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**United States**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**Form 10-K**

 

**(MARKONE)**

 

**x**** ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008**

** **

**OR**

 

**o**** TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM            TO            **

** **

**Commission File No. 0-22088**

 

 

**MONARCH CASINO & RESORT,INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Nevada**                                | ** **   | **88-0300760**       |
|-------------------------------------------|--------------|----------------------|
| (State or Other  Jurisdiction of          |         | (I.R.S. Employer     |
| Incorporation or  Organization)           |         | Identification  No.) |
|                                      |         |                 |
| **3800 S. Virginia Street**               | *** *** | *** ***         |
| **Reno,  Nevada**                         | ** **   | **89502**            |
| (Address of  Principal Executive Offices) |         | (ZIP Code)           |

 

 

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

 

Registrant’stelephone number, including area code:**(775) 335-4600**

 

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OFTHE ACT:

 
| ** **                             | ** ** | **Name of each exchange** |
|----------------------------------------|------------|------------------------------------------|
| **Title of each class** | ** ** | **on which registered**        |
| None                                   |       | None                                     |

 

SECURITIES REGISTERED PURSUANT TOSECTION 12(g) OF THE ACT:

 

**COMMON STOCK, $0.01 PAR VALUE**

(Title of Class)

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. YES o  NO x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. YES o  NO x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. YES x  NO o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

 

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

 

Largeaccelerated filer o Accelerated Filer x Non-accelerated Filer o  Smaller reporting company o

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). YES o  NO x

 

The aggregate marketvalue of voting and non-voting common equity held by nonaffiliates as of June 30,2008, based on the closing price as reported on The Nasdaq Stock Market (SM) of$11.80 per share, was approximately $190.2 million.

 

As of March 4,2009, Registrant had 16,122,048 shares of Common Stock outstanding.

 

DOCUMENTSINCORPORATED BY REFERENCE

 

Portionsof the Proxy Statement for Registrant’s 2009 Annual Meeting of Stockholders,which Proxy Statement shall be filed with the Commission not later than 120days after the end of the fiscal year covered by this report, are incorporatedby reference into Part III.

 

STATEMENTSIN THIS ANNUAL REPORT ON FORM 10-K WHICH EXPRESS THE “BELIEF”,“ANTICIPATION”, “INTENTION”, “EXPECTATION”, OR “SCHEDULES” AS WELL ASOTHER  STATEMENTS WHICH ARE NOTHISTORICAL FACT, AND STATEMENTS AS TO BUSINESS OPPORTUNITIES, MARKETCONDITIONS, COST ESTIMATIONS AND OPERATING PERFORMANCE INSOFAR AS THEYMAY APPLY PROSPECTIVELY, ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGOF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THESECURITIES EXCHANGE ACT OF 1934 AND INVOLVE RISKS AND UNCERTAINTIES THAT COULDCAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED.

 

 

 

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**PART I**

 

**ITEM 1.BUSINESS**

 

Monarch Casino &Resort, Inc. (the “Company” or “we”), through its wholly-owned subsidiary,Golden Road Motor Inn, Inc. (“Golden Road”), owns and operates thetropically-themed Atlantis Casino Resort Spa, a hotel/casino facility in Reno,Nevada (the “Atlantis”). Unless otherwise indicated, “Monarch” or the “Company”refers to Monarch Casino & Resort, Inc. and its Golden Roadsubsidiary. Monarch was incorporated in 1993 under Nevada law for the purposeof acquiring all of the stock of Golden Road. The principal asset of Monarch isthe stock of Golden Road, which holds all of the assets of the Atlantis.  Our principal executive offices are locatedat 3800 S. Virginia Street; Reno, Nevada 89502; telephone (775) 335-4600.

 

**AVAILABLE INFORMATION**

 

Our website address iswww.monarchcasino.com.  We make availablefree of charge on or through our internet website our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934, as amended, as soon asreasonably practicable after we electronically file such material with, orfurnish it to, the Securities and Exchange Commission.

 

**THE ATLANTIS CASINO RESORT SPA**

 

ThroughGolden Road, we own and operate the tropically-themed Atlantis Casino ResortSpa, which is located approximately three miles south of downtown in thegenerally more affluent area of Reno, Nevada. The Atlantis features approximately 61,000 square feet of casino spaceinterspersed with waterfalls, giant artificial palm trees, thatched-roof huts,and other tropical decor; a hotel and a motor lodge with a combined 969 guestrooms; ten food outlets; an enclosed year-round pool with waterfall; an outdoorpool; a health spa; two retail outlets offering clothing and resort gift shopmerchandise; a full service salon for men and women; an 8,000 square-footfamily entertainment center; and approximately 52,000 square feet of banquet,convention and meeting room space.

 

In June 2007, webroke ground on an expansion project, several phases of which we completed andopened in the second half of 2008.  Newspace was added to the first floor casino level, the second and third floorsand the basement level totaling approximately 116,000 square feet.  The existing casino floor was expanded byover 10,000 square feet, or approximately 20%. The first floor casino expansion includes a redesigned, updated andexpanded race and sports book of approximately 4,000 square feet and anenlarged poker room.  The expansion alsoincluded the new “Manhattan deli”, a New York deli-style restaurant.  The second floor expansion created additionalballroom and convention space of approximately 27,000 square feet, doubling theexisting facilities.  We constructed andopened a pedestrian skywalk over Peckham Lane that connects the Reno-SparksConvention Center directly to the Atlantis. In January 2009, we opened the final phase of the expansionproject, the new Spa Atlantis featuring an atmosphere, amenities and treatmentsthat are unique from any other offering in our market.  Additionally, many of the pre-expansion areasof the Atlantis were remodeled to be consistent with the upgraded look and feelof the new facilities.  The remodelingwork will continue into 2009.  The totalcost of these capital projects is approximately $73 million.  Through December 31, 2008, the Companyhad incurred approximately $68 million of that total.

 

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

 

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**ATLANTISCASINO**

** **

TheAtlantis Casino offers approximately 1,500 slot and video poker machines;approximately 38 table games, including blackjack, craps, roulette and others;a sports book; Keno and a poker room.

 

TheAtlantis offers what we believe are higher than average payout rates on slotmachines relative to other northern Nevada casinos and has adopted liberal rules forits blackjack games, including the use of single decks of cards at sometables.  We seek to attract high-endplayers through high quality amenities and services and by extension of gamingcredit after a careful credit history evaluation.

 

**HOTEL ANDMOTOR LODGE**

** **

TheAtlantis includes three contiguous high-rise hotel towers with 820 rooms andsuites, and a low-rise motor lodge with another 149 rooms, for a total of 969guest rooms. The first of the three hotel towers contains 160 rooms and suitesin 13 stories. The 19-story second hotel tower contains 278 rooms and suites.The third tower contains 382 rooms and suites in 28 stories. The rooms on thetop seven floors in the third tower are nearly 20% larger than the standardguest rooms and offer key card elevator access, upscale accommodations and a privateconcierge service.

 

TheAtlantis hotel rooms feature upbeat, colorful interior decorations andfurnishings consistent with the Atlantis’ tropical theme, as well as nine-footceilings (most standard hotel rooms have eight-foot ceilings), which create anopen and spacious feel. The third hotel tower features a four-story waterfallwith an adjacent year-round swimming pool in a climate controlled, five-storyglass enclosure, which shares an outdoor third floor pool deck with a seasonaloutdoor swimming pool and year round whirlpool. A full service salon (the “Salonat Atlantis”) overlooks the third floor sundeck and outdoor seasonal swimmingpool and offers salon-grade products and treatments for hair, nails, skincareand body services for both men and women. A health spa is located adjacent tothe swimming areas which offers treatments and amenities unique to ourmarket.  The hotel rooms on the spa floorare all designated as “spa rooms” and have décor that is themed consistent withthe spa.  Certain spa treatments are alsoavailable in spa floor hotel rooms.  Thehotel also features glass elevators rising the full 19 and 28 stories,respectively, of the two taller hotel towers, providing panoramic views of theReno area and the Sierra Nevada mountain range separating Nevada fromCalifornia.

 

The149-room motor lodge is a two-story structure located adjacent to the hotel.The motor lodge rooms, which are also decorated and furnished with the Atlantis’tropical theme, are smaller than the tower hotel rooms and have standardeight-foot ceilings. We believe the motor lodge rooms appeal to value conscioustravelers who still want to enjoy the experience and amenities of a first-classhotel-casino resort.

 

Theaverage occupancy rate and average daily room rate at the Atlantis for thefollowing periods were:

 
| ** **               | ** ** | **Years ended December 31,** | ** ** |
|--------------------------|------------|---------------------------------------------|------------|
| ** **               | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Occupancy rate           |       | 84.9                                        | %          | 93.8 | % | 93.3 | % |
| Average daily  room rate |       | $                                           | 65.52      |   | $ | 74.04 |   | $ | 69.87 |   |
|                          |            |                                             |            |  |  |  |  |  |  |  |

 

Wecontinually monitor and adjust hotel room rates based upon demand and othercompetitive factors. Our average daily room rate was adversely impacted in 2008by the declining market demand and by rooms sold at discounted rates to selectwholesale operators for tour and travel packages.

