Table of Contents

United States

Securities and Exchange Commission

Washington, D.C. 20549


Form 10-Q



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


For the quarterly period ended June 30, 2008


March 31, 2009

OR


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


For the transition period from ______to______.


Commission File No. 0-22088


Logo

MONARCH CASINO & RESORT, INC.

(Exact name of registrant as specified in its charter)


Nevada

88-0300760

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

3800 S. Virginia St.
Reno, Nevada
89502

Reno, Nevada

89502

(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

Registrant’s telephone number, including area code:



___________________

Table of Contents

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 xNo ¨o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes





o                    No o

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


Large Accelerated Filer¨

o

Accelerated Filer  x

x

Non-Accelerated Filer¨

o

Smaller Reporting Company¨

o


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

Yes ¨ oNo x

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


Common stock, $0.01 par value

16,122,048 shares

Class

Class

Outstanding at July 22, 2008May 5, 2009


2



Table of Contents

TABLE OF CONTENTS

Item

Page
Number

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Item 1.Financial Statements

4

5

6

7

Item 2.

15

12

Item 3.

24

20

Item 4.

24

20

PART II - OTHER INFORMATION

21

Item 1.

25

21

Item 1A.

25

21

Item 4.6. Exhibits

26

22

Item 6.

Signatures

26
Signatures27
Exhibit 31.1 Certification of John Farahi pursuant to Section 302 of the Sarbanes-Oxley Act of 200228
Exhibit 31.2 Certification of Ronald Rowan pursuant to Section 302 of the Sarbanes-Oxley Act of 200229
Exhibit 32.1 Certification of John Farahi pursuant to Section 906 of the Sarbanes-Oxley Act of 200230
Exhibit 32.2 Certification of Ronald Rowan pursuant to SECTION 906 OF THE SARBANES-OXLEY ACT OF 200231

22

3


3


PART

Part I. FINANCIAL INFORMATION


Financial Information

ITEM 1. FINANCIAL STATEMENTS


Monarch Casino

MONARCH CASINO & Resort, Inc.

RESORT, INC.

Condensed Consolidated Statements of Income

(Unaudited)


  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2008  2007  2008  2007 
Revenues            
Casino $25,672,907  $29,277,718  $49,428,857  $54,575,990 
Food and beverage  9,547,395   10,568,173   19,308,615   21,072,388 
Hotel  5,545,006   7,027,156   11,375,701   13,855,123 
Other  1,185,503   1,285,828   2,417,572   2,474,451 
Gross revenues  41,950,811   48,158,875   82,530,745   91,977,952 
Less promotional allowances  (6,607,046)  (6,597,555)  (12,913,587)  (12,635,041)
Net revenues  35,343,765   41,561,320   69,617,158   79,342,911 
Operating expenses                
Casino  9,266,916   9,268,084   18,013,416   17,737,421 
Food and beverage  4,606,282   4,866,969   9,295,647   9,835,686 
Hotel  1,967,720   2,111,765   4,073,093   4,255,105 
Other  312,997   377,437   659,651   741,057 
Selling, general and administrative  12,877,513   12,792,008   25,981,613   24,322,811 
Depreciation and amortization  1,893,237   2,064,970   3,899,794   4,140,416 
Total operating expenses  30,924,665   31,481,233   61,923,214   61,032,496 
Income from operations  4,419,100   10,080,087   7,693,944   18,310,415 
Other (expense) income                
Interest income  46,238   473,537   297,582   817,421 
Interest expense  (131,335)  (3,174)  (135,492)  (152,274)
Total other (expense) income  (85,097)  470,363   162,090   665,147 
Income before income taxes  4,334,003   10,550,450   7,856,034   18,975,562 
Provision for income taxes  (1,531,100)  (3,650,000)  (2,751,100)  (6,580,000)
Net income $2,802,903  $6,900,450  $5,104,934  $12,395,562 
                 
Earnings per share of common stock                
Net income                
Basic $0.16  $0.36  $0.29  $0.65 
Diluted $0.16  $0.36  $0.29  $0.64 
                 
Weighted average number of common shares and potential common shares outstanding                
Basic  17,189,200   19,091,756   17,802,518   19,081,173 
Diluted  17,253,109   19,366,442   17,899,384   19,345,213 

 

 

Three Months Ended

 

 

 

March, 31

 

 

 

2009

 

2008

 

Revenues

 

 

 

 

 

Casino

 

$

22,804,499

 

$

23,755,950

 

Food and beverage

 

9,593,068

 

9,761,220

 

Hotel

 

5,379,742

 

5,830,695

 

Other

 

1,133,450

 

1,232,069

 

Gross revenues

 

38,910,759

 

40,579,934

 

Less promotional allowances

 

(6,331,575)

 

(6,306,541)

 

Net revenues

 

32,579,184

 

34,273,393

 

Operating expenses

 

 

 

 

 

Casino

 

8,906,892

 

8,746,500

 

Food and beverage

 

4,635,397

 

4,689,365

 

Hotel

 

2,005,920

 

2,105,373

 

Other

 

296,771

 

346,654

 

Selling, general and administrative

 

11,619,722

 

13,104,100

 

Depreciation and amortization

 

3,180,955

 

2,006,557

 

Total operating expenses

 

30,645,657

 

30,998,549

 

Income from operations

 

1,933,527

 

3,274,844

 

Other (expense) income

 

 

 

 

 

Interest income

 

35,418

 

251,344

 

Interest expense

 

(550,210)

 

(4,157)

 

Total other (expense) income

 

(514,792)

 

247,187

 

Income before income taxes

 

1,418,735

 

3,522,031

 

Provision for income taxes

 

(496,575)

 

(1,220,000)

 

Net income

 

$

922,160

 

$

2,302,031

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

Net income

 

 

 

 

 

Basic

 

$

0.06

 

$

0.13

 

Diluted

 

$

0.06

 

$

0.12

 

 

 

 

 

 

 

Weighted average number of common shares and potential common shares outstanding

 

 

 

 

 

Basic

 

16,122,048

 

18,415,836

 

Diluted

 

16,148,037

 

18,545,964

 

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

4


4


Monarch Casino

MONARCH CASINO & Resort, Inc.

RESORT, INC.

Condensed Consolidated Balance Sheets


  June 30,  December 31, 
  2008  2007 
ASSETS (Unaudited)    
Current assets      
Cash and cash equivalents $11,672,748  $38,835,820 
Receivables, net  3,679,824   4,134,099 
Federal income tax refund receivable  -   998,123 
Inventories  1,471,347   1,496,046 
Prepaid expenses  3,040,123   3,144,374 
Deferred income taxes  582,407   1,084,284 
Total current assets  20,446,449   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  73,328,364   72,511,165 
Leasehold improvements  1,346,965   1,346,965 
   181,439,935   176,754,367 
Less accumulated depreciation and amortization  (96,011,025)  (92,215,149)
   85,428,910   84,539,218 
Construction in progress  53,494,393   17,236,062 
Net property and equipment  138,923,303   101,775,280 
Other assets, net  2,817,842   2,817,842 
Total assets $162,187,594  $154,285,868 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities        
Borrowings under credit facility $34,000,000  $- 
Accounts payable  12,788,488   10,840,318 
Construction payable  3,330,226   1,971,022 
Accrued expenses  9,193,030   9,230,157 
Federal income taxes payable  51,100   - 
Total current liabilities  59,362,844   22,041,497 
Deferred income taxes  2,825,433   2,825,433 
Total Liabilities  62,188,277   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 6/30/08 18,566,540 outstanding at 12/31/07  190,963   190,963 
Additional paid-in capital  26,891,871   25,741,972 
Treasury stock, 2,974,252 shares at 6/30/08 529,760 shares at 12/31/07, at cost  (48,943,359)  (13,268,905)
Retained earnings  121,859,842   116,754,908 
Total stockholders' equity  99,999,317   129,418,938 
Total liabilities and stockholder's equity $162,187,594  $154,285,868 

