block the February referendum, claiming that signatures obtained by opponents were not gathered within the required time frame.

The economy in Reno and our feeder markets, like many other areas around the country, are experiencing the effects of several negative macroeconomic trends, including higher fuel prices, home mortgage defaults, higher mortgage interest rates and declining residential real estate values. These negative trends could adversely impact discretionary incomes of our target customers which, in turn could adversely impact our business. Management continues to monitor these trends and intends, as appropriate, to adopt operating strategies to attempt to mitigate the effects of such adverse conditions. We can make no assurances that such strategies will be effective.


Other factors that may impact current and future results are set forth in detail in Part II - Item 1A “Risk Factors” of this Form 10-Q and in Item 1A “Risk Factors” of the 2006our 2007 Form 10-K.

COMMITMENTS AND CONTINGENCIES

Our contractual cash obligations as of September 30, 20072008 and the next five years and thereafter are as follow:
  Payments Due by Period
    Less Than 1 to 3 4 to 5 More Than
  Total 1 Year Years Years 5 Years
Operating leases (1) $ 4,440,000 $ 370,000 $740,000 $740,000 $2,590,000
Purchase obligations (2) 31,416,000 31,416,000 - - -
Total contractual cash obligations $35,856,000 $31,786,000 $740,000 $740,000 $2,590,000

  Payments Due by Period 
  Total  
Less Than
1 Year
  
1 to 3
Years
  
4 to 5
Years
  
More Than
5 Years
 
                
Operating leases (1) $4,374,000  $613,000  $801,000  $740,000  $2,220,000 
Current maturities of borrowings under credit facility (2)  42,500,000   42,500,000   -   -   - 
Purchase obligations (3)  16,154,000   16,154,000   -   -   - 
Total contractual cash obligations $63,028,000  $59,267,000  $801,000  $740,000  $2,220,000 

(1) Operating leases include $370,000 per year in lease and common area expense payments to the shopping center adjacent to the Atlantis and $243,000 per year in lease payments to Triple J (see Note 5. Related Party Transactions, in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q).

(2) The amount represents outstanding draws against the Credit Facility as of September 30, 2008.

(3) Our open purchase order and construction commitments total approximately $31.4$16.2 million.  Of the total purchase order and construction commitments, approximately $2.0$1.9 million are cancelable by us upon providing a 30-day notice.

On September 28, 2006, our Board of Directors (our “Board”) authorized a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, our Board of Directors authorized a program to repurchase up to 1,000,000 shares of our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors.  The Repurchase Plan doesdid not obligate us to acquire any particular amount of common stockstock.

On March 11, 2008, our Board increased its initial authorization by 1 million shares and on April 22, 2008, the plan mayBoard increased its authorization a third time by 1 million shares which increased the shares authorized to be suspended at any time at our discretion. In August 2007,repurchased to a total of three million shares.  During the first and second quarters of 2008, we acquired 32,112purchased 2,444,492 shares of the Company’s common stock pursuant to the Repurchase Plan at ana weighted average purchase price of $23.55$14.59 per share. No othershare, which increased the total number of shares have been purchased pursuant to the Repurchase Plan.Plan to 3,000,000 at a weighted average purchase price of $16.52 per share.  As of June 30, 2008, the Company had purchased all shares under the three million share Repurchase Plan authorization.

