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In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141(R)), “Business Combinations,” which is a revision of SFAS 141, “Business Combinations.”guidance on business combinations. The primary requirements of SFAS 141(R)the guidance are as follows: (i.) Upon initially obtaining control, the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets, including goodwill, and assumed liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its target. As a consequence, the current step acquisition model will be eliminated. (ii.) Contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. The concept of recognizing contingent consideration at a later date when the amount of that consideration is determinable beyond a reasonable doubt, will no longer be applicable. (iii.) All transaction costs will be expensed as incurred.  Implementation of SFAS No. 141(R)the guidance would have required treatment prospectively to business combinations completed on or after January 1, 2009. Because the Company had no business combinations during that time, the adoption did not have a material impact on our financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interestguidance on noncontrolling interests in Consolidated Financial Statements, an amendment of ARB No. 51.”consolidated financial statements. This statementguidance 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 a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160The guidance changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests. The

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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 statementThe guidance is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS No. 160the guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS 161, “Disclosuresguidance on disclosures about Derivative Instrumentsderivative instruments and Hedging Activities -- an amendment of FASB Statement No. 133”. SFAS 161hedging activities. The guidance changes the disclosure requirements for derivative instruments and hedging activities. Under SFAS 161,the guidance, 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 and the affect of derivative instruments on the entity’s financial position, financial performance and cash flows.  SFAS 161The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS No. 161the guidance did not have a material impact on the Company’s financial 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 have a material impact on the Company’s financial position, results of operations or cash flows.

In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (FSP 157-3 or the FSP). FSP 157-3 clarifiesguidance that provides clarification on the application of SFAS No. 157, Fair Value Measurements (Statement 157),the guidance on fair value measurements in a market that is not active. The FSP amends Statement 157 to includeactive and provides an example that illustrates key considerations

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when applying the principles in Statement 157the guidance to financial assets when the market for these instruments is not active. FSP 157-3The adoption of the guidance is not anticipated to have a material impact on the Company’s financial position, results of operations or cash flows.

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1, Accountingamended guidance on accounting for Assets Acquiredassets acquired and Liabilities Assumedliabilities assumed in a Business Combination That Arisebusiness combination that arise from Contingencies, which amends the accounting in SFAS 141(R)contingencies. The amended guidance addresses application issues  for assets and liabilities arising from contingencies in a business combination. The FSPamended guidance is effective January 1, 2009, and requires pre-acquisition contingencies to be recognized at fair value, if fair value can be reasonably determined during the measurement period. If fair value cannot be reasonably determined, the FSPamended guidance requires measurement based on the recognition and measurement criteria of SFAS 5, Accountingguidance for Contingencies.accounting for contingencies.  The adoption of the provisions of FSP 141(R)-1amended guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.

In January 2009, the FASB issued FASB Staff Position on EITF Issue No. 99-20, “Amendmentsamendments to the Impairment Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1).  FSP EITF 99-20-1impairment guidance which aligns the impairment guidance in EITF Issue No. 99-20 with that in Statement of Financial Accounting Standards No. 115 (SFAS 115), “Accountingthe guidance for Certain Investmentsaccounting for certain investments in Debtdebt and Equity Securities.”equity securities.  It changes how companies determine whether an other-than-temporary impairment exists for certain beneficial interests by allowing management to exercise more judgment.  We will adopt this new accounting standard effective April 1, 2009.   We do not expect that theThe adoption of FSP EITF 99-20-1 willthe guidance did not have a material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued FASB Staff Position on FAS 107-1 and APB 28-1, “Interim Disclosuresadditional requirements regarding disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1).  This FSP requires that the fair value disclosures required by SFAS 107 “Disclosures about Fair Value of Financial Instruments” be includedfinancial instruments for interim reporting periods.  We will adopt this new accounting standard effective April 1, 2009.   We do not expect that theperiods of publicly traded companies as well as in annual financial statements.  The adoption of FSP FAS 107-1 and APB 28-1 willthe new requirements did not have a material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued FASB Staff Positionguidance on FAS 115-2the recognition and FAS 124-2, “Recognition and Presentationpresentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2).  This FSPother-than-temporary impairments.  The guidance amends the other-than-temporary impairment guidance relating to certain debt securities and will require a company to assess the likelihood of selling the security prior to recovering its cost basis.  Additionally, when a company meets the criteria for impairment, the impairment charges related to credit losses would be recognized in earnings, while non-credit losses would be reflected in other comprehensive income.  We will adopt this new accounting standard effective April 1, 2009.  We do not expect that theThe adoption of FSP FAS 115-2 and FAS 124-2 willthe guidance did not have a material impact on our financial position, results of operations or cash flows.