 

 

March 31,

 

December 31,

 

 

 

2009

 

2008

 

ASSETS

 

(Unaudited)

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

11,428,243

 

$

11,756,900

 

Receivables, net

 

3,488,296

 

3,344,441

 

Inventories

 

1,418,374

 

1,564,347

 

Prepaid expenses

 

2,969,024

 

2,851,872

 

Deferred income taxes

 

429,300

 

429,300

 

Total current assets

 

19,733,237

 

19,946,860

 

Property and equipment

 

 

 

 

 

Land

 

12,162,522

 

12,162,522

 

Land improvements

 

3,511,484

 

3,511,484

 

Buildings

 

133,674,917

 

133,332,232

 

Building improvements

 

10,435,062

 

10,435,062

 

Furniture and equipment

 

102,377,493

 

96,767,076

 

Leasehold improvements

 

1,346,965

 

1,346,965

 

 

 

263,508,443

 

257,555,341

 

Less accumulated depreciation and amortization

 

(104,218,052)

 

(101,825,190)

 

 

 

159,290,391

 

155,730,151

 

Construction in progress

 

-

 

4,026,536

 

Net property and equipment

 

159,290,391

 

159,756,687

 

Other assets, net

 

3,498,240

 

2,797,949

 

Total assets

 

$

182,521,868

 

$

182,501,496

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Borrowings under credit facility

 

$

900,000

 

$

2,500,000

 

Accounts payable

 

6,317,908

 

10,213,418

 

Construction payable

 

1,468,452

 

5,404,372

 

Accrued expenses

 

9,292,872

 

8,940,110

 

Federal income taxes payable

 

390,311

 

233,736

 

Total current liabilities

 

18,369,543

 

27,291,636

 

Long-term debt, less current maturities

 

55,000,000

 

47,500,000

 

Deferred income taxes

 

2,115,371

 

2,115,371

 

Total liabilities

 

75,484,914

 

76,907,007

 

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 3/31/09 16,122,048 outstanding at 12/31/08

 

190,963

 

190,963

 

Additional paid-in capital

 

28,571,314

 

28,051,009

 

Treasury stock, 2,974,252 shares at 3/31/09 2,974,252 shares at 12/31/08, at cost

 

(48,943,359)

 

(48,943,359)

 

Retained earnings

 

127,218,036

 

126,295,876

 

Total stockholders’ equity

 

107,036,954

 

105,594,489

 

Total liabilities and stockholder’s equity

 

$

182,521,868

 

$

182,501,496

 

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

5


5


Monarch Casino

MONARCH CASINO & Resort, Inc.

RESORT, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


  Six Months Ended June 30, 
  2008  2007 
Cash flows from operating activities:      
Net income $5,104,934  $12,395,562 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  3,899,794   4,140,416 
Amortization of deferred loan costs  -   148,838 
Share based compensation  1,149,899   1,072,018 
Provision for bad debts  607,721   22,786 
Gain on disposal of assets  (10,200)  (5,770)
Deferred income taxes  501,877   (740,206)
Changes in operating assets and liabilities:        
Receivables, net  844,677   (379,484)
Inventories  24,700   (23,254)
Prepaid expenses  104,251   (174,778)
Other assets  -   (4,826)
Accounts payable  1,948,170   1,794,905 
Accrued expenses  (37,127)  59,915 
Federal income taxes payable, net  51,100   930,599 
Net cash provided by operating activities  14,189,796   19,236,721 
         
Cash flows from investing activities:        
Proceeds from sale of assets  10,200   5,770 
Acquisition of property and equipment  (41,047,818)  (5,263,977)
Changes in construction payable  1,359,204   - 
Net cash used in investing activities  (39,678,414)  (5,258,207)
         
Cash flows from financing activities:        
Proceeds from exercise of stock options  -   311,353 
Tax benefit of stock option exercise  -   141,684 
Borrowings under credit facility  34,000,000   - 
Purchase of treasury stock  (35,674,454)  - 
Net cash (used in) provided by financing activities  (1,674,454)  453,037 
Net (decrease) increase in cash  (27,163,072)  14,431,551 
Cash and cash equivalents at beginning of period  38,835,820   36,985,187 
Cash and cash equivalents at end of period $11,672,748  $51,416,738 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest. $50,158  $3,437 
Cash paid for income taxes $1,200,000  $6,247,923 

 

 

Three Months Ended March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

922,160

 

$

2,302,031

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,180,955

 

2,006,557

 

Amortization of deferred loan costs

 

72,446

 

-

 

Share based compensation

 

520,305

 

565,071

 

Provision for bad debts

 

315,196

 

436,419

 

Gain on disposal of assets

 

(63,948)

 

(8,000)

 

Deferred income taxes

 

-

 

501,877

 

Changes in operating assets and liabilities

 

 

 

 

 

Receivables, net

 

(459,051)

 

927,849

 

Inventories

 

145,973

 

84,451

 

Prepaid expenses

 

(117,152)

 

89,737

 

Other assets

 

(772,737)

 

-

 

Accounts payable

 

(3,895,510)

 

(1,222,723)

 

Accrued expenses

 

352,762

 

230,183

 

Federal income taxes payable

 

156,575

 

-

 

Net cash provided by operating activities

 

357,974

 

5,913,452

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of assets

 

83,425

 

8,000

 

Acquisition of property and equipment

 

(2,734,136)

 

(19,096,073)

 

Changes in construction payable

 

(3,935,920)

 

1,984,031

 

Net cash used in investing activities

 

(6,586,631)

 

(17,104,042)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Borrowings under credit facility

 

5,900,000

 

-

 

Purchase of treasury stock

 

-

 

(11,907,153)

 

Net cash provided by (used in) financing activities

 

5,900,000

 

(11,907,153)

 

Net decrease in cash

 

(328,657)

 

(23,097,743)

 

Cash and cash equivalents at beginning of period

 

11,756,900

 

38,835,820

 

Cash and cash equivalents at end of period

 

$

11,428,243

 

$

15,738,077

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

560,500

 

$

4,157

 

Cash paid for income taxes

 

$

340,000

 

$

-

 

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

6


6


MONARCH CASINO & RESORT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation:


Monarch Casino & Resort, Inc. ("Monarch"(“Monarch”), a Nevada corporation, was incorporated in 1993.  Monarch'sMonarch’s wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("(“Golden Road"Road”), operates the Atlantis Casino Resort Spa (the "Atlantis"“Atlantis”), a hotel/casino facility in Reno, Nevada.  Monarch’s other wholly owned subsidiary, High Desert Sunshine, Inc. (“High Desert”), owns a parcel of land located adjacent to the Atlantis.  Unless stated otherwise, the "Company"“Company” refers collectively to Monarch and its Golden Road subsidiary.


subsidiaries.

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


Interim Financial Statements:


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) 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 U.S. GAAPgenerally 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 six months ended June 30, 2008March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.


2009.

The balance sheet at December 31, 20072008 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. GAAPgenerally 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:

In preparing these financial statements in conformity with U.S. GAAP , 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:

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, 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.


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:

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:

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


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

Allowance for Doubtful Accounts:

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 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:

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:

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 northern 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.


2008.