We began construction in the second quarter of 2007 on the next expansion phase of the Atlantis. New space to be added toAtlantis (the “Expansion”).  The Expansion impacts the first floor casino level, the second and third floors and the basement level will totalby adding approximately 116,000 square feet. Once complete, the existing casino floor will be expanded byThe project adds over 10,000 square feet to the existing casino, or approximately 20%.   The first floor plans includeExpansion includes a redesigned, updated and expanded race and sports book of approximately 4,000 square feet, and an enlarged poker room. The plans also includeroom and a New York-styleManhattan deli restaurant.  The second floor expansion will createcreates additional ballroom and convention space of approximately 27,000 square feet, doubling our existing facilities.feet.  The spa and fitness center will be remodeled and expanded to create an ultra-modern spa and fitness center facility.  We are workingopened the Expansion in July 2008 with the Reno-Sparks Convention and Visitors’ Authorityexception of the spa facilities which we expect to design and buildopen in the first quarter of 2009.  We have also begun construction of a pedestrian skywalkSkybridge over Peckham Lane that will connect the Reno-Sparks Convention Center (RSCVA) directly to the Atlantis.  Upon completionConstruction of and agreement on, design plans with the RSCVA, construction is expected to take approximately twelve months andSkybridge is expected to be funded entirely outcompleted in the fourth quarter of existing cash on hand plus cash flow from operations. Excluding the cost of the skywalk, the expansion2008.  The Expansion is estimated to cost approximately $50 million. Final design plans,million and the resultantAtlantis Convention Center Skybridge project is estimated to cost estimate,an additional $12.5 million.  We also plan to remodel the pre-expansion portions of the skywalk have not been completed.facility at an estimated cost of $10 million.  Through September 30, 2008, the Company paid approximately $60.4 million of the estimated Expansion, skybridge and remodel costs.

We believe that our existing cash balances, cash flow from operations equipment financing, and borrowings available under the Credit Facility will provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure requirements; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional equity capital.


On March 27, 2008, in the matter captioned Sparks Nugget, Inc. vs. State ex rel. Department of Taxation, the Nevada Supreme Court (the “Court”) ruled that complimentary meals provided to employees and patrons are not subject to Nevada use tax.  On April 15, 2008, the Department of Taxation filed a motion for rehearing of the Supreme Court’s decision.  On July 17, 2008, the Court denied the petition of the Department of Taxation.  The Governor’s office of the State of Nevada has indicated that it intends to work with the Nevada legislature to change the law to require that such meals are subject to Nevada use tax and to prevent the refund of any use tax paid on complimentary meals prior to the effective date of this new law.  The Company is evaluating the Court’s ruling and pending action by the Governor’s office.  Accordingly, we have not recorded a receivable for a refund for previously paid use tax on complimentary employee and patron meals in the accompanying consolidated balance sheet at  September 30, 2008.  

THE CREDIT FACILITY

THE CREDIT FACILITY

On February 20, 2004, aour previous credit facility was refinanced for $50 million (the "Credit Facility") for $50 million.. At our option, borrowings under the Credit Facility would accrue interest at a rate designated by the agent bank at its base rate (the "Base Rate") or at the London Interbank Offered Rate ("LIBOR") for one, two, three or six month periods. The rate of interest included a margin added to either the Base Rate or to LIBOR tied to our ratio of funded debt to EBITDA (the "Leverage Ratio").  Depending on our Leverage Ratio, this margin would vary between 0.25 percent and 1.25 percent above the Base Rate, and between 1.50 percent and 2.50 percent above LIBOR.  In February 2007, this margin was further reduced to 0.00 percent and 0.75 percent above the Base Rate and between 1.00 percent and 1.75 percent above LIBOR.  AtOur leverage ratio during the three months ended September 30, 2007, we had no borrowings under the Credit Facility; however, our leverage ratio2008 was such that the pricing for borrowings would have beenwas the Base Rate plus 0.000.25 percent or LIBOR plus 1.001.25 percent.

Subject to our February 2007 decision to reduce  We selected the total borrowing availability to $5 million as described below, we may utilize proceeds fromLIBOR plus 1.25 option for all of the borrowings during the three months ended September 30, 2008. We paid various one-time fees and other loan costs upon the closing of the refinancing of the Credit Facility for working capital needs, general corporate purposes and for ongoing capital expenditure requirements atthat will be amortized over the Atlantis.term of the Credit Facility using the straight-line method.

The Credit Facility is secured by liens on substantially all of the real and personal property of the Atlantis, and is guaranteed by Monarch.

