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

Form 10-Q
(Mark One)

Form 10-Q


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

For the quarterly period ended March 31,September 30, 2008

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

Logo 1

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

Nevada88-0300760
(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, Nevada89502
(Address of Principal Executive Offices)(ZIP Code)


(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 Tx               No £o




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 or a smaller reporting company. See definitions of “largeand large accelerated filer”, "accelerated filer” and ”smaller reporting company”filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer £Large Accelerated Filer o                        Accelerated Filer x                         Non-Accelerated Filer o     Smaller Reporting Company  o
Accelerated Filer                   T
Non-Accelerated Filer   £
Smaller Reporting Company £


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


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 17,714,09716,122,048 shares
Class Outstanding at May 5,November 4, 2008

 
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TATABLEBLE OF CONTENTS


Item
Page Number
 
 
4
5
6
7
  
15
  
2224
  
2224
  
2224
2224
  
Item 1A. Risk Factors
23
2325
  
Item 6. Exhibits
2325
  
2425
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- 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- Oxley Act of 200229

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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 
  March 31, 
  2008  2007 
Revenues      
Casino $23,755,950  $25,298,272 
Food and beverage  9,761,220   10,504,215 
Hotel  5,830,695   6,827,967 
Other  1,232,069   1,188,623 
Gross revenues  40,579,934   43,819,077 
Less promotional allowances  (6,306,541)  (6,037,486)
Net revenues  34,273,393   37,781,591 
Operating expenses        
Casino  8,746,500   8,469,337 
Food and beverage  4,689,365   4,968,717 
Hotel  2,105,373   2,143,340 
Other  346,654   363,620 
Selling, general and administrative  13,104,100   11,530,803 
Depreciation and amortization  2,006,557   2,075,446 
Total operating expenses  30,998,549   29,551,263 
         
Income from operations  3,274,844   8,230,328 
         
Other income (expense)        
Interest income  251,344   343,884 
Interest expense  (4,157)  (149,100)
Total other income  247,187   194,784 
         
Income before income taxes  3,522,031   8,425,112 
         
Provision for income taxes  (1,220,000)  (2,930,000)
Net income $2,302,031  $5,495,112 
         
Earnings per share of common stock        
Net income        
Basic $0.13  $0.29 
Diluted $0.12  $0.28 
         
Weighted average number of common shares and potential common shares outstanding        
Basic  18,415,836   19,070,472 
Diluted  18,545,964   19,323,646 
  
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.

4


MONMonarAch CasinoRCH CASINO & Resort, Inc.RESORT, INC.
Condensed Consolidated Balance Sheets

  March 31,  December 31, 
  2008  2007 
ASSETS (Unaudited)    
Current assets      
Cash and cash equivalents $15,738,077  $38,835,820 
Receivables, net  3,487,954   4,134,099 
Federal income tax refund receivable  280,000   998,123 
Inventories  1,411,596   1,496,046 
Prepaid expenses  3,054,637   3,144,374 
Deferred income taxes  582,407   1,084,284 
Total current assets  24,554,671   49,692,746 
Property and equipment        
Land  12,162,522   10,339,530 
Land improvements  3,511,484   3,166,107 
Buildings  80,655,538   78,955,538 
Building improvements  10,435,062   10,435,062 
Furniture and equipment  72,895,692   72,511,165 
Leasehold improvements  1,346,965   1,346,965 
   181,007,263   176,754,367 
Less accumulated depreciation and amortization  (94,139,876)  (92,215,149)
   86,867,387   84,539,218 
Construction in progress  31,997,407   17,236,062 
Net property and equipment  118,864,794   101,775,280 
Other assets, net  2,817,842   2,817,842 
Total assets $146,237,307  $154,285,868 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities        
Accounts payable $9,617,595  $10,840,318 
Construction payable  3,955,053   1,971,022 
Accrued expenses  9,460,340   9,230,157 
Total current liabilities  23,032,988   22,041,497 
Deferred income taxes  2,825,433   2,825,433 
Total liabilities  25,858,421   24,866,930 
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; 17,871,144 outstanding at 3/31/08 18,566,540 OUTSTANDING AT 12/31/07  190,963   190,963 
Additional paid-in capital  26,307,043   25,741,972 
TREASURY STOCK, 1,225,156 SHARES AT 3/31/08 529,760 shares at 12/31/07, at cost
  (25,176,059)  (13,268,905)
Retained earnings  119,056,939   116,754,908 
Total stockholders' equity  120,378,886   129,418,938 
Total liabilities and stockholder's equity $146,237,307  $154,285,868 
  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.