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 six months ended June 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  74,957   17.15   -   - 
Exercised  -   -   -   - 
Forfeited  (20,000)  24.04   -   - 
Expired  -   -   -   - 
Outstanding at end of period  1,350,383  $18.86  7.5 yrs.  $(9,512,414)
Exercisable at end of period  542,750  $10.20  7.0 yrs.  $(782,787)


A summary of the status of the Company’s nonvested shares as of June 30, 2008, and for the six months ended June 30, 2008, is presented below:

Nonvested Shares Shares  
Weighted-Average
Grant Date Fair
Value
 
Nonvested at January 1, 2008  782,676  $10.43 
Granted  74,957   6.49 
Vested  (30,000)  6.54 
Forfeited  (20,000)  24.04 
Nonvested at June 30, 2008  807,633  $10.20 


Expense Measurement and 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,accounts for the six months ended June 30, 2008 and 2007, the Company recognized share-basedits stock-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 ofin accordance with 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 June 30, 2008 is approximately $3.9 million and is expected to be recognized over a weighted average period of 1.18 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 each quarter were as follows:

  
Three Months
Ended June 30,
 
  2008  2007 
Expected volatility  55.1%  37.8%
Expected dividends  -   - 
Expected life (in years)        
    Directors’ Plan  2.5   2.5 
    Executive Plan  4.5   8.3 
    Employee Plan  3.1   3.1 
Weighted average risk free rate  1.9%  4.5%
Weighted average grant date fair value per share of options granted $4.77  $7.66 
Total intrinsic value of options exercised  -  $465,471 


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.

123(R), “Share-Based Payment”.   Reported stock based compensation expense was classified as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2009

 

2008

 

Casino

 

$

15,303

 

$

20,480

 

Food and beverage

 

15,186

 

16,767

 

Hotel

 

5,891

 

10,597

 

Selling, general and administrative

 

483,925

 

517,227

 

Total stock-based compensation, before taxes

 

520,305

 

565,071

 

Tax benefit

 

(182,107)

 

(197,775)

 

Total stock-based compensation, net of tax

 

$

338,198

 

$

367,296

 

7



  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2008  2007  2008  2007 
Casino $20,490  $21,285  $40,970  $35,974 
Food and beverage  18,816   11,972   35,583   23,591 
Hotel  9,520   9,152   20,117   18,058 
Selling, general and administrative  536,002   529,725   1,053,229   994,395 
Total stock-based compensation, before taxes  584,828   572,134   1,149,899   1,072,018 
Tax benefit  (204,689)  (200,247)  (402,464)  (375,206)
Total stock-based compensation, net of tax $380,139  $371,887  $747,435  $696,812 


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NOTE 3. EARNINGS PER SHARE


The Company reports "basic"“basic” earnings per share and "diluted"“diluted” earnings per share in accordance with the provisions of SFAS No. 128, "Earnings“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 June 30, 
  2008  2007 
  Shares  Per Share Amount  Shares  Per Share Amount 
Basic  17,189  $0.16   19,092  $0.36 
Effect of dilutive stock options  64   -   274   - 
Diluted  17,253  $0.16   19,366  $0.36 


  Six Months Ended June 30, 
  2008  2007 
  Shares  Per Share Amount  Shares  Per Share Amount 
Basic  17,803  $0.29   19,081  $0.65 
Effect of dilutive stock options  96   -   264   (0.01)
Diluted  17,899  $0.29   19,345  $0.64 


 

 

Three Months Ended March 31,

 

 

 

2009

 

2008

 

 

 

Shares

 

Per Share
Amount

 

Shares

 

Per Share
Amount

 

Basic

 

16,122

 

$0.06

 

18,416

 

$0.13

 

Effect of dilutive stock options

 

26

 

-

 

130

 

(0.01)

 

Diluted

 

16,148

 

$0.06

 

18,546

 

$0.12

 

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.



NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS


In September 2006, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued SFASStatement of Financial Accounting Standards No. 157, Fair Value Measurements.  Measurements (“SFAS No. 157”). SFAS No. 157 definesprovides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing assets or liabilities and establishes a frameworkhierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. On February 12, 2008, the FASB delayed the effective date of SFAS No. 157 for measuring fair value in U.S. GAAPnonfinancial assets 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 fornonfinancial liabilities until fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In February 2008, the FASB issued FASB Staff Position FAS 157-2, which defers the effective date of SFAS 157except for non-financial assets and liabilitiesitems that are recognized or disclosed at fair value in the entity’s financial statements on a recurring basis to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  We are evaluating SFAS 157 as it relates to non-financial assets and have not yet determined(at least annually). The Company implemented the impact the adoption will have on the consolidated financial statements. The adoptionprovisions of SFAS No. 157 as of January 1, 2008 for financialthose assets and liabilities not subject to the deferral described above. The implementation of SFAS No. 157 as of January 1, 2009 for assets and liabilities previously subject to the deferral described above did not have a material impact on the Company’s financial position, results of operations, financial position or cash flows


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’sour financial position or results of operations or cash flows.operations.

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In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141(R)), “Business Combinations,” which is a revision of SFAS 141, “Business Combinations.” The primary requirements of SFAS 141(R) are as follows: (i.) Upon initially obtaining control, the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets, including goodwill, and assumed liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its target. As a consequence, the current step acquisition model will be eliminated. (ii.) Contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. The concept of recognizing contingent consideration at a later date when the amount of that consideration is determinable beyond a reasonable doubt, will no longer be applicable. (iii.) All transaction costs will be expensed as incurred.  Implementation of SFAS No. 141 (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 applies141(R) would have required treatment prospectively to business combinations where the acquisition date iscompleted on or after January 1, 2009. Because the beginningCompany had no business combinations during that time, the adoption did not have a material impact on our financial position or results of the first annual reporting period beginning on or after December 15, 2008. We will adopt FAS 141 (revised) in the first quarter of 2009.  The adoption of SFAS No. 141 (revised) is prospective and early adoption is not permitted.


operations.

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 isdid 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. We will adopt SFAS 161 in the first quarter of 2009. The adoption of SFAS No. 161 isdid 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 materiallyhave a material impact on the Company’s financial position, results of operations or cash flows.

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

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

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

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

In April 2009, the FASB issued FASB Staff Position on FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1).  This FSP requires that the fair value disclosures required by SFAS 107 “Disclosures about Fair Value of Financial Instruments” be included for interim reporting periods.  We will adopt this new accounting standard effective April 1, 2009.   We do not expect that the adoption of FSP FAS 107-1 and APB 28-1 will have a material impact on our financial position, results of operations or cash flows.

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

FSP FAS 157-4 – In April 2009, the FASB issued FASB Staff Position on FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4).  FSP FAS 157-4 provides guidance on determining when the trading volume and activity for an asset or liability has significantly decreased, which may indicate an inactive market, and on measuring the fair value of an asset or liability in inactive markets.  We will adopt this new accounting standard effective April 1, 2009. We do not expect that the adoption of FSP FAS 157-4 will have a material impact on our financial position, results of operations or cash flows.