FSP FAS 157-4 – In April 2009, the FASB issued FASB Staff Positionguidance on FAS 157-4, “Determining Fair Value Whendetermining fair value when the Volumevolume and Levellevel of Activityactivity for the Assetasset or Liability Have Significantly Decreasedliability have significantly decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4).  FSP FAS 157-4identifying transactions that are not orderly. The guidance provides additional guidance on determining when the trading volume and activity for an asset or liability has significantly decreased, which may indicate an inactive market, and on measuring the fair value of an asset or liability in inactive markets.  We will adopt this new accounting standard effective April 1, 2009. We do not expect that theThe adoption of FSP FAS 157-4 will the guidance did not

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have a material impact on our financial position, results of operations or cash flows.

FSP FAS 141R-1 – In April 2009, the FASB issued FASB Staff Position on FAS 141R-1, “Accountingamended guidance for Assets Acquiredaccounting for assets acquired and Liabilities Assumedliabilities assumed in a Business Combination That Arisebusiness combination that arise from Contingencies” (FSP FAS 141R-1).  FSP FAS 141R-1contingencies. The amended guidance requires that an acquirer recognize at fair value, at

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the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of the asset or liability can be determined during the measurement period.  WeThe Company adopted this new accounting standardthe amended guidance on January 1, 2009.  The adoption of FSP FAS 140R-1the amended guidance did not have a material impact on our financial position, results of operations or cash flows.

NOTE 5. RELATED PARTY TRANSACTIONS

On July 26, 2006, theThe Company submittedcurrently rents various spaces in 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. (“Maxum”), 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.”  While there have been subsequent communications between BLI and the Company from time to time regarding our interest in the Shopping Center, nothing has resulted. The Board of Directors continues to consider expansion alternatives.

John Farahi and Bob Farahi each individually own non-controlling interests in BLI and Maxim.  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 and storage spacespace.   John and guest parkingBob Farahi, the Company’s Chief Executive Officer and President, respectively, each have an ownership interest in the Shopping Center. The Company paid rent of approximately $21,800$57,900 and $100,700$114,500, plus common area expenses, in duringfor the first three and nine months ofended September 30, 2009, respectively, and approximately $13,100 and $181,700 plus common area expenses for the three and nine months ended September 30, 2008, respectively.

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 monthsyear beginning in the 61st month 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 3three five-year terms, and, at the end of the extension periods, the Company has the option to purchase the leased driveway 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 and $225,000, plus common area maintenance charges, for each of the three months ended March 31, 2009 and 2008 for its leased driveway space at the Shopping Center.Center during each of the three and nine months ended September 30, 2009 and 2008, respectively.

The Company leasesdleased sign space from the Shopping Center through July 2008. The lease took effect in March 2005 for a monthly cost of $1. The lease was renewed for another year withfor a monthly lease of $1,000 effective January 1, 2006.2006, and subsequently renewed on June 15, 2007 for a monthly lease of $1,060. The Company paid $3,000$1,060 and $7,420 for the three and nine months ended March 31, 2008.

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The Company occasionally leases billboard advertising space from affiliates of its controlling stockholders and paid $10,500 and $28,000 for the three and nine months ended March 31,September 30, 2009, respectively, and did not pay anythingpaid $7,000 and $28,000 for the three and nine months ended March 31, 2008.September 30, 2008, respectively.

On December 24, 2007, the Company entered into a lease with Triple “J” Plus, LLC (“Triple J”) for the use of a facility on 2.3 acres of land (jointly the “Property”) across Virginia Street from the Atlantis that the Company plans to utilizecurrently utilizes for administrative staff offices.storage.  The managing partner of Triple J is a first-cousin of John and 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.  CommensurateContemporaneously with

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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.