5


MOMonaNrch CasinoARCH CASINO & Resort, Inc.RESORT, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

  Three Months Ended March 31, 
  2008  2007 
Cash flows from operating activities:      
Net income $2,302,031  $5,495,112 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  2,006,557   2,075,446 
Amortization of deferred loan costs  -   148,838 
Share based compensation  565,071   499,884 
Provision for bad debts  436,419   (83,662)
Gain on disposal of assets  (8,000)  (470)
Deferred income taxes  501,877   (375,959)
Changes in operating assets and liabilities:        
Receivables, net  927,849   170,591 
Inventories  84,451   62,136 
Prepaid expenses  89,737   (184,026)
Other assets  -   (7,239)
Accounts payable  (1,222,723)  (539,514)
Accrued expenses  230,183   (1,315,889)
Federal income taxes payable  -   3,170,594 
Net cash provided by operating activities  5,913,452   9,115,842 
         
Cash flows from investing activities:        
Proceeds from sale of assets  8,000   470 
Acquisition of property and equipment  (19,096,073)  (2,228,274)
Change in construction payable  1,984,031   - 
Net cash used in investing activities  (17,104,042)  (2,227,804)
         
Cash flows from financing activities:        
Proceeds from exercise of stock options  -   230,738 
Tax benefit of stock option exercise  -   87,442 
Purchase of treasury stock  (11,907,153)  - 
Net cash (used in) provided by financing activities  (11,907,153)  318,180 
Net (decrease) increase in cash  (23,097,743)  7,206,218 
Cash and cash equivalents at beginning of period  38,835,820   36,985,187 
Cash and cash equivalents at end of period $15,738,077  $44,191,405 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest $4,157  $263 
Cash paid for income taxes $-  $47,923 

  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


MOMONARNACHRCH 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 March 31,September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The balance sheet at December 31, 2007 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, 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:

Property and 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.


Income Taxes:

Income 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.  Implementation has resulted in no material impact on the Company’s financial position or results of operations.

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 primarily 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.  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.  In February 2008, the voters of the State of California approved compacts with four tribes located in Southern California that increase the limit of Native American operated slot machines in the State of California.



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.

A summary of the current year stock option activity as of and for the threenine months ended March 31,September 30, 2008 is presented below:

     Weighted Average    
Options Shares  Exercise Price  Remaining Contractual Term  Aggregate Intrinsic Value 
Outstanding at beginning of period  1,295,426  $19.04   -   - 
Granted  49,991   19.15   -   - 
Exercised  -   -   -   - 
Forfeited  (10,000)  25.12   -   - 
Expired  -   -   -   - 
Outstanding at end of period  1,335,417  $18.99  7.7 yrs.  $(1,698,010)
Exercisable at end of period  536,077  $12.76  6.4 yrs.  $2,391,189 

     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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A summary of the status of the Company’s nonvested shares as of March 31,September 30, 2008, and for the threenine months ended March 31,September 30, 2008, is presented below:
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 

Nonvested Shares Shares  Weighted-Average Grant Date Fair Value 
Nonvested at January 1, 2008  782,676  $10.43 
Granted  49,991   7.35 
Vested  (23,327)  6.77 
Forfeited  (10,000)  9.61 
Nonvested at March 31, 2008  799,340  $10.31 