FSP FAS 141R-1 – In April 2009, the FASB issued FASB Staff Position on FAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP FAS 141R-1).  FSP FAS 141R-1 requires that an acquirer recognize at fair value, at

10



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

NOTE 5. RELATED PARTY TRANSACTIONS


On July 26, 2006, 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. (“Maxum”), had “decided that such offer is not in the best interest of the Partnership’s limited partners and, therefore, will not be entering into negotiations with Monarch.”  While there have been subsequent communications between BLI and the Company from time to time regarding the Company’sour 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 and Bob Farahi each individually own non-controlling interests in BLI and Ben Farahi own a controlling interest in BLI.Maxim.  John Farahi is Co-Chairman of the Board, Chief Executive Officer, Chief Operating Officer and a Director of Monarch.  Bob Farahi is Co-Chairman of the Board, President, Secretary and a Director of Monarch. Ben Farahi formerly was the Co-Chairman of the Board, Secretary, Treasurer, Chief Financial Officer and a Director of Monarch.  Monarch’s board of directors accepted Ben Farahi’s resignation from these positions on May 23, 2006.


The Company currently rents various spaces in the Shopping Center which it uses as office, and storage space and guest parking and paid rent of approximately $67,900$21,800 and $168,600$100,700 plus common area expenses forin during the first three months of 2009 and six months ended June 30, 2008, respectively, and approximately $31,700 and $61,400 plus common area expenses for the three and six months ended June 30, 2007, respectively.


In addition, a driveway that is being shared between the Atlantis and the Shopping Center was completed on September 30, 2004.  As part of this project, in January 2004, the Company leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 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 three3 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, 2009 and 2008 for its leased driveway space at the Shopping Center during each of the three months ended June 30, 2008 and 2007.



Center.

The Company is currently leasingleasesd sign space from the Shopping Center.Center through July 2008. The lease took effect in March 2005 for a monthly cost of $1. The lease was renewed for another year forwith a monthly lease of $1,000 effective January 1, 2006, and subsequently renewed on June 15, 2007 for a monthly lease of $1,060.2006.  The Company paid $3,200 and $6,400 for the leased sign at the Shopping Center$3,000 for the three and six months ended June 30, 2008, respectively, and paid $3,060 and $6,060 for the three and six months ended June 30, 2007, respectively.March 31, 2008.

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The Company is currently leasingoccasionally leases billboard advertising space from affiliates of its controlling stockholders and paid $21,000 for each of the three and six months ended June 30, 2008, and paid $21,000$10,500 for the three and six months ended June 30, 2007, respectively.


March 31, 2009 and did not pay anything for the three months ended March 31, 2008.

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 currently utilizesplans to utilize for storage.administrative staff offices.  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.



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 U.S. GAAP ,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 June 30, 2008,March 31, 2009, the Company had no assets or liabilities that are required to be measured at fair value on a recurring basis.



ITEM 2. MANAGEMENT'S 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"Road”), owns and operates the tropically-themed Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the "Atlantis"“Atlantis”).  Monarch’s other wholly owned subsidiary, High Desert Sunshine, Inc., owns a parcel of land located adjacent to the Atlantis.  Monarch was incorporated in 1993 under Nevada law for the purpose of acquiring all of the stock of Golden Road.  The principal asset of Monarch is the stock of Golden Road, which holds all of the assets of the Atlantis.


Our sole operating asset, the Atlantis, is a hotel/casino resort located in Reno, Nevada.  Our business strategy is to maximize the Atlantis'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 middle to upper-middle income Reno residents, tourists and conventioneers, emphasizing slot machine play in our casino. We capitalize on the Atlantis' Atlantis’

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location for locals, tour and travel visitors, conventioneers and conventioneerslocal residents 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"“Monarch,” “Company,” “we,” “our” and "us"“us” refer to Monarch Casino & Resort, Inc. and its Golden Road subsidiary.


and High Desert Sunshine, Inc subsidiaries.

OPERATING RESULTS SUMMARY


Below is a summary of our secondfirst quarter results for 20082009 and 2007:


Amounts in millions, except per share amounts    
          
  Three Months    
  Ended June 30,  Percentage 
  2008  2007  (Decrease)/Increase 
Casino revenues $25.7  $29.3   (12.3)
Food and beverage revenues  9.6   10.6   (9.4)
Hotel revenues  5.6   7.0   (20.0)
Other revenues  1.2   1.3   (7.7)
Net revenues  35.3   41.6   (15.1)
Sales, general and admin expense  12.9   12.8   0.8 
Income from operations  4.4   10.1   (56.4)
             
Net Income  2.8   6.9   (59.4)
             
Earnings per share - diluted  0.16   0.36   (55.6)
             
Operating margin  12.5%  24.3% (11.8) pts. 


  Six Months    
  Ended June 30,  Percentage 
  2008  2007  (Decrease)/Increase 
Casino revenues $49.4  $54.6   (9.5)
Food and beverage revenues  19.3   21.1   (8.5)
Hotel revenues  11.4   13.9   (18.0)
Other revenues  2.4   2.5   (4.0)
Net revenues  69.6   79.3   (12.2)
Sales, general and admin expense  26.0   24.3   7.0 
Income from operations  7.7   18.3   (57.9)
             
Net Income  5.1   12.4   (58.9)
             
Earnings per share - diluted  0.29   0.64   (54.7)
             
Operating margin  11.1%  23.1% (12.0) pts. 

Our results2008:

Amounts in millions, except per share amounts

 

 

Three Months

 

Percentage

 

 

 

 

Ended March 31,

 

 

Increase/(Decrease)

 

 

 

2009

 

2008

 

09 vs 08

 

Casino revenues

 

$22.8

 

$23.8

 

(4.2)

 

Food and beverage revenues

 

9.6

 

9.8

 

(2.0)

 

Hotel revenues

 

5.4

 

5.8

 

(6.9)

 

Other revenues

 

1.1

 

1.2

 

(8.3)

 

Net revenues

 

32.6

 

34.3

 

(5.0)

 

Sales, general and administrative expense

 

11.6

 

13.1

 

(11.5)

 

Income from operations

 

1.9

 

3.3

 

(42.4)

 

 

 

 

 

 

 

 

 

Net Income

 

0.9

 

2.3

 

(60.9)

 

 

 

 

 

 

 

 

 

Earnings per share - diluted

 

0.06

 

0.12

 

(50.0)

 

 

 

 

 

 

 

 

 

Operating margin

 

5.9%

 

9.6%

 

(3.7) points

 

The decline in revenues for the three months ended June 30, 2008March 31, 2009 compared to the same period of the prior year reflect the effects of thea challenging operating environment that we also experienced in the three month periods ended December 31, 2007 and March 31, 2008.environment.  As in many other areas around the country, the economic slowdown in northern NevadaReno in the fourth quarter of 2007 accelerated indeepened throughout 2008 and into the first and second quarters of 2008. Other factors causing negative financial impact that continued from the fourth quarter of 2007 were disruption from construction related to our $50 million expansion project (see “COMMITMENTS AND CONTINGENCIES” below) and2009.  Additionally, aggressive marketing programs by our competitors. Consistent with the fourth quarter of 2007 andcompetitors in 2008 continued through the first quarter of 2008, we increased marketing2009.  Income from operations was impacted by an increase in depreciation expense of $1.2 million for the quarter ended March 31, 2009 compared to the same prior year period.  This increase in depreciation expense was due to the completion of our expansion, remodel and promotional expendituresAtlantis Convention Center Skybridge capital projects (see “CAPITAL SPENDING AND DEVELOPMENT” below).  These adverse effects were mitigated somewhat by our ability to attractreduce sales, general and retain guests in response to these challenges. We also had higher legal expenses associated with the ongoing and previously disclosed Kerzner litigation (see “LEGAL PROCEEDINGS” below).administrative expense.   We anticipate that downward pressure on profitsrevenue will persist as long as we continue to experience the adverse effects of the negative macroeconomic environment construction disruption,and the aggressive marketing programs of our competitors and the legal defense costs associated with the Kerzner lawsuit.



competitors.