NOTE 6. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued statement No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for financial instruments. Although the adoption of SFAS 157 did not materially impact its financial condition, results of operations, or cash flow,  Triple J notified the Company is now requiredthat it intends to provide additional disclosures as part ofexercise its financial statements.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizesput option to cause the inputs usedpurchase transaction to close prior to December 31, 2009.  Should Triple J not exercise its put option in measuring fair value.  These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.  As of March 31,December 2009, the Company had no assets or liabilities that are requiredintends to be measured at fair value on a recurring basis.exercise its purchase option which would cause the purchase transaction to close in January 2010.

ITEM 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 Spa, a hotel/casino facility in Reno, Nevada (the “Atlantis”).  Monarch’s other wholly owned subsidiary, High Desert Sunshine, Inc., owns a parcel of land located adjacent to 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 capitalize on the Atlantis’

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style restaurant.  The second floor expansion created additional ballroom and convention space of approximately 27,000 square feet, doubling the existing facilities.  We constructed and opened a pedestrian skywalk over Peckham Lane that connects the Reno-Sparks Convention Center directly to the Atlantis.  In January 2009, we opened the final phase of the expansion project, the new Spa Atlantis featuring an atmosphere, amenities and treatments that are unique from any other offering in our market.  Additionally, many of the pre-expansion areas of the Atlantis were remodeled to be consistent with the upgraded look and feel of the new facilities.  The total cost of these capital projects (the “Capital Projects”) was approximately $73 million.

With the opening of the new skywalk, the Atlantis became the only hotel-casino to be physically connected to the Reno-Sparks Convention Center.  The Reno-Sparks Convention Center offers approximately 500,000 square feet of leasable exhibition, meeting room, ballroom and lobby space.

Capital expenditures at the Atlantis totaled approximately $2.7$9.4 and $19.1$55.1 million during the first threenine months of 2009 and 2008, respectively.  During the threenine month periods ended March 31,September 30, 2009 and 2008, our capital expenditures consisted primarily of construction costs associated with the Capital Projects, the acquisition of land to be used for administrative offices, gaming equipment to upgrade and replace existing equipment and continued renovation and upgrades to the Atlantis facility.  Additional capital expenditures duringDuring the quarter ended March 31, 2008 were for acquisition of land to be used for administrative offices.

In addition to the expenditures incurred to complete Capital Projects during the firstthird quarter of 2009, we anticipate spending approximately $5 to $12the Company acquired 5.3 acres of land for $3.25 million financed by a draw down from the Credit Facility. The land is located on capital expenditures in 2009 to upgrade and replace equipment, continue our renovation and upgradingthe eastern perimeter of the current Atlantis facility and to acquirefootprint immediately across Coliseum Way. A portion of the property subjectparcel includes a 14,376-square-foot building that has been leased back to the Triple J lease (see NOTE 5.seller, but the leased portion is intended to be available for future alternative parking or other facilities as the financial statements “RELATED PARTY TRANSACTIONS”).  The timing of these capital expenditures may accelerate or be deferred altogether based on our ongoing assessment of operating cash flow, available borrowing capacity under our Credit Facility (see “THE CREDIT FACILITY” below) and the competitive environment in our market, among other factors.Company’s development needs require.

We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility (see “THE CREDIT FACILITY” below) 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,

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such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional equity capital.

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, 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, legislative and regulation changes, 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.

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RESULTS OF OPERATIONS

Comparison of Operating Results for the Three-Month Periods Ended March 31,September 30, 2009 and 2008

For the three months ended March 31,September 30, 2009, our net income was $922 thousand,$2.0 million, or $0.06$0.13 per diluted share, on net revenues of $32.6$34.8 million, a decrease from net income of $2.3$4.0 million, or $0.12$0.25 per diluted share, on net revenues of $34.3$38.8 million for the three months ended March 31,September 30, 2008.  Income from operations for the three months ended March 31,September 30, 2009 totaled $1.9$3.6 million a 42.4% decrease when compared to $3.3$6.2 million for the same period in 2008.  Net revenues decreased 10.3%, and net income decreased 5.0% and 60.9%50.0%, respectively, when compared to last year’s firstthird quarter.