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 threenine months ended March 31,September 30, 2008 and 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 March 31,September 30, 2008 is approximately $4.6$3.3 million and is expected to be recognized over a weighted average period of 1.391.28 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 firstthird quarter of 2008 were as follows:

  Three Months Ended March 31, 
  2008  2007 
Expected volatility  52.7%  36.9%
Expected dividends  -   - 
Expected life (in years)        
Directors’ Plan  -   2.5 
Executive Plan  -   4.5 
Employee Plan  3.7   3.0 
Weighted average risk free rate  2.9%  4.7%
Weighted average grant date fair value per share of options granted $7.35  $7.70 
Total intrinsic value of options exercised  -  $257,991 
follows (there were no option grants during the third quarter of 2007):

  
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 

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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 
  March 31, 
  2008  2007 
Casino $20,480  $14,689 
Food and beverage  16,767   11,619 
Hotel  10,597   8,906 
Selling, general and administrative  517,227   464,670 
Total stock-based compensation, before taxes  565,071   499,884 
Tax benefit  (197,775)  (174,959)
Total stock-based compensation, net of tax $367,296  $324,925 

  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 March 31, 
  2008  2007 
  Shares  Per Share Amount  Shares  Per Share Amount 
Basic  18,416  $0.13   19,070  $0.29 
Effect of dilutive stock options  130   (0.01)  254   (0.01)
Diluted  18,546  $0.12   19,324  $0.28 
  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, 
  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 September 2006, the Financial Accounting Standards Board (the “FASB”) issued SFAS 157, Fair Value Measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In February 2008, the FASB issued FASB Staff Position (“FSP)No. FAS 157-2, which defersEffective Date of SFAS 157 (“FSP FAS 157-2”).  The FSP 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 entity’s 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.  We are evaluating SFAS 157 as it relates to nonfinancial assets and haveyears for items within the scope of the FSP. The Company has not yet determined the impact the adoption will haveeffect on the Company’s consolidated financial statements. Thestatements that adoption of SFAS No. 157 will have for financial assets did not have a material impact onthose items within the Company’s financial position, resultsscope of operations or cash flows

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The adoption of SFAS No. 159 did not have a material impact on the Company’s financial position, results of operations or cash flows.FSP.

In December 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. WeThe Company will adopt FAS 141 (revised) in the first quarter of 2009.  We cannot determine the impact FASThe adoption of SFAS No. 141 (revised) will have on our financial position, results of operation or cash flows for future business combinations once adopted.is prospective and early adoption is not permitted.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of 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 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. 160 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 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 December 15, 2008. The adoption of SFAS No. 160 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133”. SFAS 161 changes the disclosure requirements for derivative 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 and the affect of derivative instruments on the entity’s financial position, financial performance and cash flows.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. WeThe Company will adopt SFAS 161 in the first quarter of 2009. The adoption of SFAS No. 161 is not expected to 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 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.”  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.

Although there is currently a dispute as to how the units are held, collectively, John Farahi, Bob Farahi and Ben Farahi, beneficially own a controlling interest in BLI.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 space and guest parking lot space and paid rent of approximately $100,700$13,100 and $29,700$181,700 plus common area expenses in duringfor the first three and nine months ofended 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.  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 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 plus common area maintenance charges for each of the three months ended March 31, 2008 and 2007 for its leased driveway space at the Shopping Center.Center during each of the three months ended September 30, 2008 and 2007 and 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 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 $3,200$1,060 and $3,000 for the three months ended March 31, 2008 and 2007, respectively,$7,460 for the leased sign space.at the Shopping Center for the three and nine months ended September 30, 2008, respectively, and paid $3,180 and $9,240 for the three and nine months ended September 30, 2007, respectively.