These factors were the primary drivers of:

·Decreases of 4.2%, 2.0% and 6.9% in our casino, food and beverage and hotel revenues, respectively, resulting in a net revenue decrease of 5.0%;

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·Decreases of 12.3%, 9.4% and 20.0% in our casino, food and beverage and hotel revenues, respectively, resulting in a net revenue decrease of 15.1%.

·A decrease in our second quarter 2008 operating margin by 11.8 points or 48.6%.

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·A decrease in income from operations and diluted earnings per share of 42.4% and 50.0%, respectively;

·A decrease in our operating margin by 3.7 points or 38.5%.

CAPITAL SPENDING AND DEVELOPMENT


We seek to continuously upgrade and maintain the Atlantis facility in order to present a fresh, high quality product to our guests.

In June 2007, we broke ground on an expansion project several phases of which we completed and opened in the second half of 2008.  New space was added to the first floor casino level, the second and third floors and the basement level totaling approximately 116,000 square feet.  The existing casino floor was expanded by over 10,000 square feet, or approximately 20%.  The first floor casino expansion included a redesigned, updated and expanded race and sports book of approximately 4,000 square feet and an enlarged poker room.   The expansion also included the new Manhattan deli, a New York deli-style restaurant.  The second floor expansion created additional ballroom and convention space of approximately 27,000 square feet, doubling the existing facilities.  We constructed and opened a pedestrian skywalk over Peckham Lane that connects the Reno-Sparks Convention Center directly to the Atlantis.  In January 2009, we opened the final phase of the expansion project, the new Spa Atlantis featuring an atmosphere, amenities and treatments that are unique from any other offering in our market.  Additionally, many of the pre-expansion areas of the Atlantis were remodeled to be consistent with the upgraded look and feel of the new facilities.  The total cost of these capital projects (the “Capital Projects”) was approximately $73 million.

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

Capital expenditures at the Atlantis totaled approximately $41.1$2.7 and $5.3$19.1 million during the first sixthree months of 20082009 and 2007,2008, respectively.  During the six monthsthree month periods ended June 30,March 31, 2009 and 2008, our capital expenditures consisted primarily of construction costs associated with our $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 duringCapital Projects, the six months ended June 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 six months ended June 30, 2007, ourAdditional capital expenditures consisted primarily of construction costs associated withduring the current expansion phase of the Atlantis that commenced in June 2007 and thequarter ended March 31, 2008 were for acquisition of gaming equipmentland to be used for administrative offices.

In addition to the expenditures incurred to complete Capital Projects during the first quarter of 2009, we anticipate spending approximately $5 to $12 million on capital expenditures in 2009 to upgrade and replace existing gaming equipment,


Future cash needed continue our renovation and upgrading of the Atlantis facility and to financeacquire the property subject to the Triple J lease (see NOTE 5. to the financial statements “RELATED PARTY TRANSACTIONS”).  The timing of these capital expenditures may accelerate or be deferred altogether based on our ongoing maintenance capital spending is expected to be made available fromassessment of operating cash flow, available borrowing capacity under our Credit Facility (see “THE CREDIT FACILITY” below) and the competitive environment in our market, among other factors.

We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility (see "THE CREDIT FACILITY" below)will provide us with sufficient resources to fund our operations, meet our debt obligations, and if necessary,fulfill our capital expenditure requirements; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow, we could be required to adopt one or more alternatives,

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


equity capital.

STATEMENT ON FORWARD-LOOKING INFORMATION


When used in this report and elsewhere by management from time to time, the words “believes”, “anticipates” and “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our expansion, development activities, legal proceedings and employee matters.  Certain important factors, including but not limited to, national, regional and local economic conditions, 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, theour 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 June 30,March 31, 2009 and 2008 and 2007


For the three-month periodthree months ended June 30, 2008,March 31, 2009, our net income was $2.8 million,$922 thousand, or $0.16$0.06 per diluted share, on net revenues of $35.3$32.6 million, a decrease from net income of $6.9$2.3 million, or $0.36$0.12 per diluted share, on net revenues of $41.6$34.3 million for the three months ended June 30, 2007.March 31, 2008. Income from operations for the three months ended June 30, 2008March 31, 2009 totaled $4.4$1.9 million, a 56.4%42.4% decrease when compared to $10.1$3.3 million for the same period in 2007.2008.  Net revenues decreased 15.1%, and net income decreased 59.4%5.0% and 60.9%, respectively, when compared to last year's secondyear’s first quarter.


Casino revenues totaled $25.7$22.8 million in the secondfirst quarter of 2008,2009, a 12.3%4.2% decrease from $29.3$23.8 million in the secondfirst quarter of 2007,2008, which was primarily due to decreases indecreased slot table games, poker and keno revenues. Casino operating expenses amounted to 36.1%39.1% of casino revenues in the secondfirst quarter of 2008,2009, compared to 31.7%36.8% in the secondfirst quarter of 2007;2008; the increase was due primarily due to the decreased casino revenue.


revenue combined with the cost of increased complimentary food, beverages and other services provided to casino patrons.

Food and beverage revenues totaled $9.6 million in the secondfirst quarter of 2008,2009, a 9.4%2.0% decrease from $10.6$9.8 million in the secondfirst quarter of 2007,2008, due primarily to a 15.4% decrease in covers served partially offset by a 6.5%0.4% increase in the average revenue per cover.food cover partially offset by an 3.9% decrease in the number of covers served.  Food and beverage operating expenses amounted to 48.3% of food and beverage revenues during the secondfirst quarter of 20082009 as compared to 46.1%48.0% for the secondfirst quarter of 2007.  This increase was primarily the result of the lower revenue combined with increased food commodity and labor costs.


2008.

Hotel revenues were $5.6$5.4 million for the secondfirst quarter of 2008,2009, a decrease of 20.0%6.9% from the $7.0$5.8 million reported in the 2007 second2008 first quarter.  This decrease was the result of decreaseslower hotel occupancy and a decrease in both the average daily room rate (“ADR”). Both 2009 and hotel occupancy.  Both second quarters' 2008 and 2007first quarter revenues also included a $3 per occupied room energy surcharge. During the secondfirst quarter of 2008,2009, the Atlantis experienced an 86.5%a 76.9% occupancy rate, as compared to 97.0%85.7% during the same period in 2007.2008. The Atlantis'Atlantis’ ADR was $64.08 $66.89in the secondfirst quarter of 20082009 compared to $72.47$68.55 in the secondfirst quarter of 2007.2008. Hotel operating

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expenses as a percent of hotel revenues increased to 35.5% in37.3% for the 2008 secondfirst quarter compared to 30.1% inof 2009 from 36.1% for the 2007 second quarter. The lower margin isfirst quarter of 2008 primarily due to the decreasesdecreased revenue partially offset by a $99 thousand decrease in occupancy and ADR combined with higher payroll and benefit expenses and higher directcosts in the hotel operating costs.


unit.

Promotional allowances were $6.6remained flat at $6.3 million infor both the second quarterfirst quarters of 20082009 and the second quarter of 2007.2008. Promotional allowances as a percentage of gross revenues increased to 15.7%16.3% during the secondfirst quarter of 2008 from 13.7%2009 as compared to 15.5% in the secondfirst quarter of 2007.  This2008. The increase was primarilyis attributable to continued promotional efforts to attract guests and generate revenues.

Other revenues remained relatively flat at $1.1 million in the result2009 first quarter as compared to $1.2 million for the first quarter of increased promotional and discount programs in response to the challenging economic environment and ongoing competitor promotional and discount programs.


2008.