 

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**RESTAURANTSAND DINING**

 

TheAtlantis has eight restaurants, two gourmet coffee bars and one snack bar asdescribed below.

 

·                  The 600-seat Toucan Charlie’sBuffet & Grill, which offers a wide variety of standard hot foodselections, salads and seafood, specialty substations featuring made-to-orderitems such as Mongolian barbecue, fresh Southwest and Asian specialties, meatsroasted in wood-fired rotisserie ovens, two salad stations, and a wide varietyof freshly made desserts.

·                  The 135-seat, aquatic-themedAtlantis Seafood Steakhouse gourmet restaurant.

·                  The 200-seat, upscale BistroNapa featuring a centrally located wine cellar.

·                  The Oyster Bar restaurant inthe Sky Terrace offering fresh seafood, soups and bisques made to order.

·                  The Sushi Bar, also in theSky Terrace, offering a variety of fresh raw and cooked sushi specialties,including all-you-can-eat lunch and dinner selections. Combined, the Oyster Barand Sushi Bar can accommodate up to 139 guests.

·                  The 178-seat 24-hour PurpleParrot coffee shop.

·                  The 122-seat Cafe’ Alfrescorestaurant serving a full menu, pizzas prepared in a wood-fired, brick oven anda variety of gelato deserts.

·                  The 170-seat Manhattan delirestaurant specializing in piled-high sandwiches, soups, salads and desserts

·                  Two gourmet coffee bars,offering specialty coffee drinks, pastries and desserts made fresh daily in theAtlantis bakery.

·                  A snack bar and sodafountain serving ice cream and arcade-style refreshments.

 

**THE SKYTERRACE**

** **

TheSky Terrace is a unique structure with a diamond-shaped, blue glass bodysuspended approximately 55 feet, and spanning 160 feet across, South VirginiaStreet.  The Sky Terrace connects theAtlantis with additional parking on our 16-acre site across South VirginiaStreet from the Atlantis. The structure rests at each end on two 100-foot tallGrecian columns with no intermediate support pillars. The tropically-themedinterior of the Sky Terrace contains the Oyster Bar, the Sushi Bar, a videopoker bar, banks of slot machines and a lounge area with oversized leathersofas and chairs.

 

Operations at theAtlantis are conducted 24 hours a day, every day of the year. The Atlantis’business is seasonal in nature, with higher revenues during the summer monthsand lower revenues during the winter months.

 

**ATLANTIS IMPROVEMENTS**

 

 We have continuously invested in upgrading theAtlantis.  Our capital expenditures atthe Atlantis were $67.9 million in 2008, $17.3 million in 2007 and, $5.8million in 2006.

 

During2008 and 2007, capital expenditures primarily consisted of construction costsassociated with the expansion, skybridge and remodel capital projects thatcommenced in June 2007.****During2006, capital expenditures primarily consisted of acquisition of gaming andcomputer equipment, the installation of a casino high-definition video displaysystem, renovation of our Java Coast Gourmet Coffee and pastry bar, initialdesign and planning expenditures associated with our expansion and ongoingpublic area renovations and upgrades.

 

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**ADDITIONALEXPANSION POTENTIAL**

** **

Expansionpotential at our current site is twofold. First, we could further expand our existing hotel and casino, therebygiving us more hotel rooms, amenities and additional casino space.  Second, we could develop the 16-acre parcelwe own across the street from the Atlantis. This site is connected to theAtlantis by the Sky Terrace and is currently used for parking and specialevents related to the Atlantis.  Our16-acre parcel meets all current Reno zoning requirements in the event wedecide to build another resort casino or entertainment facility.

 

**MARKETINGSTRATEGY**

** **

TheReno/Tahoe region is a major gaming and leisure destination with aggregategaming revenues of approximately $830 million.

 

Ourrevenues and operating income are principally dependent on the level of gamingactivity at the Atlantis casino.  Ourpredominant marketing goal is to utilize all of the Atlantis facilities togenerate additional casino play.  Oursecondary goal is to maximize revenues from our hotel, food and beverage,cocktail lounges, convention and meeting rooms, retail and other amenities.

 

Ourmarketing efforts are directed toward three broad consumer groups:  leisure travelers, conventioneers andnorthern Nevada residents.  We believethe Atlantis’ location outside of downtown Reno, near the airport, near majorfreeway arteries and across the street from the Reno-Sparks Convention Centermakes the facility appealing to all three groups.

 

LEISURETRAVELERS:  The Reno/Tahoe region is apopular gaming and vacation destination that enjoys convenient air service fromcities throughout the United States.  Theprincipal segments of Reno’s leisure traveler market are independent travelers,package tour and travel guests, guests we reach through the world-wide-web andhigh-end players.  We attempt to maximizeour gaming revenues and hotel occupancy through a balanced marketing approachthat addresses each market segment.

 

Independenttravelers make reservations directly with hotels of their choice or through independenttravel agents.  We strive to attract themiddle to upper-middle income strata of this consumer segment throughadvertising and direct marketing.  Thissegment represents a large portion of the Atlantis’ guests.

 

Thepackage tour and travel segment consists of visitors who utilize travelpackages offered by wholesale operators. We market to this segment through relationships with select wholesalers,primarily to generate guest visits and supplement mid-week occupancy.

 

Wewelcome domestic and international reservations on the Atlantis’ websitewww.atlantiscasino.com and are featured on major package tour and travelwebsites.

 

Wemarket to high-end players selectively through direct sales.  We utilize complimentary rooms, food andbeverage, special events and the extension of gaming credit to attract, andmaintain patronage from, high-end players.

 

CONVENTIONEERS:  Convention business, like package tour andtravel business, supplements occupancy during lower-demand periods.  Conventioneers also typically pay higheraverage room rates than non-conventioneers. We selectively seek convention and meeting groups that we believe willmaterially enhance the Atlantis’ occupancy and daily room rates, as well asthose we believe will be more likely to utilize our gaming products.  As the only hotel-casino within easy walkingdistance of the Reno-Sparks Convention Center, the Atlantis is, in our view,uniquely positioned to capitalize on this expanding segment.  We believe the Reno-Sparks Convention Centerhas created, and we expect will 

 

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continueto create, additional guest traffic for the Atlantis within this market segmentthat is presently underserved in the Reno area. As described in the “THE ATLANTIS CASINO RESORT SPA” section above, anenclosed pedestrianskybridge over Peckham Lane has been constructed that connects the Atlantisdirectly into the Reno-Sparks Convention Center facilities.

 

Wemarket to all guest segments, including conventioneers, on the basis of thelocation, quality and ambiance of the Atlantis facility, gaming values,friendly, efficient service, and the quality and relative value of Atlantis rooms,food and beverage offerings, entertainment and promotions.

 

Ourfrequent player club, “Club Paradise,” allows our guests to be eligible toreceive rewards and privileges based on the amount of their play, whileallowing us to track their play through a computerized system. We use thisinformation to determine appropriate levels of complimentary awards, and forguiding our direct marketing efforts. We believe that Club Paradisesignificantly enhances our ability to build guest loyalty and generate repeatguest visits.

 

NORTHERNNEVADA RESIDENTS:  We market to northernNevada residents (referred to from time to time as “Locals”) on the basis ofthe Atlantis’ location and accessibility; convenient surface parking; gamingvalues; ambiance; friendly efficient service; quality and relative value offood and beverage offerings.

 

**COMPETITION**

 

Competitionin the Reno area gaming market is intense. Based on information obtained from the December 31, 2008 GamingRevenue Report published by the Nevada State Gaming Control Board, there areapproximately 10 casinos in the Reno area which generate more than $12.0million each in annual gaming revenues.

 

Webelieve that the Atlantis’ primary competition for leisure travelers comes fromother large-scale casinos that offer amenities that appeal to middle toupper-middle income guests.  We competefor leisure travelers on the basis of the desirability of our location, thequality and ambiance of the Atlantis facility, friendly, efficient service, thequality and relative value of its rooms and food and beverage offerings,entertainment offerings, promotions and gaming values. We believe that ourlocation away from downtown Reno is appealing to newer and more affluentguests.

 

Webelieve that the Atlantis’ primary competition for conventioneers comes fromother large-scale hotel casinos in the Reno area that actively target theconvention market segment, and from other cities in the western United Stateswith large convention facilities and substantial hotel capacity, including LasVegas.  We compete for conventioneersbased on the desirability of our location, the quality and ambiance of theAtlantis facility, meeting and banquet rooms designed to appeal to conventionsand groups, friendly, efficient service, and the quality and relative value ofits rooms and food and beverage offerings. We believe that the Atlantis’ proximity to the Reno-Sparks ConventionCenter affords us a distinct competitive advantage in attractingconventioneers.

 

Webelieve that the Atlantis’ competition for northern Nevada residents comesprimarily from other large-scale casinos located outside of downtown Reno thatoffer amenities that appeal to middle to upper-middle income guests, andsecondarily with those casinos located in downtown Reno that offer similaramenities.  We compete for northernNevada residents primarily on the basis of the desirability of our location,the quality and ambiance of the Atlantis facility, friendly, efficient service,the quality and relative value of our food and beverage offerings,entertainment offerings, promotions and gaming values.  We believe the Atlantis’ proximity toresidential areas in south Reno and its abundant surface parking provide us anadvantage over the casinos located in downtown Reno in attracting Locals.