The Company is currently leasing billboard advertising space from affiliates of its controlling stockholders and paid nothing$7,000 and $28,000 for the three and nine months ended March 31,September 30, 2008, respectively. The Company paid $17,500 and did not pay anything$38,500 for the three and nine months ended March 31, 2007.September 30, 2007, respectively.


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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.  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.

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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, the Company is now required to provide additional disclosures as part of its financial statements.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used 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, 2008, the Company had no assets that are required to be measured at fair value on a recurring basis.


ITITEM 2E.M 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 northern NevadaReno residents, emphasizing slot machine play in our casino. We capitalize on the Atlantis' location for northern Nevada residents,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.


OPERATING RESULTS SUMMARY
  
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.

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

Amounts in millions, except per share amounts 
  
  
  Three Months  Percentage 
  Ended March 31,  Increase/(Decrease) 
  2008  2007  08 vs 07 
Casino revenues $23.8  $25.3   (5.9)
Food and beverage revenues  9.8   10.5   (6.7)
Hotel revenues  5.8   6.8   (14.7)
Other revenues  1.2   1.2   - 
Net revenues  34.3   37.8   (9.3)
Sales, general and administrative expense  13.1   11.5   13.9 
Income from operations  3.3   8.2   (59.8)
             
Net Income  2.3   5.5   (58.2)
             
Earnings per share - diluted  0.12   0.28   (57.1)
             
Operating margin  9.6%  21.8% 12.2 points 

Our results for the three months ended March 31,September 30, 2008 reflect the effects of the challenging operating environment that we alsohave experienced beginning in the three month period ended December 31, 2007.  As in many other areas around the country, the economic slowdowndownturn in Renonorthern Nevada in the fourth quarter of 2007 accelerated inhas deepened through the firstthird quarter of 2008.  Other factors causing negative financial impact that continued from the fourth quarter of 2007 were disruption from construction related to our on-going $50 million expansion projectcapital projects (see “COMMITMENTS AND CONTINGENCIES” below) and aggressive marketing programs by our competitors.  Consistent with the fourth quarter of 2007,In response to these challenges, we increased marketing and promotional expenditures to attract and retain guests in response to these challenges and we incurred greater bad debt expense.guests.  We also had highercontinued 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.

These factors were the primary drivers of:

 ·Decreases of 5.9%7.7%, 6.7%3.6% and 14.7%21.3% in our casino, food and beverage and hotel revenues, respectively, resulting in a net revenue decrease of 9.3%11.0%.

·An increase in sales, general and administrative expense by 13.9%

 ·A decrease in our third quarter 2008 operating margin by 12.211.0 points or 56%40.9%.


CAPITAL SPENDING AND DEVELOPMENT

Capital expenditures at the Atlantis totaled approximately $19.1$55.1 and $2.2$10.2 million during the first threenine months of 2008 and 2007, respectively.  During the threenine months ended March 31,September 30, 2008, our capital expenditures consisted primarily of construction costs associated with our ongoing $50 million expansion project and the Atlantis Convention Center Skybridge project (see additional discussion of these projects under “COMMITMENTS AND CONTINGENCIES” below).  Additional capital expenditures during the quarternine months ended March 31,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 first threenine months ofended September 30, 2007, our capital expenditures consisted primarily of acquisitions of gaming equipment and the preliminary engineering and designconstruction costs associated with the current expansion phase of the Atlantis.Atlantis that commenced in June 2007 and the acquisition of gaming equipment to upgrade and replace existing gaming equipment.

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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 March 31,September 30, 2008 and 2007

For the three months ended March 31,September 30, 2008, our net income was $2.3$4.0 million, or $0.12$0.25 per diluted share, on net revenues of $34.3$38.8 million, a decrease from net income of $5.5$8.0 million, or $0.28$0.41 per diluted share, on net revenues of $37.8$43.6 million for the three months ended March 31,September 30, 2007.  Income from operations for the three months ended March 31,September 30, 2008 totaled $3.3$6.2 million a 59.8% decrease when compared to $8.2$11.7 million for the same period in 2007.  Net revenues decreased 11.0%, and net income decreased 9.3% and 58.2%50.0%, respectively, when compared to last year's firstthird quarter.