Depreciation and amortization expense was $1.9$3.2 million in the secondfirst quarter of 2009 as compared to $2.0 million in the first quarter of 2008, as compared to $2.1an increase of $1.2 million for the second quarter of 2007.  This decrease is primarily attributable to assets that became fully depreciated during the period.


SG&A expense totaled $12.9 million in the second quarter of 2008, a .8% increase from $12.8 million in the second quarter of 2007. The slight increase was primarily due to increased rental expense partially offset by decreased payroll and benefits expense.  SG&A expense as a percentage of net revenues increased to 36.4% for the second quarter of 2008 as compared to 30.8% in the second quarter of 2007.or 60.0%.  This increase is the result of the decreasecompletion of our Capital Projects (see further discussion of the Capital Projects in net revenue.

Through June 30, 2008, we drew $34the “CAPITAL SPENDING AND DEVELOPMENT” section above).

SG&A expenses were $11.6 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 expense of $131 thousand duringin the quarter, an increase of $128 thousand when compared to the samefirst quarter of the prior year.  We used our invested cash reserves during the quarter to fund the $502009, an 11.5% decrease from $13.1 million expansion project and share repurchases resulting in a decrease in interest income from the $474 thousand reported in the secondfirst quarter of 2007 to $46 thousand in the current quarter.


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

For the six months ended June 30, 2008, our net income was $5.1 million, or $0.29 per diluted share, on net revenues of $69.6 million, a2008. The decrease from net income of $12.4 million, or $0.64 per diluted share, on net revenues of $79.3 million during the six months ended June 30, 2007. Income from operations for the 2008 six-month period totaled $7.7 million, compared to $18.3 million for the same period in 2007. Net revenues decreased 12.2%, and net income decreased 58.9% when compared to the six-month period ended June 30, 2007.

Casino revenues for the first six months of 2008 totaled $49.4 million, a 9.5% decrease from $54.6 million for the first six months of 2007.  Casino operating expenses amounted to 36.4% of casino revenues for the six months ended June 30, 2008, compared to 32.5% for the same period in 2007, the increase was primarily due to the decreased casino revenue combined with decreasedreductions in payroll and benefitbenefits expense of approximately $780 thousand, $530 thousand of which represents lower bonus expense; lower marketing and promotional expense of approximately $360 thousand; lower legal expense of approximately $180 thousand; lower bad debt expense of approximately $125 thousand and lower other general expenses offset by increased direct departmental expenses.

Food and beverage revenues totaled $19.3 million for the six months ended June 30, 2008, a decrease of 8.5% from the $21.1 million for the six months ended June 30, 2007, due to an approximate 13.5% decrease in the number of covers servedapproximately $230 thousand all partially offset by a 6.2% increasehigher electricity expense of approximately $190 thousand driven primarily by our expanded facilities  (see further discussion of the Capital Projects in the average revenue per cover.  Food and beverage operating expenses amounted to 48.1% of food and beverage revenues during the 2008 six-month period, an increase when compared to 46.7% for the same period in 2007.  This increase was primarily the result of the lower revenue combined with increased food commodity and labor costs.

Hotel revenues for the first six months of 2008 decreased 18.0% to $11.4 million from $13.9 million for the first six months of 2007, primarily due to decreases in the occupancy and ADR at the Atlantis.  Hotel revenues for the entire first six months of 2008 and 2007 also include a $3 per occupied room energy surcharge. The Atlantis experienced a decrease in the ADR during the 2008 six-month period to $66.29, compared to $72.23 for the same period in 2007.  The occupancy rate decreased to 86.1% for the six-month period in 2008, from 96.3% for the same period in 2007.  Hotel operating expenses in the first six months of 2008 were 35.8% of hotel revenues, an increase compared to 30.7% for the same period in 2007. The increase was primarily due to the decreased revenues.

Promotional allowances increased to $12.9 million in the first six months of 2008 compared to $12.6 million in the same period of 2007.  Promotional allowances as a percentage of gross revenues increased to 15.6% for the first six months of 2008 compared to 13.7% for the same period in 2007. This increase was primarily the result of increased promotional and discount programs in response to the challenging economic environment and ongoing competitor promotional and discount programs.

Depreciation and amortization expense was $3.9 million in the first six months of 2008, a decrease of 4.9% compared to $4.1 million in the same period last year. This decrease is primarily attributable to assets that became fully depreciated during the period.

SG&A expenses increase 7.0% to $26.0 million in the first six months of 2008, compared to $24.3 million in the first six months of 2007, primarily as a result of increased payroll and benefit costs, increased rental expense and increased bad debt expense.“CAPITAL SPENDING AND DEVELOPMENT” section above).  As a percentage of net revenue, SG&A expenses increaseddecreased to 37.3%35.7% in the 2008 six-month periodfirst quarter of 2009 from 30.7%38.2% in thet he same period in 2007.

Net2008.

Interest income decreased from approximately $251 thousand in the first quarter of 2008 to approximately $35 thousand in the first quarter of 2009.  The decrease resulted from our use of excess cash in 2008 for the capital projects and share repurchases.  First quarter 2009 interest income forrepresents interest earned on a note receivable.

At March 31, 2009, we had $55.9 million outstanding under our $60 million credit facility (see the “CREDIT FACILITY” section below).  The resultant interest expense recognized during the first six monthsquarter of 2008 totaled $162,000, compared to $665,000 for2009 was approximately $550 thousand, a $546 thousand increase over the same periodfi rst quarter of the prior year. The difference reflects our reduction in interest bearing cash and cash equivalents, combined with increasedyear when we had no debt outstanding (see "THE CREDIT FACILITY" below), during the first six months of 2008 as compared to same period in 2007.


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under our credit facility.

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LIQUIDITY AND CAPITAL RESOURCES

For the sixthree months ended June 30, 2008,March 31, 2009, net cash provided by operating activities totaled $14.2 million,$358 thousand, a decrease of 26.2%$5.6 million or 93.9% compared to the same period last year.  This decrease was primarily related to the timing of the payment of a greater amount of accounts payable during the first quarter of 2009 and the collection of a greater amount accounts receivable during the first quarter of the prior year.

Net cash used in investing activities totaled $39.7$6.6 million and $5.3$17.1 million in the sixthree months ended June 30,March 31, 2009 and 2008, and 2007, respectively.  During the first sixthree months of 2009 and 2008, net cash used in investing activities consisted primarily of construction costs associated with the currentrecent expansion phase of the Atlantis that commenced(see further discussion of the Capital Projects in June 2007the “CAPITAL SPENDING AND

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DEVELOPMENT” section above) and the acquisition of property and equipment.  DuringBecause the first six months of 2007,construction was completed in January 2009, we used $10.5 million, or 61.4%, less net cash used in investing activities consisted primarily of construction costs associated withduring the current expansion ofthree months ended March 31, 2009 compared same period in the Atlantis and the acquisition of gaming equipment to upgrade and replace existing gaming equipment. prior year.

Net cash used in financing activities totaled $1.7 million for the first six months of 2008 compared to net cash provided by financing activities of $453,037 for$5.9 million during the same period in 2007. Net cashthree months ended March 31, 2009 represents borrowings under our Credit Facility (see “THE CREDIT FACILITY” below).  During the three months ended March 31, 2008, we used in financing activities for the first six months of 2008 was due$11.9 million to our $35.7 million purchase of Monarch common stock pursuant to a stock repurchase plan that was in place in the Repurchase Plan offset by $34.0 million in credit line drawsprior year.