 

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StationCasinos, Inc., a casino operator operating primarily in the Las Vegasmarket, has acquired several parcels in the Reno area and has announced plansto build two casinos, one of which would be located within one mile of ourAtlantis Casino Resort Spa.  Station is adominant casino operator catering to tourists and local residents in the LasVegas market.  Should Station proceedwith its plans to build one or more facilities in Reno, Station will createadditional competition for us and could have a material adverse impact on ourbusiness. We also believe, however, that Station’s plans could create a “ministrip” concentration of casinos near the Atlantis which could draw gamingpatrons away from the downtown Reno casinos to properties in this “mini strip”area.

 

TheAtlantis also competes for gaming guests with hotel casino operations locatedin other parts of Nevada, especially Las Vegas and Lake Tahoe, and with hotelcasinos, Indian casinos, and riverboat casinos located elsewhere throughout theUnited States and the world.  We believethat the Atlantis also competes to a lesser extent with state-sponsoredlotteries, off-track wagering, card parlors, and other forms of legalizedgaming, particularly in northern California and the Pacific Northwest.

 

Theconstitutional amendment approved by California voters in 2000 allowing theexpansion of Indian casinos in California has had an adverse impact on casinorevenues in Nevada in general, and many analysts have continued to predict theimpact will be more significant on the Reno-Lake Tahoe market.  The extent of this continued impact isdifficult to predict, but we believe that the impact on us will continue to bemitigated to some extent by the revenue generated from the Reno area residentsand our proximity to the Reno-Sparks Convention Center.  However, if other Reno area casinos continueto suffer business losses due to increased pressure from California Indiancasinos, they may intensify their marketing efforts to Reno-area residents aswell. However, we believe our numerous amenities, such as a wide array ofrestaurants, a video arcade, banquet facilities and surface parking are keyadvantages in our ability to attract Locals that competitor facilities cannoteasily match without major capital expenditures.

 

Certain experiencedNevada gaming operators have agreements to build and manage Indian casinofacilities near San Francisco, one of Reno’s key feeder markets. Once thesefacilities receive all the required permits and are built, they could providean alternative for drive market guests to Reno area casinos, especially duringcertain winter periods when auto travel through the Sierra Nevada mountainpasses is hampered. One major facility near Sacramento has been operating sinceJune 2003 and a second Sacramento area facility opened in 2008.  Both have been very successful, adverselyimpacting many hotel casinos in Reno.

 

Wealso believe that the legalization of unlimited land-based casino gaming in ornear any major metropolitan area in the Atlantis’ feeder markets, such as SanFrancisco or Sacramento, could have a material adverse impact on our business.

 

InJune 2004, five California Indian tribes signed compacts with the statethat allow the tribes to increase the number of slot machines beyond theprevious 2,000-per-tribe limit in exchange for higher fees from each of thefive tribes.  In February 2008, thevoters of the State of California approved compacts with four tribes located inSouthern California that increases the limit of Native American operated slotmachines in the State of California.

 

**REGULATIONAND LICENSING**

 

Theownership and operation of casino gaming facilities in Nevada are subject tothe Nevada Gaming Control Act and the regulations promulgated thereunder,referred to as the Nevada Act, and various local regulations.  Our gaming operations are subject to thelicensing and regulatory control of the Nevada Gaming Commission, the NevadaState Gaming Control Board, and the Reno City Council, referred to collectivelyas the Nevada Gaming Authorities.

 

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Thelaws, regulations and supervisory procedures of the Nevada Gaming Authoritiesare based upon declarations of public policy that are concerned with, amongother things:

 

·                  the prevention of unsavory orunsuitable persons from having a direct or indirect involvement with gaming atany time or in any capacity;

·                  the establishment andmaintenance of responsible accounting practices and procedures;

·                  the maintenance of effectivecontrols over the financial practices of licensees, including the establishmentof minimum procedures for internal fiscal affairs and the safeguarding ofassets and revenues, providing reliable record keeping and requiring the filingof periodic reports with the Nevada Gaming Authorities;

·                  the prevention of cheatingand fraudulent practices; and

·                  providing a source of stateand local revenues through taxation and licensing fees.

 

Changesin such laws, regulations and procedures could have an adverse effect on ourgaming operations.

 

GoldenRoad, our subsidiary which operates the Atlantis, is required to be licensed bythe Nevada Gaming Authorities.  Thegaming license requires the periodic payment of fees and taxes and is nottransferable.  We are registered by theNevada Gaming Commission as a publicly traded corporation, or RegisteredCorporation.  As such, we are requiredperiodically to submit detailed financial and operating reports to the NevadaGaming Commission and furnish any other information that the Nevada GamingCommission may require.  No person maybecome a stockholder of, or receive any percentage of profits from, Golden Roadwithout first obtaining licenses and approvals from the Nevada GamingAuthorities.  Golden Road and Monarchhave obtained from the Nevada Gaming Authorities the various registrations,approvals, permits and licenses required in order to engage in gamingactivities in Nevada.

 

TheNevada Gaming Authorities may investigate any individual who has a materialrelationship to, or material involvement with, Golden Road or Monarch in orderto determine whether that individual is suitable or should be licensed as abusiness associate of a gaming licensee. Officers, directors and key employeesof Golden Road must file applications with the Nevada Gaming Authorities andmay be required to be licensed or found suitable by the Nevada GamingAuthorities.  Our officers, directors andkey employees who are actively and directly involved in gaming activities ofGolden Road may be required to be licensed or found suitable by the NevadaGaming Authorities.  The Nevada GamingAuthorities may deny an application for licensing for any cause that they deemreasonable. A finding of suitability is comparable to licensing, and bothrequire submission of detailed personal and financial information followed by athorough investigation.  Applicants forlicensing or a finding of suitability must pay all costs of the investigation.Changes in licensed positions must be reported to the Nevada GamingAuthorities. In addition to their authority to deny an application for afinding of suitability or licensure, the Nevada Gaming Authorities also havejurisdiction to disapprove a change in a corporate position.

 

Ifthe Nevada Gaming Authorities were to find an officer, director or key employeeunsuitable for licensing or unsuitable to continue having a relationship withGolden Road or us, the companies involved would have to sever all relationshipswith that person.  In addition, theNevada Gaming Commission may require that we terminate the employment of anyperson who refuses to file appropriate applications.  Determinations of suitability or of questionspertaining to licensing are not subject to judicial review in Nevada.

 

Weare required to submit detailed financial and operating reports to the NevadaGaming Commission.  Substantially allmaterial loans, leases, sales of securities and similar financing transactionsby us must be reported to, or approved by, the Nevada Gaming Commission.

 

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Ifit were determined that we violated the Nevada Act, our gaming licenses andregistrations with the Nevada Gaming Commission could be limited, conditioned,suspended or revoked, subject to compliance with certain statutory andregulatory procedures.  In addition, weand the persons involved could be subject to substantial fines for eachseparate violation of the Nevada Act at the discretion of the Nevada Commission.  Further, the Nevada Gaming Commission couldappoint a supervisor to operate our gaming properties and, under certaincircumstances, earnings generated during the supervisor’s appointment (exceptfor the reasonable rental value of our gaming properties) could be forfeited tothe State of Nevada.  The limitation,conditioning or suspension of any gaming license or the appointment of asupervisor could (and revocation of any gaming license would) materiallyadversely affect our gaming operations.

 

Anybeneficial holder of our voting securities, regardless of the number of sharesowned, may be required to file an application, be investigated, and have hissuitability as a beneficial holder of our voting securities determined if theNevada Gaming Commission has reason to believe that such ownership wouldotherwise be inconsistent with the declared policies of the State ofNevada.  The applicant must pay all costsof investigation incurred by the Nevada Gaming Authorities in conducting anysuch investigation.

 

TheNevada Gaming Act requires any person who acquires more than 5% of Monarch’svoting securities to report the acquisition to the Nevada GamingCommission.  The Nevada Act requires thatbeneficial owners of more than 10% of our voting securities apply to the NevadaGaming Commission for a finding of suitability within 30 days after theChairman of the Nevada Gaming Control Board mails the written notice requiringsuch filing.  Under certaincircumstances, an “institutional investor,” as defined in the Nevada Act, whichacquires more than 10%, but not more than 15%, of our voting securities mayapply to the Nevada Gaming Commission for a waiver of such finding ofsuitability if the institutional investor holds the voting securities forinvestment purposes only.  Aninstitutional investor is not deemed to hold voting securities for investmentpurposes unless they were acquired and are held in the ordinary course ofbusiness as an institutional investor and not for the purpose of causing,directly or indirectly, the election of a majority of the members of our boardof directors, any change in our corporate charter, bylaws, management, policiesor operations, or any of our gaming affiliates, or any other action that theNevada Gaming Commission finds to be inconsistent with holding our votingsecurities for investment purposes only. Activities that are not deemed to be inconsistent with holding votingsecurities for investment purposes only include:

 

·                  voting on all matters votedon by stockholders;

·                  making financial and otherinquiries of management of the type normally made by securities analysts forinformational purposes and not to cause a change in its management, policies oroperations; and

·                  such other activities as theNevada Gaming Commission may determine to be consistent with such investmentintent.