Casino revenues totaled $23.8$27.6 million in the firstthird quarter of 2008, a 5.9%7.7% decrease from $25.3the $29.9 million reported in the firstthird quarter of 2007, which was primarily due to decreased slot revenues.revenue. Casino operating expenses amounted to 36.8%36.2% of casino revenues in the firstthird quarter of 2008, compared to 33.5%30.8% in the firstthird quarter of 2007; the2007.  The increase was due primarily due to the decreased casino revenue.revenue combined with increased complimentary expenses.

Food and beverage revenues totaled $9.8$10.6 million in the firstthird quarter of 2008, a 6.7%3.6% decrease from $10.5$11.0 million in the firstthird quarter of 2007, due primarily to a 6.2%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 11.5% decrease in the number of covers served.cover.  Food and beverage operating expenses amounted to 48.0%49.3% of food and beverage revenues during the firstthird quarter of 2008 as compared to 47.3%48.9% for the firstthird quarter of 2007.  This increase was primarily the result of the lower revenue combined with increased food commodity and labor costs.

Hotel revenues were $5.8$6.3 million for the firstthird quarter of 2008, a decrease of 14.7%21.3% from the $6.8$8.0 million reported in the 2007 firstthird quarter.  This decrease was the result of lower hotel occupancy andcombined with a decrease in the average daily room rate (“ADR”). Both 2008 and 2007 firstthird quarter revenues included a $3 per occupied room energy surcharge. During the firstthird quarter of 2008, the Atlantis experienced an 85.7%a 91.6% occupancy rate, as compared to 95.5%97.9% during the same period in 2007. The Atlantis' ADR was $68.55$68.68 in the firstthird quarter of 2008 compared to $71.89$81.11 in the firstthird quarter of 2007. Hotel operating expenses as a percent of hotel revenues increased to 36.1% for31.5% during the firstthird quarter of 2008 from 31.4% foras compared to 27.0% in the first quarter2007 third quarter.  This increase was primarily the result of 2007 primarily due to the decreased revenue.hotel revenues.



Promotional allowances increased to $6.3$6.9 million in the firstthird quarter of 2008 compared to $6.0$6.6 million in the firstthird quarter of 2007. The increase is attributable to continued promotional efforts to generate additional revenues. Promotional allowances as a percentage of gross revenues increased to 15.5%15.1% during the firstthird quarter of 2008 as compared to 13.8% in13.1% during the firstthird quarter of 2007.

Other revenues remained flat at $1.2 million in both the 2008 firstthird quarter as compared toand the firstthird quarter of 2007.

Depreciation and amortization expense was $2.0$2.4 million in the firstthird quarter of 2008 as compared to $2.1$2.0 million in the first quarter of 2007. This depreciation expense 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 $13.1 million in the first quarter of 2008, a 13.9% increase from $11.5 million in the firstthird quarter of 2007.  The increase wasin depreciation expense is primarily due to increased bad debt expense, higher marketing and promotional expense and higher legal expense related to depreciation expense of the Kerzner lawsuitportion on the Expansion assets (see “LEGAL PROCEEDINGS” discussion“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 2008 was offset primarily by lower payroll and benefit expenses. As a percentage of net revenue, SG&A expenses increased to 38.2%32.8% in the firstthird quarter of 2008 from 30.5%29.2% in the same period in 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 $247,000no interest expense for the first quarter of 2008 from $195,000 for the firstthird quarter of 2007.  This increase was driven byWe 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 whichfrom the $568 thousand reported in the second quarter of 2007 to $36 thousand in the current quarter.  Current quarter interest income represents interest earned on the Note with Triple J (see NOTE 5. RELATED PARTY TRANSACTIONS  to the Company’s consolidated financial statements).