We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility (see “COMMITMENTS AND CONTINGENCIES” below).  Netwill provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure plans; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash provided by financing activities for the first six months of 2007 was dueflow, we could be required to proceeds from the exercise of stock options and the tax benefits associated with such stock option exercises.  At June 30, 2008, we had a cash and cash equivalents balance of $11.7 million compared to $38.8 million at December 31, 2007.


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 (see Commitments and Contingencies section below) and to provide for other capital needs should they arise, we entered into an agreement to amend our Credit Facility (see "THE CREDIT FACILITY" below) on April 14, 2008.  The amendment increased the available borrowings under the facility from $5 million to $50 million and extended the maturity date from February 23, 2009 to April 18, 2009.  At June 30, 2008, we had $34 million outstanding on the Credit Facility and had $16 million available to be drawn under the Credit Facility.  We plan to amend the Credit Facility to extend its maturity beyond April 18, 2009.  Such an amendment will likely result in the amendment of other material provisions of the Credit Facility,adopt one or more alternatives, 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 amendmentreducing, delaying or refinancing.

eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional equity capital.

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 $150,000$75,000 in lease payments for the leased driveway space at the Shopping Center during the sixthree months ended June 30, 2008.


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March 31, 2009.

Critical Accounting Policies


A description of our critical accounting policies and estimates can be found in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 20072008 (“20072008 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 20072008 Form 10-K filed on March 17, 2008.


13, 2009.

OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS


The economy in northern Nevada and our feeder markets, like many other areas around the country, are experiencing the effects of several negative macroeconomic trends, including a 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

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an extended period of time, target customers may further curtail discretionary spending for leisure activities and businesses may reduce spending for conventions and meetings, both of which would adversely impact our business.  Management continues to monitor these trends and intends, as appropriate, to adopt operating strategies to attempt to mitigate the effects of such adverse conditions.  We can make no assurances that such strategies will be effective.


As discussed below in “COMMITMENTS AND CONTINGENCIES” we commenced construction on an expansion project to the Atlantis, and skybridge to the Reno-Sparks Convention Center, in the second quarter of 2007.  While most of the expansion was completed in July 2008, construction of the spa facilities is expected to continue through the third quarter of 2008, construction of the skybridge is expected to continue through the fourth quarter of 2008 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 northernorthern Nevada residents as well.


well, greatly increasing competitive activities for our local customers.

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


Atlantis.

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


Other factors that may impact current and future results are set forth in detail in Part II - Item 1A “Risk Factors” of this Form 10-Q and in Item 1A “Risk Factors” of our 20072008 Form 10-K.


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COMMITMENTS AND CONTINGENCIES

Our contractual cash obligations as of June 30, 2008March 31, 2009 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) $4,527,000  $613,000  $862,000  $740,000  $2,312,000 
Current maturities of borrowings under credit facility (2)  34,000,000   34,000,000   -   -   - 
Purchase obligations (3)  27,003,000   27,003,000   -   -   - 
Total contractual cash obligations $65,530,000  $61,616,000  $862,000  $740,000  $2,312,000 

Contractual Cash

 

 

 

Payments Due by Period (4)

 

 

 

Obligations

 

 

 

less than

 

1 to 3

 

4 to 5

 

more than

 

 

 

Total

 

1 year

 

years

 

years

 

5 years

 

Operating Leases(1)

 

$ 4,067,000

 

$  552,000

 

$   740,000

 

$740,000

 

$2,035,000

 

Current Maturities of Borrowings Under Credit Facility (2)

 

55,900,000

 

900,000

 

55,000,000

 

-

 

-

 

Purchase Obligations(3)

 

6,114,000

 

6,114,000

 

-

 

-

 

-

 

Total Contractual Cash Obligations

 

 

$66,081,000

 

 

$7,566,000

 

 

$55,740,000

 

 

$740,000

 

 

$2,035,000

 

(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 theour Credit Facility (see “THE CREDIT FACILITY” below) as of June 30, 2008.March 31, 2009.

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Table of Contents

(3) Our open purchase orderPurchase obligations represent approximately $4.1 million of commitments related to capital projects and construction commitments total approximately $27.0 million.$2.0 million of materials and supplies used in the normal operation of our business.  Of the total purchase order and construction commitments, approximately $2.0 million are cancelable by us upon providing a 30-day notice.


On September 28, 2006,

(4) Because interest payments under our BoardCredit Facility are subject to factors that in our judgment vary materially, the amount of Directors (our “Board”) authorizedfuture interest payments is not presently determinable.  These factors include: 1) future short-term interest rates; 2) our future leverage ratio which varies with EBITDA and our borrowing levels and 3) the speed with which we deploy capital and other spending which in turn impacts the level of future borrowings.  The interest rate under our Credit Facility is LIBOR, or a 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 stockbase rate (as defined in the open market or in privately negotiated transactionsCredit Facility agreement), plus an interest rate margin ranging from time2.00% to time, in compliance with Rule 10b-183.375% depending on our leverage ratio.  The interest rate is adjusted quarterly based on our leverage ratio which is calculated using operating results over the previous four quarters and borrowings at the end of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors.  The Repurchase Plan did not obligate us to acquire any particular amount of common stock.


Onmost recent quarter.  At March 11, 2008,31, 2009 our Board increased its initial authorization by 1 million shares and on April 22, 2008,leverage ratio was such that pricing for borrowings was LIBOR plus 3.125%.  At March 31, 2009, 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 second quarter of 2008, we purchased 1,749,096 shares of the Company’s common stock pursuant to the Repurchase Plan at a weighted average purchase price of $13.59 per share, which increased the total number of shares purchased pursuant to the Repurchase Plan to 3,000,000 at a weighted average purchase price of $16.52 per share.  As of June 30, 2008, the Company had purchased all shares under the three million share Repurchase Plan authorization.

We began construction in the second quarter of 2007 on the next expansion phase of the Atlantis (the “Expansion”)one-month LIBOR rate was 0.50%.  The Expansion impacts the first floor casino level, the second and third floors and the basement level by adding approximately 116,000 square feet. The project adds over 10,000 square feet to the existing casino, or approximately 20%.   The Expansion includes a redesigned, updated and expanded race and sports book of approximately 4,000 square feet, an enlarged poker room and a Manhattan deli restaurant.  The second floor expansion creates additional ballroom and convention space of approximately 27,000 square feet.  The spa and fitness center will be remodeled and expanded to create an ultra-modern spa and fitness center facility.  We opened the Expansion in July 2008 with the exception of the spa facilities which we expect to open in the fourth quarter of 2008.  We have also begun construction of a pedestrian skywalk over Peckham Lane that will connect the Reno-Sparks Convention Center directly to the Atlantis.  Construction of the skywalk 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.  Through June 30, 2008, the Company paid approximately $53.5 million of the estimated Expansion and skybridge cost.

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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.


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


THE CREDIT FACILITY


Until February 20, 2004, we had a reducing revolving term loan credit facility with a consortium of banks (the “First Credit Facility”).  On February 20, 2004, our previous credit facilitythe Original Credit Facility was refinanced (the "Credit Facility"“Second Credit Facility”) for $50 million. At our option, borrowings underThe maturity date of the Second Credit Facility would accrue interest at a rate designated bywas to be April 18, 2009; however, on January 20, 2009, the agent bank at its base rateSecond Credit Facility was amended and refinanced (the "Base Rate") or at the London Interbank Offered Rate ("LIBOR"“New Credit Facility”) for one, two, three or six month periods.$60 million.  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 percentNew Credit Facility may be utilized by us for working capital needs, general corporate purposes 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.  Our leverage ratio during the three months ended June 30, 2008 was such that the pricing for borrowings was the Base Rate plus 0.00 percent or LIBOR plus 1.00 percent.  We selected the LIBOR plus 1.00 option for allongoing capital expenditure requirements.