The Credit Facility contains covenants customary and typical for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of our assets and covenants restricting our ability to merge, transfer ownership of Monarch, incur additional indebtedness, encumber assets and make certain investments.  The Credit Facility also contains covenants requiring us to maintain certain financial ratios and contains provisions that restrict cash transfers between Monarch and its affiliates. The Credit Facility also contains provisions requiring the achievement of certain financial ratios before we can repurchase our common stock. We do not consider the covenants to restrict our operations.

The maturity date of the Credit Facility is February 23, 2009. Beginning June 30, 2004, the maximum principal available under the Credit Facility was to be reduced over five years by an aggregate of $30.875 million in equal increments of $1.625 million per quarter with the remaining balance due at the maturity date. We may prepay borrowings under the Credit Facility without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period).  Amounts prepaid under the Credit Facility may be reborrowed so long as the total borrowings outstanding do not exceed the maximum principal available.  At December 31, 2006, ourWe may reduce the maximum principal available borrowings were $24.0 million. under the Credit Facility at any time so long as the amount of such reduction is at least $500,000 and a multiple of $50,000.

Effective February 2007, in consideration of our cash balance, cash expected to be generated from operations and to avoid agency and commitment fees, we elected to permanently reduce the available borrowings to $5 million.  We may permanently reduceOn April 14, 2008, we entered into an agreement to amend the maximum principalCredit Facility to increase the available borrowings from $5 million to $50 million and to extend the maturity date from February 23, 2009 to April 18, 2009.  At September 30, 2008, $42.5 million was outstanding on the Credit Facility, and $7.5 million was available to be drawn under the Credit Facility.  We intend to renegotiate or refinance the Credit Facility at any time so long asto extend its maturity beyond April 18, 2009, which will likely result in the amountamendment of such reduction is at least $500,000 and a multiple of $50,000.

We paid various one-time fees and other loan costs upon the closing of the refinancingmaterial provisions of the Credit Facility, such as the interest rate charged and other material covenants.  There is no assurance that we will be amortized over the term of theable to reach acceptable terms for a Credit Facility using the straight-line method.amendment or refinancing.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market risks and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not have any cash or cash equivalents as of September 30, 2007,2008, that are subject to market risks.

The interest rate on borrowings under our Credit Facility at September 30, 2008 is LIBOR plus 1.25%.  A one-point increase in interest rates would have had no impact onincreased interest expense incost for the third quarter of 2007.three months ended September 30, 2008 by $37,000.


ITEMITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, (the "Evaluation Date"), an evaluation was carried out by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report onChanges in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time.

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2007. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on our assessment we believe that, as of September 30, 2007, the Company’s internal control over financial reporting is effective based on those criteria. No changes were made to our internal control over financial reporting (as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PARTPART II -– OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

ITEM 1. LEGAL PROCEEDINGS

As previously disclosed, litigationLitigation was filed against Monarch on January 27, 2006, by Kerzner International Limited (“Kerzner ") owner of the Atlantis, Paradise Island, Bahamas in the United States District Court, District of Nevada.  The case number assigned to the matter is 3:06-cv-00232-ECR (RAM).  The complaint seeks declaratory judgment prohibiting Monarch from using the name "Atlantis" in connection with offering casino services other than at Monarch's Atlantis Casino Resort Spa located in Reno, Nevada, and particularly prohibiting Monarch from using the "Atlantis" name in connection with offering casino services in Las Vegas, Nevada; injunctive relief enforcing the same; unspecified compensatory and punitive damages; and other relief. Monarch believes Kerzner's claims to be entirely without merit and is defending vigorously against the suit. Further, Monarch has filed a counterclaim against Kerzner seeking to enforce the license agreement granting Monarch the exclusive right to use the Atlantis name in association with lodging throughout the state of Nevada; to cancel Kerzner's registration of the Atlantis mark for casino services on the basis that the mark was fraudulently obtained by Kerzner; and to obtain declaratory relief on these issues.  Litigation is in the discovery phase.

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We are party to other claims that arise in the normal course of business.  Management believes that the outcomes of such claims will not have a material adverse impact on our financial condition, cash flows or results of operations.