 

Ifthe beneficial holder of voting securities who must be found suitable is acorporation, partnership or trust, it must submit detailed business andfinancial information including a list of beneficial owners.  The applicant is required to pay all costs ofinvestigation.

 

Anyperson who fails or refuses to apply for a finding of suitability or a licensewithin 30 days after being ordered to do so by the Nevada Gaming Commission orthe Chairman of the Nevada State Gaming Control Board may be foundunsuitable.  The same restrictions applyto a record owner if the record owner, after request, fails to identify thebeneficial owner.  Any stockholder foundunsuitable and who holds, directly or indirectly, any beneficial ownership ofthe common stock of a Registered Corporation beyond such period of time as maybe prescribed by the Nevada Gaming Commission may be guilty of a criminaloffense.  We are subject to disciplinaryaction if, after we receive notice that a person is unsuitable to be astockholder or to have any other relationship with us, we:

 

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·                  pay that person any dividendor interest upon voting securities,

·                  allow that person toexercise, directly or indirectly, any voting right conferred through securitiesheld by that person,

·                  pay remuneration in any formto that person for services rendered or otherwise, or

·                  fail to pursue all lawfulefforts to require such unsuitable person to relinquish his voting securitiesfor cash at fair market value.

 

TheNevada Gaming Commission may, in its discretion, require the holder of any debtsecurity of a Registered Corporation to file applications, be investigated andbe found suitable to own the debt security of a Registered Corporation.  If the Nevada Gaming Commission determinesthat a person is unsuitable to own such security, then pursuant to the NevadaAct, the Registered Corporation can be sanctioned, including the loss of itsapprovals if, without the prior approval of the Nevada Gaming Commission, it:

 

·                  pays to the unsuitableperson any dividend, interest, or any distribution;

·                  recognizes any voting rightby such unsuitable person in connection with such securities;

·                  pays the unsuitable personremuneration in any form; or

·                  makes any payment to the unsuitableperson by way of principal, redemption, conversion, exchange, liquidation orsimilar transaction.

 

Weare required to maintain a current stock ledger in Nevada, and the NevadaGaming Authorities may examine the ledger at any time.  If any securities are held in trust by anagent or a nominee, the record holder may be required to disclose the identityof the beneficial owner to the Nevada Gaming Authorities.  A failure to make such disclosure may begrounds for finding the record holder unsuitable.  We are also required to render maximumassistance in determining the identity of the beneficial owner.  The Nevada Gaming Commission has the power torequire our stock certificates to bear a legend indicating that the securitiesare subject to the Nevada Act.

 

Wemay not make a public offering of our securities without the prior approval ofthe Nevada Gaming Commission if the securities or proceeds there from areintended to be used to construct, acquire or finance gaming facilities inNevada, or to retire or extend obligations incurred for purposes ofconstructing, acquiring or financing gaming facilities.  Any approval, if granted, does not constitutea finding, recommendation or approval by the Nevada Gaming Commission or theNevada Gaming Control Board as to the accuracy or adequacy of the prospectus orthe investment merits of the securities offered.  Any representation to the contrary isunlawful.

 

Changesin our control through merger, consolidation, stock or asset acquisitions,management or consulting agreements, or any act or conduct by a person wherebythat person obtains control (including foreclosure on the pledged shares), maynot occur without the prior approval of the Nevada Gaming Commission.  Entities seeking to acquire control of aRegistered Corporation must satisfy the Nevada State Gaming Control Board andNevada Gaming Commission in a variety of stringent standards prior to assumingcontrol of such Registered Corporation. The Nevada Gaming Commission may also require controlling stockholders,officers, directors and other persons having a material relationship orinvolvement with the entity proposing to acquire control, to be investigatedand licensed as part of the approval process relating to the transaction.

 

TheNevada legislature has declared that some corporate acquisitions opposed bymanagement, repurchases of voting securities and corporate defense tacticsaffecting Nevada gaming licensees, and Registered Corporations that areaffiliated with those operations, may be injurious to stable and productivecorporate gaming.  The Nevada GamingCommission has established a regulatory scheme to ameliorate the potentiallyadverse effects of these business practices upon Nevada’s gaming industry andto further Nevada’s policy to:

 

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·                  assure the financialstability of corporate gaming operators and their affiliates;

·                  preserve the beneficialaspects of conducting business in the corporate form; and

·                  promote a neutralenvironment for the orderly governance of corporate affairs.

 

Weare, in certain circumstances, required to receive approval from the NevadaGaming Commission before we can make exceptional repurchases of votingsecurities above their current market price and before we can consummate acorporate acquisition opposed by management. The Nevada Act also requires prior approval of a plan ofrecapitalization proposed by our board of directors in response to a tenderoffer made directly to a Registered Corporation’s stockholders for the purposesof acquiring control of the Registered Corporation.

 

Licenseefees and taxes, computed in various ways depending on the type of gaming oractivity involved, are payable to the State of Nevada and to the counties andcities in which the Nevada licensee’s respective operations are conducted.  Depending upon the particular fee or taxinvolved, these fees and taxes are payable monthly, quarterly or annually andare based upon either:

 

·                  a percentage of the grossrevenues received;

·                  the number of gaming devicesoperated; or

·                  the number of table gamesoperated.

 

Alive entertainment tax is also paid where entertainment is furnished inconnection with the selling of food or refreshments.  Nevada licensees that hold a license as anoperator of a slot route, a manufacturer or a distributor also pay certain feesand taxes to the State of Nevada.

 

Anyperson who is licensed, required to be licensed, registered, required to beregistered, or is under common control with such persons, referred to asLicensees, and who is or proposes to become involved in a gaming ventureoutside of Nevada is required to deposit with the Nevada State Gaming ControlBoard, and thereafter maintain, a revolving fund in the amount of $10,000 topay the expenses of investigation by the Nevada State Gaming Control Board oftheir participation in foreign gaming. The revolving fund is subject to increase or decrease in the discretionof the Nevada Gaming Commission.  Thereafter,Licensees are required to comply with certain reporting requirements imposed bythe Nevada Act.  Licensees are alsosubject to disciplinary action by the Nevada Gaming Commission if theyknowingly violate any laws of the foreign jurisdiction pertaining to theforeign gaming operation, fail to conduct the foreign gaming operation inaccordance with the standards of honesty and integrity required of Nevadagaming operations, engage in activities that are harmful to the State of Nevadaor its ability to collect gaming taxes and fees, or employ a person in theforeign operation who has been denied a license or finding of suitability inNevada on the ground of personal unsuitability.

 

**EMPLOYEES**

** **

Asof March 9, 2009, we had approximately 1,810 employees.  None of our employees are covered bycollective bargaining agreements.  Webelieve that our relationship with our employees is good.

 

**ITEM 1A. RISKFACTORS**

 

Ourbusiness prospects are subject to various risks and uncertainties that impactour business. You should carefully consider the following discussion of risks,and the other information provided in this annual report on Form 10-K. Therisks described below are not the only ones facing us. Additional risks thatare presently unknown to us or that we currently deem immaterial may alsoimpact our business.

 

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**RECENTINSTABILITY IN THE FINANCIAL MARKETS MAY HAVE AN IMPACT ON OUR BUSINESS**

 

Recently,the residential real estate market in Reno and the U.S. has experienced asignificant downturn due to declining real estate values, substantiallyreducing mortgage loan originations and securitizations, and precipitating moregeneralized credit market dislocations and a significant contraction inavailable liquidity globally. These factors, combined with declining businessand consumer confidence and increased unemployment, have precipitated aneconomic recession. Individual consumers are experiencing higher delinquencyrates on various consumer loans and defaults on indebtedness of all kinds haveincreased. Further declines in real estate values in Reno and the U.S. orelsewhere and continuing credit and liquidity concerns could have an adverseaffect on our results of operations.

 

**OUR BUSINESS MAY BE ADVERSELYIMPACTED BY WEAKENED ECONOMIC CONDITIONS IN CALIFORNIA AND THE PACIFICNORTHWEST**

** **

Because California and the Pacific Northwest are significant marketsfor our leisure traveler and conventioneer guests, our business may beadversely impacted in the event of further weakened economic conditions inthose geographical markets.

 

**LIMITATIONS ORRESTRICTIONS ON OUR CREDIT FACILITY COULD HAVE A MATERIAL ADVERSE EFFECT ON OURLIQUIDITY**

** **

Anyrenegotiation or refinancing of our Credit Facility would likely result in theamendment of material provisions of the Credit Facility, such as the interestrate charged and other material covenants. Our Credit Facility is an important component of our liquidity.  Any material restriction on our ability touse our Credit Facility or the failure to obtain a new credit facility uponeither the maturity of the existing Credit Facility or the depletion of fundsremaining under the existing Credit Facility could adversely impact ouroperations and future growth options.