Casino revenues totaled $22.8$24.4 million in the firstthird quarter of 2009, a 4.2%an 11.6% decrease from $23.8the $27.6 million reported in the firstthird quarter of 2008, which was primarily due to decreased slot revenues.revenue. Casino operating expenses amounted to 39.1%36.6% of casino revenues in the firstthird quarter of 2009, compared to 36.8%36.2% in the firstthird quarter of 2008; the2008.  The increase was due primarily due to the decreased casino revenue combined with the cost of increased complimentary food, beverages and other services provided to casino patrons.expenses.

Food and beverage revenues totaled $9.6$9.5 million in the firstthird quarter of 2009, a 2.0%10.4% decrease from $9.8$10.6 million in the firstthird quarter of 2008, due primarily to an 11.1% decrease in the number of covers served partially offset by a 0.4%0.6% increase in the average revenue per food cover partially offset by an 3.9% decrease in the number of covers served.cover.  Food and beverage operating expenses amounted to 48.3%48.2% of food and beverage revenues during the firstthird quarter of 2009 as compared to 48.0%49.3% for the firstthird quarter of 2008.

Hotel revenues were $5.4 million for the first quarter of 2009, a decrease of 6.9% from the $5.8 million reported in the 2008 first quarter.  This decrease was primarily the result of lower hotel occupancyfood and a decreaseother commodity costs.

Hotel revenues were $6.3 million for each of the third quarters of 2009 and 2008, respectively.  The effects of increased revenue from our new spa, which opened in theJanuary 2009, higher average daily room rate (“ADR”). Both and revenue from a $10 per day resort fee paid by our guests effective June 1, 2009, and 2008 first quarter revenues included a $3 per occupied room energy surcharge.were all offset by lower hotel occupancy.  During the firstthird quarter of 2009, the Atlantis experienced a 76.9%an 85.5% occupancy rate, as compared to 85.7%91.6% during the same period in 2008. The Atlantis’ ADR was $66.89$67.76 in the firstthird quarter of 2009 compared to $68.55$68.68 in the firstthird quarter of 2008.  Hotel operating

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expenses as a percent of hotel revenues increased to 37.3% for34.8% in the first2009 third quarter, of 2009 from 36.1% forcompared to 31.5% in the first quarter of 2008 third quarter. This decrease is primarily due to the decreased revenue partially offset by a $99 thousand decrease in costs ineffect of the hotelincreased operating unit.expenses of our new spa.

Promotional allowances remained flat at $6.3decreased to $6.4 million for bothin the first quartersthird quarter of 2009 andcompared to $6.9 million in the third quarter of 2008.  Promotional allowances as a percentage of gross revenues increased to 16.3%15.5% during the firstthird quarter of 2009 as compared to 15.5% in15.1% during the firstthird quarter of 2008.  The increase is attributable to continued efforts to generate additional revenues through promotional efforts and in response to attract guests and generate revenues.aggressive marketing programs by our competitors.

Other revenues remained relatively flat at $1.1decreased slightly to $1.0 million in the 2009 firstthird quarter asof 2009 compared to $1.2 million forin the firstthird quarter of 2008.

Depreciation and amortization expense was $3.2$3.0 million in the firstthird quarter of 2009 as compared to $2.0$2.4 million in the third quarter of 2008.  The increase in depreciation expense is primarily related to depreciation of the portion on the Capital Projects (see “COMMITMENTS AND CONTINGENCIES” below) that opened throughout the second half of 2008 and in January 2009.

SG&A expense decreased to $12.2 million in the third quarter of 2009 from $12.7 million in the third quarter of 2008 primarily due to reductions in marketing expense.  As a percentage of net revenue, SG&A expenses increased to 35.0% in the third quarter of 2009 from 32.8% in the same period in 2008.

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“COMMITMENTS AND CONTINGENCIES” below) that opened throughout the back half of the Capital Projects2008 and in the “CAPITAL SPENDING AND DEVELOPMENT” section above).January 2009.