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2008 and 2007.

For the nine months ended September 30, 2008, our net income was more than$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 during the nine months ended September 30, 2007. Income from operations for the 2008 nine-month period totaled $13.7 million, compared to $30.1 million for the same period in 2007. Net revenues decreased 11.9%, and net income decreased 55.4% when compared to the nine-month period ended September 30, 2007.

Casino revenues for the nine months ended September 30, 2008 totaled $77.0 million, an 8.9% decrease from $84.5 million for the nine months ended September 30, 2007.  Casino operating expenses amounted to 36.4% of casino revenues for the nine months ended September 30, 2008, compared to 31.9% for the same period in 2007, primarily due to the decreased casino revenue combined with decreased payroll and benefit expenses offset 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, due to an approximate 11.0% decrease in the number of covers served partially offset by an approximate 4.9% increase in the average revenue per cover. Food and beverage operating expenses amounted to 48.6% of food and beverage revenues during the 2008 nine-month period as compared to 47.4% for the same period in 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, 2008 decreased 19.2% to $17.7 million from $21.9 million for the nine months ended September 30, 2007, primarily due to decreases in the occupancy and ADR at the Atlantis.  Hotel revenues for the nine months of 2008 and 2007 include a $3 per occupied room energy surcharge. The Atlantis experienced a decrease in interestthe ADR during the 2008 nine-month period to $67.15, compared to $75.20 for the same period in 2007.  The occupancy rate decreased to 87.9% for the nine-month period in 2008, from 96.8% for the same period in 2007.  Hotel operating expenses in the first nine months of 2008 were 34.3% as compared to 29.4% for the same period in 2007.  The increase was primarily due to the decreased revenues.

Promotional allowances increased to $19.8 million in the first nine months of 2008 compared to $19.2 million in the same period of 2007.  The increase is attributable to continued efforts to generate additional revenues through promotional efforts. Promotional allowances as a percentage of gross revenues increased to 15.5% for the first nine months of 2008 compared to 13.5% for the same period in 2007.

Other revenues were $3.6 million for the nine months ended September 30, 2008, a 2.7% decrease from $3.7 million in the same period in 2007.

Depreciation and amortization expense was $6.4 million in the first nine months of 2008, an increase of 4.9% compared to $6.1 million in the same period last year. The increase in depreciation expense is primarily related to depreciation expense on the portion of the Expansion assets (see “COMMITMENTS AND CONTINGENCIES” below) that opened in July 2008.

SG&A expenses increased 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, primarily as a result of increased marketing and bad debt expense.  The decreaseAs a percentage of net revenue, SG&A expenses increased to 35.7% in the 2008 nine-month period from 30.1% in the same period in 2007.

Net interest income wasfor the resultfirst nine months of a lower average balance2008 totaled $251 thousand compared to $1.2 million for the same period of the prior year. The difference reflects our reduction in interest bearing cash and cash equivalents, combined with increased debt outstanding (see "THE CREDIT FACILITY" below), during the first quarternine months of 2008 as compared to the same quarterperiod in 2007.  The decrease in interest expense was the result of a charge for deferred loan costs in the first quarter of 2007 that did not recur in 2008.

LIQUIDITY AND CAPITAL RESOURCES

For the threenine months ended March 31,September 30, 2008, net cash provided by operating activities totaled $5.9$19.6 million, a decrease of 35.2%21.2% compared to the same period last year. Net cash used in investing activities totaled $17.1$54.6 million and $2.2$8.7 million in the threenine months ended March 31,September 30, 2008 and 2007, respectively.  During the first threenine months of 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 threenine months of 2007,2008, 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 used inprovided by financing activities totaled $11.9$6.8 million for the first threenine months of 2008 compared to net cash provided byused in financing activities of $318,180$237,000 for the same period in 2007. Net cash used in financing activities for the first threenine months of 2008 was due to our $35.7 million purchase of Monarch common stock pursuant to the Repurchase Plan offset by $42.5 million in credit line draws under the Credit Facility (see “COMMITMENTS AND CONTINGENCIES” below).  DuringNet cash provided by financing activities for the first threenine months of 2007 we received approximately $318,180 in cash formwas due to proceeds from the proceedsexercise of stock option exercisesoptions and the related tax benefits.benefits associated with such stock option exercises.  At March 31,September 30, 2008, we had a cash and cash equivalents balance of $15.7$10.6 million compared to $38.8 million at December 31, 2007.