 

**OUR BUSINESS MAY BE ADVERSELYIMPACTED IF THE RENO ECONOMY DECLINES**

** **

**We market to and rely uponbusiness from Reno area residents.  Inrecent years, Reno has enjoyed robust business growth and has attracted anumber of technology, product distribution and marketing companies.  These businesses have created jobs and helpedfuel residential development, including the southwest Reno metropolitan areanear the Atlantis.  Adverse changes inthe business and employment conditions in Reno brought on by the recenteconomic downturn have adversely impacted our business.  Additional erosion in business and employmentconditions in Reno could adversely impact our business.**

** **

**THE GAMING INDUSTRY IS HIGHLY COMPETITIVEAND INCREASED COMPETITION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTUREOPERATIONS**

** **

Thegaming industry is highly competitive. As competitive pressures from California Native American casinosincrease, other Reno area casinos may intensify their targeting of the Renoarea resident market, which is one of our key markets.  Increased competitive pressures in the localmarket could adversely impact our ability to continue to attract local residentsto the Atlantis or require us to use more expensive, and therefore, lessprofitable promotions to compete more efficiently.

 

SeveralNative American casinos have opened in Northern California since passage of the2000 constitutional amendment. Certain experienced Nevada gaming operators manageIndian casino facilities 

 

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near Sacramento, one ofReno’s key feeder markets.  One majorfacility near Sacramento has been operating since June 2003 and a secondfacility near Sacramento opened  in2008.  Both have been very successful,adversely impacting many hotel casinos in Reno. Central and Northern Californiagaming facilities could provide an alternative to Reno area casinos, especiallyduring certain winter periods when auto travel through the Sierra Nevadamountain passes is hampered. This loss of California drive-in guests couldadversely affect our operations.

 

Wealso believe that the legalization of unlimited land-based casino gaming in ornear any major metropolitan area in the Atlantis’ key non-Reno marketing areas,such as San Francisco or Sacramento, could have a material adverse impact onour business.

 

InJune 2004, five California Indian tribes signed compacts with the statethat allow the tribes to increase the number of slot machines beyond theprevious 2,000-per-tribe limit in exchange for higher fees from each of thefive tribes.  In February 2008, thevoters of the State of California approved compacts with four tribes located inSouthern California that increase the limit of Native American operated slotmachines in the State of California.

 

Otherstates are also considering legislation that would enable the development andoperation of casinos or casino-like operations.

 

Inaddition, Native American gaming facilities in California and otherjurisdictions in some instances operate under regulatory requirements lessstringent than those imposed on Nevada licensed casinos, which could providethem a competitive advantage in our markets.  Moreover, there is apossibility of competition from internet and other account wagering gamingservices, which would allow their guests to wager on a wide variety of sportingevents and play Las Vegas-style casino games from home, and this could have amaterial adverse effect on our business, financial condition, operating resultsand prospects.

 

**OUR BUSINESS MAY BEADVERSELY IMPACTED BY THE ENTRY OF STATION CASINOS IN THE RENO MARKET**

** **

StationCasinos, Inc., a casino operator operating primarily in the Las Vegasmarket and catering mainly to Las Vegas area residents, has acquired severalparcels in the Reno area and has announced plans to build two casinos, one ofwhich would be located within one mile of our Atlantis Casino Resort Spa.Station Casinos is the dominant casino operator catering to local residents inthe Las Vegas market. Should Station Casinos proceed with its plans, it willcreate additional competition for us in the Reno area resident, conventioneerand tour and travel markets and could have a material adverse impact on ourbusiness.

 

**OUR BUSINESS MAY BE ADVERSELYIMPACTED IF WE ARE UNABLE TO ADEQUATELY STAFF OUR OPERATIONS**

** **

Duringperiods of robust business growth in Reno, the competition for employeesincreases.  During such times, new andgrowing business in the area may create job opportunities that at times haveexceeded the area’s supply of qualified employees.  If we are unable to attract and retainqualified employees, or if competition for employees results in materiallyincreased wages, our ability to maintain and grow our business could beadversely impacted.

 

**OURBUSINESS MAY BE ADVERSELY IMPACTED BY DOMESTIC AND INTERNATIONAL EVENTS**

** **

Theterrorist attacks that took place in the United States on September 11,2001, were unprecedented events that created economic and businessuncertainties, especially for the travel and 

 

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tourism industry.  The potential for future terrorist attacks,the national and international responses, and other acts of war or hostility,including the ongoing conflicts in Iraq and Afghanistan, have created economicand political uncertainties that could materially adversely affect ourbusiness, results of operations and financial condition in ways we cannotpredict.

 

**AN OUTBREAK OF HIGHLY INFECTIOUS DISEASE COULD ADVERSELY AFFECT THENUMBER OF VISITORS TO OUR FACILITIES AND DISRUPT OUR OPERATIONS, RESULTING IN AMATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS ANDCASH FLOWS**

** **

Therehave been recent fears concerning the spread of an “avian flu” and cruise shipshave reported other highly infectious virus outbreaks.  Potential future outbreaks of highlyinfectious diseases may adversely affect the number of visitors to our propertyand our business and prospects. Furthermore, an outbreak might disrupt ourability to adequately staff our business and could generally disrupt ouroperations. If any of our guests or employees is suspected of having contractedcertain highly contagious diseases, we may be required to quarantine thesecustomers or employees or the affected areas of our facilities and temporarilysuspend part or all of our operations at affected facilities. Any new outbreakof such a highly infectious disease could have a material adverse effect on ourfinancial condition, results of operations and cash flows.

 

**FAILURE OF THE RENO-SPARKS CONVENTIONCENTER TO BOOK AND ATTRACT CONVENTION BUSINESS COULD ADVERSELY IMPACT OURBUSINESS**

** **

TheAtlantis is the closest hotel-casino to the Reno-Sparks Convention Center. Ifthe Reno-Sparks Convention Center does not succeed in booking the anticipatedlevel of conventions, our future results of operations could be adverselyimpacted.

 

**BECAUSE WE ARE CURRENTLY DEPENDENTUPON A SINGLE PROPERTY IN A SINGLE MARKET FOR ALL OF OUR CASH FLOW, WE ARESUBJECT TO GREATER RISKS THAN A GAMING COMPANY WITH MORE OPERATING PROPERTIESOR THAT OPERATES IN MORE MARKETS**

** **

We currently do not have material assets or operations other than theAtlantis. As a result, we are entirely dependent upon the Atlantis property forall of our cash flow until we develop other properties.

 

**OUR BUSINESS IS SUBJECT TO RESTRICTIONSAND LIMITATIONS IMPOSED BY GAMING REGULATORY AUTHORITIES THAT COULD ADVERSELYAFFECT US**

** **

Theownership and operation of casino gaming facilities are subject to extensivestate and local regulation.  The State ofNevada and the applicable local authorities require various licenses,registrations, permits and approvals to be held by us and our subsidiary.  The Nevada Gaming Commission may, among otherthings, limit, condition, suspend, revoke or decline to renew a license or approvalto own the stock of our Nevada subsidiary for any cause deemed reasonable bysuch licensing authority.  If we violategaming laws or regulations, substantial fines could be levied against us, oursubsidiary and the persons involved, and we could be forced to forfeit aportion of our assets.  The suspension,revocation or non-renewal of any of our licenses or the levy on us ofsubstantial fines or forfeiture of assets would have a material adverse effecton our business, financial condition and results of operations.

 

Todate, we have obtained all governmental licenses, findings of suitability,registrations, permits and approvals necessary for the operation of our currentgaming activities.  However, gaminglicenses and related approvals are deemed to be privileges under Nevadalaw.  We cannot assure you that ourexisting licenses, permits and approvals will be maintained or extended.

 

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**OUR INSURANCE COVERAGE MAY NOTBE ADEQUATE TO COVER ALL POSSIBLE LOSSES THAT OUR PROPERTY COULD SUFFER.  IN ADDITION, OUR INSURANCE COSTS MAY INCREASEAND WE MAY NOT BE ABLE TO OBTAIN THE SAME INSURANCE COVERAGE IN THE FUTURE**

** **

Although we have general property insurance covering damage caused by acasualty loss (such as fire and natural disasters), each such policy hascertain exclusions. In addition, our property insurance is in an amount thatmay be less than the expected replacement cost of rebuilding the complex ifthere was a total loss. Our level of insurance coverage may not be adequate tocover all losses in the event of a major casualty. In addition, certaincasualty events, such as labor strikes, nuclear events, acts of war, loss ofincome due to cancellation of room reservations or conventions due to fear ofterrorism, deterioration or corrosion, insect or animal damage and pollution,might not be covered at all under our policies. Therefore, certain acts couldexpose us to heavy, uninsured losses.

 

In addition, although we currently have insurance coverage foroccurrences of terrorist acts and for certain losses that could result fromthese acts, our terrorism coverage is subject to the same risks anddeficiencies as those described above for our general property coverage. Thelack of sufficient insurance for these types of acts could expose us to heavylosses in the event that any damages occur, directly or indirectly, as a resultof terrorist attacks or otherwise, which could have a significant negativeimpact on our operations.

 

In addition to the damage caused to our property by a casualty loss(such as fire, natural disasters, acts of war or terrorism), we may sufferbusiness disruption as a result of these events or be subject to claims bythird parties injured or harmed. While we carry business interruption insuranceand general liability insurance, this insurance may not be adequate to coverall losses in such event.