SG&A expenses were $11.6decreased 6.7% to $36.1 million in the first quarternine months of 2009, an 11.5% decrease from $13.1compared to $38.7 million in the first quarternine months of 2008. The decrease was2008, due primarily due to reductions in payroll and benefitsmarketing expense of approximately $780 thousand, $530 thousand of which represents lower bonus expense; lower marketing$2.6 million, payroll and promotionalbenefi ts expense of approximately $360 thousand; lower legal$700 thousand and miscellaneous expense reductions of approximately $100 thousand all partially offset by increased utilities expense of approximately $180 thousand; lower$600 thousand related to our expanded facilities and higher bad debt expense of approximately $125 thousand and lower other general expenses of approximately $230 thousand all partially offset by higher electricity expense of approximately $190 thousand driven primarily by our expanded facilities  (see further discussion of the Capital Projects in the “CAPITAL SPENDING AND DEVELOPMENT” section above).$200 thousand.  As a percentage of net revenue, SG&A expenses decreased slightly to 35.5% in the 2009 nine-month period from 35.7% in the first quarter of 2009 from 38.2% in t he same period in 2008.

Interest income decreased from approximately $251for the first nine months of 2009 totaled $108 thousand, compared to $334 thousand for the same period of the prior year. The difference reflects our reduction in interest bearing cash and cash equivalents (see “THE CREDIT FACILITY” below) during the first nine months of 2009 as compared to same period in 2008.  During the first nine months of 2008, interest bearing cash and cash equivalents were used to purchase Monarch common stock pursuant to a stock repurchase plan that was in place in the prior year.

Because of a higher average borrowing balance in the first quarternine months of 2009 as compared to the same period of 2008, to approximately $35 thousand in the first quarter of 2009.  The decrease resulted from our use of excess cash in 2008 for the capital projects and share repurchases.  First quarter 2009 interest income represents interest earned on a note receivable.

At March 31, 2009, we had $55.9 million outstanding under our $60 million credit facility (see the “CREDIT FACILITY” section below).  The resultant interest expense recognizedincreased during the first quarternine months of 2009 to $1.6 million from $83 thousand in same period of 2008.  The higher borrowing balance was approximately $550 thousand, a $546 thousand increase overattributable to borrowing to fund the fi rst quarter of the prior year when we had no debt outstanding under our credit facility.

Capital Projects.

LIQUIDITY AND CAPITAL RESOURCES

For the threenine months ended March 31,September 30, 2009, net cash provided by operating activities totaled $358 thousand,$15.5 million, a decrease of $5.6$4.1 million or 93.9%21.0% compared to the same period last year.  This decrease was primarily related to lower net income, higher depreciation and amortization and higher deferred income taxes during the first nine months of 2009 combined with the timing of the payment of a greater amount of accounts payable during the first quarternine months of 2009 and the collection of a greater amount of accounts receivable during the first quarternine months of the prior year.

Net cash used in investing activities totaled $6.6$14.7 million and $17.1$54.6 million in the threenine months ended March 31,September 30, 2009 and 2008, respectively.  During the first threenine months of 2009 and 2008, net cash used in investing activities consisted primarily of construction costs associated with the recent expansion phase of the Atlantis (see further discussion of the Capital Projects in the “CAPITAL SPENDING AND

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DEVELOPMENT” section above) and the acquisition of property and equipment.  Because the construction was completed in January 2009, we used $10.5$39.9 million, or 61.4%73.0%, less net cash in investing activities during the threenine months ended March 31,September 30, 2009 compared same period in the prior year.

Net cash provided byused in financing activities of $5.9$1.3 million during the threenine months ended March 31,September 30, 2009 represents borrowings undernet payments of our Credit Facility (see “THE CREDIT FACILITY” below).  During the threenine months ended March 31,September 30, 2008, we used $11.9net cash provided by financing activities totaled $6.8 million which consisted of $35.7 million to purchase Monarch common stock pursuant to a stock repurchase plan that was in place in the prior year.year offset by borrowings under our Credit Facility of $42.5 million.

We believe that our existing cash balances, cash flow from operations 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 plans; 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.

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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 monthsyear beginning in the 61st month 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 $75,000$225,000 in lease payments for the leased driveway space at the Shopping Center during the threenine months ended March 31,September 30, 2009.

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, 2008 (“2008 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 2008 Form 10-K filed on March 13, 2009.

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 broad economic recession, higher unemployment rates, higher home mortgage defaults 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

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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.

The constitutional amendment approved by California voters in 1999 allowing the expansion of Native 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.  In addition, in August 2009, a federal district court ruled that more than 10,000 additional slot machines could be added to California tribal casinos.  If other Reno-area casinos continue to suffer business losses due to increased pressure from California Native American casinos, such casinos may intensify their marketing efforts to northern Nevada residents as 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.