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We have historically 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) should we decide to do so, 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 March 31,September 30, 2008, we had no balance$42.5 million outstanding on the Credit Facility and had $50$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,

Table 2009.  Such an amendment will likely result in the amendment of Contentsother 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 $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, 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, 2007 (“2007 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 2007 Form 10-K filed on March 17, 2008.

OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS

The economy in Renonorthern 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.  TheWhile most of the expansion was completed in July 2008, construction of the Skybridge is expected construction period of twelve months willto continue into the secondfourth quarter of 2008, with the exceptionconstruction of the spa facilities which we expectis expected to open incontinue into the thirdfirst quarter of 2008.2009 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.

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Table of ContentsHigher 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.  In February 2008, the voters of the State of California approved compacts with four tribes located in Southern California that increase the limit of Native American operated slot machines in the State of California.

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 2007 Form 10-K.

COMMITMENTS AND CONTINGENCIES

Our contractual cash obligations as of March 31,September 30, 2008 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) $4,680,000  $613,000  $922,000  $740,000  $2,405,000 
Purchase obligations (2)  39,072,000   39,072,000   -   -   - 
Total contractual cash obligations $43,752,000  $39,685,000  $922,000  $740,000  $2,405,000 
  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 $39.1$16.2 million.  Of the total purchase order and construction commitments, approximately $2.1$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 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 stock and the plan may be suspended at any time at our discretion.stock.

On March 11, 2008, our Board increased its initial authorization by 1 million shares and on April 22, 2008, the Board increased its authorization a third time by 1 million shares which increased the shares authorized to be repurchased to a total of three million shares.  During the first quarterand second quarters of 2008, we purchased 695,3962,444,492 shares of the Company’s common stock pursuant to the Repurchase Plan at a weighted average purchase price of $17.12$14.59 per share, which increased the total number of shares purchased pursuant to the Repurchase Plan to 1,250,9043,000,000 at a weighted average purchase price of $20.61.$16.52 per share.  As of March 31,June 30, 2008, 1,749,096the Company had purchased all shares remain 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 (the “Expansion”).  New space to be added toThe 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 Manhattan 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 expect to openopened the Expansion late in the second quarter ofJuly 2008 with the exception of the spa facilities which we expect to open in the thirdfirst quarter of 2008.2009.  We have also begun construction of a pedestrian skywalkSkybridge over Peckham Lane that will connect the Reno-Sparks Convention Center directly to the Atlantis.  Construction of the skywalkSkybridge is expected to be completed in the fourth quarter of 2008.  The Expansion is estimated to cost approximately $50 million and the Atlantis Convention Center Skybridge project is estimated to cost an additional $12.5 million.  We also plan to remodel the pre-expansion portions of the facility at an estimated cost of $10 million.  Through March 31,September 30, 2008, the Company has paid approximately $32.0$60.4 million of the estimated Expansion, skybridge and skybridge cost.remodel costs.


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 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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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 Supreme Court has yetindicated that it intends to rule on that motion. In the event thatwork with the Nevada Supreme Court does not reverse its original decision, we believelegislature to change the law to require that we would be entitledsuch meals are subject to a refund on previously paidNevada use tax and to prevent the refund of any use tax paid on complimentary employee and patron meals as would other gaming companies with Nevada casinos.  No assurances can be provided asprior to the outcomeeffective date of this new law.  The Company is evaluating the litigation.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  March 31,September 30, 2008.  