 

We renew our insurance policies on an annual basis. The cost ofcoverage may become so high that we may need to reduce our policy limits oragree to certain exclusions from our coverage. Among other factors, it ispossible that the situation in Iraq, homeland security concerns, othercatastrophic events or any change in government legislation governing insurancecoverage for acts of terrorism could materially adversely affect availableinsurance coverage and result in increased premiums on available coverage(which may cause us to elect to reduce our policy limits) and additionalexclusions from coverage. Among other potential future adverse changes, in thefuture we may elect not to, or may not be able to, obtain any coverage forlosses due to acts of terrorism.

 

Our debt instruments and other material agreements require us tomaintain a certain minimum level of insurance. Failure to satisfy theserequirements could result in an event of default under these debt instrumentsor material agreements, which would have a material adverse effect on ourfinancial condition, results of operations or cash flows.

 

**IF THE STATE OF NEVADA OR THE CITY OFRENO INCREASES GAMING TAXES AND FEES, OUR RESULTS OF OPERATIONS COULD BEADVERSELY AFFECTED**

** **

Stateand local authorities raise a significant amount of revenue through taxes andfees on gaming activities. From time to time, legislators and officials haveproposed changes in tax laws, or in the administration of such laws, affectingthe gaming industry. In addition, worsening economic conditions could intensifythe efforts of state and local governments to raise revenues through increasesin gaming taxes or other fees.  If theState of Nevada or the City of Reno were to increase gaming taxes and fees, ourresults of operations could be adversely affected.

 

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**IF WE LOSE OUR KEY PERSONNEL, OURBUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED**

 

Wedepend on the continued performances of John Farahi and Bob Farahi, our ChiefExecutive Officer and our President, respectively, and their managementteam.  If we lose the services of theFarahi brothers, or other senior Atlantis management personnel, and cannotreplace such persons in a timely manner, our business could be materiallyadversely affected.

 

**ADVERSE WINTER WEATHER CONDITIONS IN THESIERRA NEVADA MOUNTAINS AND RENO-LAKE TAHOE AREA COULD HAVE A MATERIAL ADVERSEEFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

** **

Adversewinter weather conditions, particularly snowfall, can prevent customers fromtraveling or make it difficult for them to drive to the Atlantis.  Adverse winter weather would mostsignificantly affect our drive-in customers from northern California and thePacific Northwest.  If the Reno areaitself were to experience prolonged adverse winter weather conditions, ourresults of operations and financial condition could also be materiallyadversely affected.

 

**CLAIMS HAVE BEEN BROUGHTAGAINST US AND OUR SUBSIDIARY IN VARIOUS LEGAL PROCEEDINGS, AND ADDITIONALLEGAL AND TAX CLAIMS ARISE FROM TIME TO TIME**

** **

Itis possible that our cash flows and results of operations could be affected bythe resolution of legal and other claims. We believe that the ultimatedisposition of current matters will not have a material impact on our financialcondition or results of operations. Please see the further discussion under“Legal Proceedings” in Item 3 of this Form 10-K.

 

**ENERGY PRICE INCREASES MAY ADVERSELY AFFECT OUR COST OFOPERATIONS AND OUR REVENUES**

 

Ourfacility uses significant amounts of electricity, natural gas and other formsof energy. While no shortages of energy or fuel have been experienced to date,increases in energy and fuel prices in the United States may negatively affectour operating results. The extent of the impact is subject to the magnitude andduration of the energy and fuel price increases, but this impact could bematerial. In addition, energy and gasoline price increases in cities thatconstitute a significant source of customers for our properties could result ina decline in disposable income of potential customers and a correspondingdecrease in visitation and spending at our properties, which would negativelyimpact revenues.

 

**CHANGES IN REGULATIONS ONLAND USE REQUIREMENTS COULD ADVERSELY IMPACT OUR BUSINESS**

** **

Achange in regulations on land use requirements with regard to development ofnew hotel casinos in the proximity of the Atlantis could have an adverse impacton our business, results of operations, and financial condition.  A relaxation in such regulations could makeit easier for competitors to enter our immediate market.  A tightening of such regulations couldadversely impact our future expansion opportunities.

 

**OUR RESULTS OF OPERATIONS MAY BEADVERSELY AFFECTED BY HIGH-END PLAYERS’ WINNINGS**

** **

Althoughnot the major focus of our marketing efforts, we have selectively targetedhigh-end players. Should one or more of these high-end players win large sumsin our casino, or should a material amount of credit extended to such playersnot be repaid, our results of operations could be adversely impacted.

 

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**WE HAVE THE ABILITY TO ISSUE ADDITIONAL EQUITY SECURITIES,WHICH WOULD LEAD TO DILUTION OF OUR ISSUED AND OUTSTANDING COMMON STOCK**

 

Theissuance of additional equity securities or securities convertible into equitysecurities would result in dilution of our existing stockholders’ equityinterests in us. Our Board of Directors has the authority to issue, withoutvote or action of stockholders, preferred stock in one or more series, and hasthe ability to fix the rights, preferences, privileges and restrictions of anysuch series. Any such series of preferred stock could contain dividend rights,conversion rights, voting rights, terms of redemption, redemption prices,liquidation preferences or other rights superior to the rights of holders ofour common stock. If we issue convertible preferred stock, a subsequentconversion may dilute the current common stockholders’ interest.

 

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

** **

Wehave never paid a cash dividend on our common stock, and we do not plan to payany cash dividends on our common stock in the foreseeable future. We currentlyintend to retain any future earnings to finance our operations and furtherexpansion and growth of our business, including acquisitions. As a result, thesuccess of an investment in our common stock will depend upon any futureappreciation in its value. We cannot guarantee that our common stock willappreciate in value or even maintain the price at which stockholders havepurchased their shares.

 

**ITEM1B. UNRESOLVED STAFF COMMENTS**

 

Therewere no unresolved comments from the SEC staff at the time of filing this Form 10-K.

 

**ITEM 2.PROPERTIES**

 

Ourproperties consist of:

 

(a) An approximately 13-acre site in Reno, Nevada on which the Atlantis issituated, including the hotel towers, casino, restaurant facilities andsurrounding parking.

 

(b) An approximately 16-acre site, adjacent to the Atlantis and connected to theAtlantis by the Sky Terrace, which includes approximately 11 acres of pavedparking used for customer, employee and valet parking.  The remainder of the site isundeveloped.  This site is compliant withall casino zoning requirements and is suitable and available for futureexpansion of the Atlantis facilities, parking, or complementary resort casinoand/or entertainment amenities.  We havenot determined the ultimate use of this site.

 

(c) An approximately 2.6-acre site across Virginia Street from the Atlantis whichis expected to be utilized as administrative offices (“the AdministrativeSite”) for Atlantis staff.

 

(d) Leased land consisting of 37,368 square-feet next door to the Atlantis servingas a driveway entrance to the Atlantis. The least term ends in 2019.  Fora further description of the least terms, see Item 8, “FINANCISAL STATEMENS,Notes to Consolidated Financial Statements, Notes 4 and 10”.

 

(e) Leasedland consisting of approximately 2.3 acres adjacent to the Administrative Siteutilized for storage and administrative offices.  The lease term ends in December 2009.  For a further description of the least terms,see Item 8, “FINANCISAL STATEMENS, Notes to Consolidated Financial Statements,Notes 4 and 10”.

 

Ourcredit facility is secured by liens on all of our real property.

 

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**ITEM 3.LEGAL PROCEEDINGS**

 

Litigationwas filed against Monarch on January 27, 2006, by Kerzner InternationalLimited (“Kerzner “) owner of the Atlantis, Paradise Island, Bahamas in theUnited States District Court, District of Nevada.  The case number assigned to the matter is3:06-cv-00232-ECR (RAM).  The complaintseeks declaratory judgment prohibiting Monarch from using the name “Atlantis”in connection with offering casino services other than at Monarch’s AtlantisCasino Resort Spa located in Reno, Nevada, and particularly prohibiting Monarchfrom using the “Atlantis” name in connection with offering casino services inLas Vegas, Nevada; injunctive relief enforcing the same; unspecifiedcompensatory and punitive damages; and other relief. Monarch believes Kerzner’sclaims to be entirely without merit and is defending vigorously against thesuit. Further, Monarch has filed a counterclaim against Kerzner seeking toenforce the license agreement granting Monarch the exclusive right to use theAtlantis name in association with lodging throughout the state of Nevada; tocancel Kerzner’s registration of the Atlantis mark for casino services on thebasis that the mark was fraudulently obtained by Kerzner; and to obtaindeclaratory relief on these issues. Litigation is in the discovery phase.

 

Weare party to other claims that arise in the normal course of business.  Management believes that the outcomes of suchclaims will not have a material adverse impact on our financial condition, cashflows or results of operations.

 

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

 

Therewere no matters submitted to a vote of our security holders during the fourthquarter of 2008.