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

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 our 2008 Form 10-K.

COMMITMENTS AND CONTINGENCIES

Our contractual cash obligations as of March 31,September 30, 2009 and the next five years and thereafter are as follow:

(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$61,000 in lease payments to Triple J for the last three months of 2009 (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 our Credit Facility (see “THE CREDIT FACILITY” below) as of March 31,September 30, 2009.

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(3) Purchase obligations represent approximately $4.1$1.6 million of commitments related to capital projectsthe Capital Projects and approximately $2.0 million of materials and supplies used in the normal operation of our business.  Of the total purchase order and constructioncapital project commitments, approximately $2.0 million are cancelable by us upon providing a 30-day notice.

(4) Because interest payments under our Credit Facility are subject to factors that in our judgment vary materially, the amount of future interest payments is not presently determinable.  These factors include: 1) future short-term interest rates; 2) our future leverage ratio which varies with EBITDA and our borrowing levels and 3) the speed with which we deploy capital and other spending which in turn impacts the level of future borrowings.  The interest rate under our Credit Facility is LIBOR, or a base rate (as defined in the Credit Facility agreement), plus an interest rate margin ranging from 2.00% to 3.375% depending on our leverage ratio.  The interest rate is adjusted quarterly based on our leverage ratio which is calculated using operating results over the previous four quarters and borrowings at the end of the most recent quarter.  At March 31,September 30, 2009 our leverage ratio was such that pricing for borrowings was LIBOR plus 3.125%2.875%.  At March 31,September 30, 2009, the one-month LIBOR rate was 0.50%0.25%.

We believe that our existing cash balances, cash flow from operations 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

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We may prepay borrowings under the New 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 may be reborrowed so long as the total borrowings outstanding do not exceed the maximum principal available.

We paid various one-time fees and other loan costs upon the closing of the refinancing of the New Credit Facility that will be amortized over the facility’s term using the straight-line method.

At March 31,September 30, 2009, we had $55.9$48.65 million outstanding under the New Credit Facility, $900 thousandnone of which was classified as short-term debt.  Short-term debt which represents the mandatory principal reduction, based ondifference between the amount outstanding at March 31,September 30, 2009 requiredand the maximum principal allowed under the New Credit Facility on December 31, 2009.September 30, 2010.  The interest rate under our Credit Facility is LIBOR, or a base rate (as defined in the Credit Facility agreement), plus an interest rate margin ranging from 2.00% to 3.375% depending on our leverage ratio.  The interest rate is adjusted quarterly based on our leverage ratio calculated using operating results over the previous four quarters and borrowings at the end of the most recent quarter.  At March 31,September 30, 2009 our leverage ratio was such that pricing for borrowings was LIBOR plus 3.125%2.875%.  At March 31,September 30, 2009, the one-month LIBOR rate was 0.50%0.25%.

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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 March 31,September 30, 2009 that are subject to market risk.  As of March 31,September 30, 2009 we had $55.9$48.65 million of outstanding debt under our New Credit Facility that was subject to credit risk.  A 1% increase in the interest rate on the balance outstanding under the New Credit Facility at March 31,September 30, 2009 would result in a change in our annual interest cost of approximately $560,000.$486,500.

ITEM 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.

There was no changeChanges in Internal Control over Financial Reporting

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 our most recently completedthe last fiscal quarter that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II –— OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation was filed against Monarch on January 27, 2006, by Kerzner International Limited (“Kerzner “)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.  Discovery ishas concluded and the period for filing dispositive motions prior to trial has closed.  Numerous motions, some potentially dispositive of the lawsuit, were filed by both parties.  On October 21, 2009, the Court issued an Order granting summary judgment in favor of Monarch on Kerzner’s Third, Fifth and Sixth claims for relief.  Thus, only three causes of action against Monarch remain viable, along with Monarch’s counterclaims against Kerzner.  The Court is underway.  The court has not ruled yetscheduled to hear oral argument on any motions.the pending motions on November 12, 2009.

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ITEM 6. EXHIBITS

(a) Exhibits

* Filed herewith

SIGNATURES

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.

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