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.  At March 31, 2008, we had no borrowings under the Credit Facility; however, ourOur leverage ratio during the three months ended September 30, 2008 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.  We selected the LIBOR 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 that will be amortized over the 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.


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.  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 reduce the available borrowings to $5 million.  We may reduce the maximum principal available 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.  On April 14, 2008, we entered into an agreement to amend the Credit Facility.  The amendment increasedFacility to increase the available borrowings under the facility from $5 million to $50 million and extendedto extend the maturity date from February 23, 2009 to April 18, 2009.  At March 31,September 30, 2008, we had no balance$42.5 million was outstanding on the Credit Facility, and had $50$7.5 million was available to be drawn under the Credit Facility.  We intend to renegotiate or refinance the Credit Facility to extend its maturity beyond April 18, 2009, which will likely result in the amendment of other material provisions of the Credit Facility, such as the interest rate charged and other material covenants.  There is no assurance that we will be able to reach acceptable terms for a Credit Facility amendment or refinancing.


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ITITEMEM 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, 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 increased interest cost for the three months ended September 30, 2008 by $37,000.


ITITEMEM 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.


PAPARTRT II – OTHER INFORMATION


ITITEM 1E.M 1. LEGAL PROCEEDINGS

Litigation 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.



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.


ITITEMEM 1A. RISK FACTORS

A description of our risk factors can be found in Item 1A of our Annual Report on Form 10-K as amended, for the year ended December 31, 2007.  There were noThe following information represents material changes to those risk factors during the threenine months ended March 31,September 30, 2008.

LIMITATIONS OR RESTRICTIONS ON THE CREDIT FACILITY COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR LIQUIDITY

We intend to renegotiate or refinance the Credit Facility to extend its maturity beyond April 18, 2009.  Any such renegotiation or refinancing will likely result in the 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 liquidity.  Any material restriction on our ability to use the Credit Facility, or the failure to obtain a new credit facility upon the maturity of the existing Credit Facility could adversely impact our operations and future growth options.


ITITEM 2. EUNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) As discussed above in “COMMITMENTS AND CONTINGENCIES”, our Board authorized the Repurchase Plan under which we may repurchase up to three million shares of our common stock.  As of March 31, 2008, 1,749,096 shares remain under the three million share Repurchase Plan authorization.

The following table summarizes the repurchases made during the three month period ended March 31, 2008.  All repurchases were made in the open market.

Period 
(a)
Total number of shares purchased (1)
  
(b)
Average price paid per share
  
(c)
Total number of shares purchased as part of publicly announced plans
  
(d)
Maximum number of shares that may yet be purchased under the plans
 
January 1, 2008 through January 31, 2008  -   -   -   - 
February 1, 2008 through February 29, 2008  112,388  $16.95   112,388   332,104 
March 1, 2008 through March 31, 2008  583,008  $17.16   583,008   749,096 

(1) All shares were purchased pursuant to the Repurchase Plan discussed above.

ITEMM 6. EXHIBITS

(a) Exhibits

Exhibit NoDescription
10.1Second Amendment to Credit Agreement and Amendment to Revolving Credit Note, dated as of April 14, 2008, entered into by and among Golden road Motor Inn, Inc., Monarch Casino & Resort, Inc. and Wells Fargo Bank, National Association is incorporated herein by reference to the Company’s Form 8-K filed April 18, 2008, Exhibit 10.1.
Letter of Understanding Regarding Terms of Employment between the Company and Ronald Rowan dated May 22, 2006.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of John Farahi, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Ronald Rowan, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


SIGNSIGNATURESATURES

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:  May 12,November 7, 2008
By: /s/ RONALD ROWAN
 Ronald Rowan, Chief Financial Officer
and Treasurer (Principal Financial
Officer and Duly Authorized Officer)
 
 
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