The maturity date of the borrowings during the three months ended June 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.


TheNew Credit Facility is January 20, 2012.  Borrowings are secured by liens on substantially all of the real and personal property of the Atlantis and isare guaranteed by Monarch.

The New 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 New Credit Facility also contains covenants requiring us tothat we maintain certain financial ratios and achieve a minimum level of Earnings-Before-Interest-Taxes-Depreciation and Amortization (EBITDA) on a two-quarter rolling basis.  It also contains provisions that restrict cash transfers between Monarch and its affiliates. The Credit Facility alsoaffiliates and contains provisions requiring the achievement of certain financial ratios before we can repurchase our common stock. We dostock or pay dividends. Management does not consider the covenants to restrict ournormal functioning of day-to-day operations.

The maximum principal available under the New Credit Facility is reduced by $2.5 million per quarter beginning on December 31, 2009.  We may permanently reduce the maximum principal available at any time so long as the amount of such reduction is at least $500,000 and a multiple of $50,000.

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We may prepay borrowings under the New Credit Facility without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period).  Amounts prepaid under the Credit Facility may be reborrowed so long as the total borrowings outstanding do not exceed the maximum principal available.

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

At March 31, 2009, we had $55.9 million outstanding under the New Credit Facility, $900 thousand of which was classified as short-term debt which represents the mandatory principal availablereduction, based on the amount outstanding at March 31, 2009, required under the New Credit Facility on December 31, 2009.  The interest rate under our Credit Facility is LIBOR, or a base rate (as defined in the Credit Facility agreement), plus an interest rate margin ranging from 2.00% to 3.375% depending on our leverage ratio.  The interest rate is adjusted quarterly based on our leverage ratio calculated using operating results over the previous four quarters and borrowings at any time so long as the amount of such reduction is at least $500,000 and a multiple of $50,000.


On April 14, 2008, we entered into an agreement to amend the Credit Facility to increase the available borrowings from $5 million to $50 million and to extend the maturity date from February 23, 2009 to April 18, 2009.  At June 30, 2008, $34 million was outstanding on the Credit Facility, and $16 million was available to be drawn under the Credit Facility.  We intend to renegotiate or refinance the Credit Facility to extend its maturity behond April 18, 2009, which will likely result in the amendment of other material provisionsend of the Credit Facility,most recent quarter.  At March 31, 2009 our leverage ratio was such asthat pricing for borrowings was LIBOR plus 3.125%.  At March 31, 2009, the interestone-month LIBOR 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.


was 0.50%.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market risk is the risk of loss arising from adverse changes in market risks and prices, such as interest rates, foreign currency exchange rates and commodity prices.  We do not have any cash or cash equivalents as of June 30, 2008,March 31, 2009 that are subject to market risks.


Therisk.  As of March 31, 2009 we had $55.9 million of outstanding debt under our New Credit Facility that was subject to credit risk.  A 1% increase in the interest rate on borrowingsthe balance outstanding under ourthe New Credit Facility at June 30, 2008 is LIBOR plus 1%.  A one-point increaseMarch 31, 2009 would result in a change in our annual interest rates would have had increased interest expense in the second quartercost of 2008 by $32,000.


approximately $560,000.

ITEM 4. CONTROLS AND PROCEDURES


Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, (the "Evaluation Date"“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.


Changes

There was no change 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 the lastour most recently completed fiscal quarter that has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


Litigation was filed against Monarch on January 27, 2006, by Kerzner International Limited (“Kerzner ")“) 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"“Atlantis” in connection with offering casino services other than at Monarch'sMonarch’s Atlantis Casino Resort Spa located in Reno, Nevada, and particularly prohibiting Monarch from using the "Atlantis"“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'sKerzner’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'sKerzner’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.  LitigationDiscovery is inconcluded and the discovery phase.


period for filing dispositive motions prior to trial is underway.  The court has not ruled yet on any motions.

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.


ITEM 1A. RISK FACTORS


A description of our risk factors can be found in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007.2008.  The following information represents material changes to those risk factors during the sixthree months ended June 30, 2008.


LIMITATIONS OR RESTRICTIONS ONMarch 31, 2009.

AN OUTBREAK OF HIGHLY INFECTIOUS DEISEASE COULD ADVERSELY AFFECT THE CREDIT FACILITY COULD HAVENUMBER OF VISITORS TO OUR FACILITIES AND DISRUPT OUR OPERATIONS, RESULTING IN A MATERIAL ADVERSE AFFECTEFFECT ON OUR LIQUIDITY


We intend to renegotiateFINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS

Feared or refinance the Credit Facility to extend its maturity beyond April 18, 2009.  Any such renegotiation or refinancing will likely result in the amendmentactual outbreaks of other material provisions of the Credit Agreement,highly infectious diseases, such as SARS, avian flu or swine flu, may adversely affect the interest rate chargednumber of visitors to our property and our business and prospects.  Furthermore, an other material covenants.  The Credit Facility is an important component of our liquidity.  Any material restriction onoutbreak might disrupt our ability to use the Credit Facility,adequately staff our business and could generally disrupt our operations.  If any of our guests or employees is suspected of having contracted certain highly contagious diseases, we may be required to quarantine these customers or employees or the failure to obtain a new credit facility upon the maturityaffected areas of the existing Credit Facility could adversely impactour facilities and temporarily suspend part or all of our operations at affected facilities.  Any new outbreak of such a highly infectious disease could have a material adverse effect on our financial condition, results of operations and future growth options.



ITEM 2. UNREGISTERED 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 repurchased three million shares of our common stock.  As of June 30, 2008, no shares remain under the three million share Repurchase Plan authorization.cash flows.

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25


The following table summarizes the repurchases made during the three month period ended June 30, 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
 
April 1, 2008 through April 30, 2008  60,769  $13.06   60,769   1,688,327 
May 1, 2008 through May 31, 2008  951,417  $13.92   951,417   736,910 
June 1, 2008 through June 30, 2008  736,910  $13.20   736,910   - 

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


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 18, 2008, our Annual Meeting of Stockholders was held. The following directors were re-elected to two-year terms and the votes received were as follows:

Director Votes Received  Votes Withheld 
John Farahi  13,024,965   3,993,925 
Charles W. Scharer  14,407,843   2,611,047 
Craig F. Sullivan  14,407,841   2,611,049 

Abstentions are effectively treated as votes withheld. The following directors were not up for election, but their terms continue until the 2009 Annual Meeting of Stockholders: Bob Farahi and Ronald R. Zideck.


ITEM 6. EXHIBITS


(a) Exhibits

Exhibit No

Description

10.1

 3.1

Second Amendment to

Bylaws of Monarch Casino & Resort, Inc., as amended.

10.1

Amended and Restated Credit Agreement, and Amendment to Revolving Credit Note, dated as of April 14, 2008, entered into by andJanuary 20, 2009, among Golden Road Motor Inn, Inc., as Borrower, Monarch Casino& Resort, Inc., as Guarantor, the Lenders as defined therein, 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.as Swingline Lender, L/C Issuer and Agent Bank.

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


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SIGNATURES

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



MONARCH CASINO & RESORT, INC.

(Registrant)

Date: August 7, 2008May 11, 2009

By: /s/ RONALD ROWAN

Ronald Rowan, Chief Financial Officer

and Treasurer (Principal Financial

Officer and Duly Authorized Officer)

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