 

**PART II**

 

**ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

(a) Our common stock trades on The NASDAQ Stock Market under the symbol MCRI. Thefollowing table sets forth the high and low bid prices of our common stock, asreported by the NASDAQ Stock Market, during the periods indicated.

 
| ** **     | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| First quarter  |       | $        | 24.47      |     | $          | 15.89 |   | $ | 27.32 |   | $ | 23.18 |   |
| Second quarter |       | $        | 19.23      |     | $          | 11.52 |   | $ | 28.93 |   | $ | 24.59 |   |
| Third quarter  |       | $        | 14.53      |     | $          | 10.20 |   | $ | 31.20 |   | $ | 22.00 |   |
| Fourth quarter |       | $        | 11.81      |     | $          | 5.16 |   | $ | 31.39 |   | $ | 23.50 |   |

 

Asof February 27, 2009, there were approximately 85 holders of record of ourcommon stock, and approximately 2,033 beneficial stockholders.

 

Wehave never paid dividends. We presently intend to retain earnings and use freecash flow to finance our operating activities, for maintenance capitalexpenditures and to pay down our debt. We do not anticipate declaring cashdividends in the foreseeable future. Our bank loan agreement also containsprovisions that require the achievement of certain financial ratios before wecan pay or declare dividends to our stockholders. See Item 8, “FINANCIALSTATEMENTS, Notes to Consolidated Financial Statements, Note 5.”

 

For information relating to securities authorized for issuance underequity compensation plans,  see Part III, Item 12 - SecurityOwnership of Certain Beneficial Owners and Management.

 

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**STOCK PERFORMANCE GRAPH**

 

The following chart reflects the cumulative total return (change instock price plus reinvested dividends) of a $100 investment in the Company’sCommon Stock from the five-year period from January 1, 2004 through December 31,2008, in comparison to the Standard & Poor’s 500 Composite Stock Indexand an industry peer group index. The comparisons are not intended to forecastor be indicative of possible future performance of the Company’s Common Stock.

 

 
| ** **                                  | ** ** | **Period Ending** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| **Index**                                   | ** ** | **12/31/04**           | ** ** | **12/31/05** | ** ** | **12/31/06** | ** ** | **12/31/07** | ** ** | **12/31/08** | ** ** |
| Monarch Casino & Resort, Inc. |       | 363.68                 |       | 405.38 |   | 428.34 |   | 431.93 |   | 208.97 |   |
| S&P 500                                 |       | 110.88                 |       | 116.33 |   | 134.70 |   | 142.10 |   | 89.53 |   |
| Peer Group Index*                           |       | 196.82                 |       | 182.80 |   | 316.80 |   | 382.33 |   | 60.81 |   |

 

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**Peer Group index comprised of:  Ameristar Casinos, Inc.; Boyd GamingCorp; Isle of Capri Casinos, Inc.; Las Vegas Sands Corp.;*

*MGM Mirage; Nevada Gold & Casinos, Inc.; PennNational Gaming, Inc.; Pinnacle Entertainment, Inc.; Riviera HoldingsCorp.;*

*and Wynn Resorts, Ltd*

 

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**ITEM 6.SELECTED FINANCIAL DATA**

 
| ** **                                                                        | ** ** | **Years ended December 31,**                       | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **Amounts in thousands, except per share amounts** | ** ** |
| ** **                                                                        | ** ** | **2008**                                           | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| OPERATING RESULTS                                                                 |       |                                               |       |   |   |   |   |   |   |   |   |
| Casino revenues                                                                   |       | $                                                  | 100,904    |   | $ | 110,259 |   | $ | 103,333 |   | $ | 94,501 |   | $ | 84,132 |   |
| Other revenues                                                                    |       | 66,688                                             |       | 75,117 |   | 72,329 |   | 67,165 |   | 65,545 |   |
| Gross revenues                                                                    |       | 167,592                                            |       | 185,376 |   | 175,662 |   | 161,666 |   | 149,677 |   |
| Promotional  allowances                                                           |       | (26,223                                            | )          | (25,519 | ) | (23,693 | ) | (21,881 | ) | (20,220 | ) |
| Net revenues                                                                      |       | 141,369                                            |       | 159,856 |   | 151,969 |   | 139,785 |   | 129,457 |   |
| Income from  operations                                                           |       | 14,686                                             | (F1)       | 35,688 | (F2) | 33,492 | (F3) | 33,069 | (F4) | 26,274 | (F5) |
| Income before  income tax                                                         |       | 14,518                                             |       | 37,464 |   | 33,860 |   | 32,056 |   | 24,689 |   |
| Net income                                                                        |       | $                                                  | 9,541      |   | $ | 24,480 |   | $ | 22,080 |   | $ | 21,035 |   | $ | 16,526 |   |
|                                                                              |       |                                               |       |   |   |   |   |   |   |   |   |
| INCOME PER SHARE  OF COMMON STOCK (F6)                                            |       |                                               |       |   |   |   |   |   |   |   |   |
| Net income per  share                                                             |       |                                               |       |   |   |   |   |   |   |   |   |
| Basic                                                                             |       | $                                                  | 0.56       |   | $ | 1.28 |   | $ | 1.16 |   | $ | 1.12 |   | $ | 0.88 |   |
| Diluted                                                                           |       | $                                                  | 0.56       |   | $ | 1.27 |   | $ | 1.15 |   | $ | 1.10 |   | $ | 0.88 |   |
|                                                                              |       |                                               |       |   |   |   |   |   |   |   |   |
| Weighted average  number of common shares and potential common shares outstanding |       |                                               |       |   |   |   |   |   |   |   |   |
| Basic                                                                             |       | 16,958                                             |       | 19,058 |   | 18,990 |   | 18,849 |   | 18,756 |   |
| Diluted                                                                           |       | 17,017                                             |       | 19,329 |   | 19,275 |   | 19,094 |   | 18,815 |   |
|                                                                              |       |                                               |       |   |   |   |   |   |   |   |   |
| OTHER DATA                                                                        |       |                                               |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                    |       | $                                                  | 9,892      |   | $ | 8,138 |   | $ | 8,559 |   | $ | 8,379 |   | $ | 9,628 |   |
| Other (expense)  income                                                           |       | $                                                  | (168       | ) | $ | 1,776 |   | $ | 368 |   | $ | (1,013 | ) | $ | (1,584 | ) |
| Capital  expenditures (F7)                                                        |       | $                                                  | 67,882     |   | $ | 17,287 |   | $ | 5,795 |   | $ | 6,113 |   | $ | 9,710 |   |
|                                                                              |       |                                               |       |   |   |   |   |   |   |   |   |
| BALANCE SHEET  DATA                                                               |       |                                               |       |   |   |   |   |   |   |   |   |
| Total assets                                                                      |       | $                                                  | 182,502    |   | $ | 154,286 |   | $ | 138,381 |   | $ | 117,670 |   | $ | 118,339 |   |
| Current  maturities of long-term debt                                             |       | $                                                  | 2,500      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Long-term debt,  less current maturities                                          |       | $                                                  | 47,500     |   | $ | — |   | $ | — |   | $ | 8,100 |   | $ | 32,400 |   |
| Stockholders’  equity (F8)                                                   |       | $                                                  | 105,595    |   | $ | 129,419 |   | $ | 115,646 |   | $ | 87,559 |   | $ | 65,763 |   |

 

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Footnotesto Selected Financial Data:

(F1) 2008 includes a $34thousand gain on disposal of fixed assets

(F2) 2007 includes a $7thousand gain on disposal of fixed assets

(F3) 2006 includes a $55thousand loss on disposal of fixed assets

(F4) 2005 includes a $42thousand gain on disposal of fixed assets.

(F5)2004 includes a $173 thousand loss on disposal of fixed assets.

(F6)Per share data and shares outstanding prior to 2005 are adjusted to reflect a2-for-1 stock split effective March 31, 2005.

(F7)Includes amounts financed with debt or capitalized lease obligations.

(F8)We paid no dividends during the five year period ended December 31, 2008.

 

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**ITEM7.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

MonarchCasino & Resort, Inc., through its wholly-owned subsidiary,Golden Road Motor Inn, Inc. (“Golden Road”), owns and operates thetropically-themed Atlantis Casino Resort Spa, a hotel/casino facility in Reno,Nevada (the “Atlantis”).  Monarch’s otherwholly owned subsidiary, High Desert Sunshine, Inc., owns a parcel of landlocated adjacent to the Atlantis. Monarch was incorporated in 1993 under Nevada law for the purpose ofacquiring all of the stock of Golden Road. The principal asset of Monarch is the stock of Golden Road, which holdsall of the assets of the Atlantis.

 

Oursole operating asset, the Atlantis, is a hotel/casino resort located in Reno,Nevada.  Our business strategy is tomaximize the Atlantis’ revenues, operating income and cash flow primarilythrough our casino, our food and beverage operations and our hoteloperations.  We capitalize on theAtlantis’ location for tour and travel visitors, conventioneers and Locals byoffering exceptional service, value and an appealing theme to our guests.  Our hands-on management style focuses oncustomer service and cost efficiencies.

 

Unlessotherwise indicated, “Monarch,” “Company,” “we,” “our” and “us” refer toMonarch Casino & Resort, Inc. and its Golden Road and High DesertSunshine, Inc subsidiaries.