ITEMITEM 1A. RISK FACTORS

Our business prospects are subject to various risks and uncertainties that impactA description of our business. You should carefully consider the following discussion of risks, and the other information provided in this quarterly report on Form 10-Q. The risks described below are not the only ones facing us. Other risk factors are disclosedcan be found in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Furthermore, additional risks that are presently unknown2007.  The following information represents material changes to us or that we currently deem immaterial may also impact our business.
WE HAVE THE ABILITY TO ISSUE ADDITIONAL EQUITY SECURITIES, WHICH WOULD LEAD TO DILUTION OF OUR ISSUED AND OUTSTANDING COMMON STOCKthose risk factors during the nine months ended September 30, 2008.

The issuance of additional equity securitiesLIMITATIONS OR RESTRICTIONS ON THE CREDIT FACILITY COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR LIQUIDITY

We intend to renegotiate or securities convertible into equity securities wouldrefinance the Credit Facility to extend its maturity beyond April 18, 2009.  Any such renegotiation or refinancing will likely result in dilutionthe amendment of other material provisions of the Credit Agreement, such as the interest rate charged and other material covenants.  The Credit Facility is an important component of our existing stockholders’ equity interests in us. Our Board of Directors has the authority to issue, without vote or action of stockholders, preferred stock in one or more series, and has theliquidity.  Any material restriction on our ability to fixuse the rights, preferences, privileges and restrictionsCredit Facility, or the failure to obtain a new credit facility upon the maturity of any such series. Any such series of preferred stockthe existing Credit Facility could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common stock. If we issue convertible preferred stock, a subsequent conversion may dilute the current common stockholders’ interest.

WE DO NOT INTEND TO PAY CASH DIVIDENDS. AS A RESULT, STOCKHOLDERS WILL BENEFIT FROM AN INVESTMENT IN OUR COMMON STOCK ONLY IF IT APPRECIATES IN VALUE

We have never paid a cash dividend on our common stock, and we do not plan to pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings to financeadversely impact our operations and further expansion andfuture growth of our business, including acquisitions. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. We cannot guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

options.


ITEMITEM 6. EXHIBITS

(a) Exhibits

Exhibit NoDescription
31.1Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1Certification of John Farahi, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification of Ronald Rowan, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002


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Exhibit NoDescription
31.1
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of John Farahi, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Ronald Rowan, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



SIGNATURESSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



MONARCH CASINO & RESORT, INC.
(Registrant)


Date: November 8, 2007By: /s/ RONALD ROWAN
Ronald Rowan, Chief Financial Officer
and Treasurer (Principal Financial
Officer and Duly Authorized Officer)


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MONARCH CASINO & RESORT, INC.
(Registrant)
Date:  November 7, 2008By: /s/ RONALD ROWAN
Ronald Rowan, Chief Financial Officer and Treasurer (Principal Financial Officer and Duly Authorized Officer)
 
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EXHIBIT 31.1- CERTIFICATION OF JOHN FARAHI PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Farahi, Chief Executive Officer of Monarch Casino & Resort, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Monarch Casino & Resort, Inc., a Nevada corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: November 8, 2007
By: /s/ John Farahi
John Farahi, Chief Executive Officer

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EXHIBIT 31.2 - CERTIFICATION OF RONALD ROWAN PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald Rowan, Chief Financial Officer of Monarch Casino & Resort, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Monarch Casino & Resort, Inc., a Nevada corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: November 8, 2007
By: /s/ Ronald Rowan
Ronald Rowan, Chief Financial Officer

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EXHIBIT 32.1

CERTIFICATION OF JOHN FARAHI PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Monarch Casino & Resort, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Farahi, Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: November 8, 2007

By: /s/ JOHN FARAHI
John Farahi, Chief Executive Officer
























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EXHIBIT 32.2

CERTIFICATION OF RONALD ROWAN PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Monarch Casino & Resort, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald Rowan, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: November 8, 2007

By: /s/ Ronald Rowan
Ronald Rowan, Chief Financial Officer