 

**OPERATINGRESULTS SUMMARY**

 

Belowis a summary of our results for the twelve month periods ended December 31for 2008, 2007 and 2006, respectively:

 
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percentage**                      | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------------------|------------|
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase / (Decrease)** | ** ** |
| **Amounts in millions, except per share amounts** | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** | **08 vs 07**              | ** ** | **07 vs 06** | ** ** |
| Casino revenues                                                                 |       | $          | 100.9      |       | $          | 110.3      |       | $                                   | 103.3      |   | (8.5 | )% | 6.8 | % |
| Food and  beverage revenues                                                     |       | 39.5       |       | 42.4       |       | 41.0       |       | (6.8                                | )%         | 3.4 | % |
| Hotel revenues                                                                  |       | 22.3       |       | 27.9       |       | 26.4       |       | (20.1                               | )%         | 5.7 | % |
| Other revenues                                                                  |       | 5.0        |       | 4.9        |       | 4.9        |       | 2.0                                 | %          | — |   |
| Net revenues                                                                    |       | 141.4      |       | 159.9      |       | 152.0      |       | (11.6                               | )%         | 5.2 | % |
| Sales, general  and admin exp                                                   |       | 51.2       |       | 50.0       |       | 46.3       |       | 2.4                                 | %          | 8.0 | % |
| Income from  operations                                                         |       | 14.7       |       | 35.7       |       | 33.5       |       | (58.8                               | )%         | 6.6 | % |
|                                                                            |       |       |       |       |       |       |       |                                |       |   |   |
| Net income                                                                      |       | 9.5        |       | 24.5       |       | 22.1       |       | (61.2                               | )%         | 10.9 | % |
|                                                                            |       |       |       |       |       |       |       |                                |       |   |   |
| Earnings per  share - diluted                                                   |       | 0.56       |       | 1.27       |       | 1.15       |       | (55.9                               | )%         | 10.4 | % |
|                                                                            |       |       |       |       |       |       |       |                                |       |   |   |
| Operating margin                                                                |       | 10.4       | %          | 22.3       | %          | 22.0       | %          | (11.9                               | )pts       | 0.3 | pts |
|                                                                                 |            |            |            |            |            |            |            |                                     |            |  |  |  |  |  |

 

Ourresults for the twelve months ended December 31, 2008 reflect the effectsof the challenging operating environment that began in the three month periodended December 31, 2007.  As in manyother areas around the country, the economic downturn in northern Nevada in thefourth quarter of 2007 has deepened throughout 2008.  Other factors causing negative financialimpact that continued from the fourth quarter of 2007 were disruption fromconstruction related to capital projects through the third quarter of 2008 (see“CAPITAL SPENDING AND DEVELOPMENT” below) and aggressive discounting programsby our competitors.  In response to thesechallenges, we increased marketing and promotional expenditures to attract andretain guests.  We also continued toincur legal expenses associated with the ongoing and previously disclosedKerzner litigation (see “LEGAL PROCEEDINGS” 

 

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below). We anticipate that downward pressure on profits will persist as long aswe continue to experience the adverse effects of the negative macroeconomicenvironment, the aggressive marketing programs of our competitors and the legaldefense costs associated with the Kerzner lawsuit.

 

Thesefactors were the primary drivers of:

 

·                  Decreasesof 8.5%, 6.8% and 20.1% in our casino, food and beverage and hotel revenues,respectively, resulting in a net revenue decrease of 11.6%.

 

·                  Adecrease in our 2008 operating margin by 11.9 points or 53.4%.

 

**CAPITALSPENDING AND DEVELOPMENT**

 

Weseek to continuously upgrade and maintain the Atlantis facility in order topresent a fresh, high quality product to our guests.

 

In June 2007, webroke ground on an expansion project several phases of which we completed andopened in the second half of 2008.  Newspace was added to the first floor casino level, the second and third floorsand the basement level totaling approximately 116,000 square feet.  The existing casino floor was expanded byover 10,000 square feet, or approximately 20%. The first floor casino expansion includes a redesigned, updated andexpanded race and sports book of approximately 4,000 square feet and anenlarged poker room.  The expansion alsoincluded the new “Manhattan Deli”, a New York deli-style restaurant.  The second floor expansion created additionalballroom and convention space of approximately 27,000 square feet, doubling theexisting facilities.  We constructed andopened a pedestrian skywalk over Peckham Lane that connects the Reno-SparksConvention Center directly to the Atlantis. In January 2009, we opened the final phase of the expansionproject, the new Spa Atlantis featuring an atmosphere, amenities and treatmentsthat are unique from any other offering in our market.  Additionally, many of the pre-expansion areasof the Atlantis were remodeled to be consistent with the upgraded look and feelof the new facilities.  The remodelingwork will continue into 2009.  The totalcost of these capital projects is approximately $73 million.  Through December 31, 2008, the Companyhad incurred approximately $68 million of that total.

 

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

 

Capitalexpenditures at the Atlantis were $67.9 million in 2008, $17.3 million in 2007and, $5.8 million in 2006.  During 2008and 2007, capital expenditures primarily consisted of construction costsassociated with the expansion, skybridge and remodel capital projects thatcommenced in June 2007.****During2006, capital expenditures primarily consisted of acquisition of gaming andcomputer equipment, the installation of a casino high-definition video displaysystem, renovation of our Java Coast Gourmet Coffee and pastry bar, initialdesign and planning expenditures associated with our expansion and ongoingpublic area renovations and upgrades.

 

Future cash needed tofinance ongoing capital expenditures is expected to be available from operatingcash flow, the Credit Facility (see “THE CREDIT FACILITY” below) and, ifnecessary, additional borrowings.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Weprepare our consolidated financial statements in conformity with accountingprinciples generally accepted in the United States.  Certain of our policies, including theestimated lives assigned to 

 

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our assets, the determination of bad debtreserves, self insurance reserves, concentration of credit risk, and thecalculation of income tax liabilities, require that we apply significantjudgment in defining the appropriate assumptions for calculating financialestimates.  By their nature, thesejudgments are subject to an inherent degree of uncertainty.  Our judgments are based on historicalexperience, terms of existing contracts, observations of trends in theindustry, information provided by customers and information available fromother outside sources, as appropriate. There can be no assurance that actual results will not differ from ourestimates.  To provide an understandingof the methodologies applied, our significant accounting policies are discussedwhere appropriate in this discussion and analysis and in the Notes toConsolidated Financial Statements.

 

Theconsolidated financial statements include the accounts of Monarch and GoldenRoad. Intercompany balances and transactions are eliminated.

 

Self-insuranceReserves

 

TheCompany reviews self-insurance reserves at least quarterly. The reserve isdetermined by reviewing the actual expenditures for the previous twelve-monthperiod and reports prepared by the third party plan administrator for anysignificant unpaid claims.  The reserveis an amount estimated to pay both reported and unreported claims as of thebalance sheet date, which management believes are adequate.

 

CasinoRevenues

 

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

 

PromotionalAllowances

 

The retail value of hotel, food and beverage servicesprovided to customers without charge is included in gross revenue and deductedas promotional allowances.

 

IncomeTaxes

 

Income taxes arerecorded in accordance with the liability method specified by SFAS No. 109,“Accounting for Income Taxes.”  Under theasset and liability approach for financial accounting and reporting for incometaxes, the following basic principles are applied in accounting for incometaxes at the date of the financial statements: (a) a current liability orasset is recognized for the estimated taxes payable or refundable on taxes forthe current year; (b) a deferred income tax liability or asset isrecognized for the estimated future tax effects attributable to temporarydifferences and carryforwards; (c) the measurement of current and deferredtax 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) themeasurement of deferred income taxes is reduced, if necessary, by the amount ofany tax benefits that, based upon available evidence, are not expected to berealized.

 

The Company also appliesthe requirements of FIN 48 which prescribes minimum recognition thresholds atax position is required to meet before being recognized in the financialstatements.  FIN 48 also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition.  Implementation has resulted in no materialimpact on the Company’s financial position or results of operations.

 

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**RESULTSOF OPERATIONS**

** **

2008 Compared with 2007

 

For the year ended December 31,2008, we earned net income of $9.5 million, or $0.56 per diluted share, on netrevenues of $141.4 million, compared to net income of $24.5 million, or $1.27per diluted share, on net revenues of $159.9 million for the year ended December 31,2007.  Income from operations totaled$14.7 million for 2008, a 58.8% decrease when compared to $35.7 million for2007.

 

Casino revenues totaled$100.9 million in 2008, a decrease of 8.5% from the $110.3 million reported in2007, driven by decreases in slot, table games, poker and keno win due to thedecrease in discretionary spending, disruption from construction and competitorpromotional programs.  Casino operatingexpenses were 36.9% of casino revenues in 2008 compared to 32.6% in 2007.  The increase was primarily due to thedecreased casino revenue combined with the cost of increased complimentaryfood, beverages and other services provided to casino patrons.

 

#### **Food and beverage revenuesdecreased 6.8% to $39.5 million in 2008 from $42.4 million in 2007, dueprimarily due to a 3.7% increase in average revenue per cover combined with a10.2% decrease in the number of covers served. Food and beverage operatingexpenses as a percentage of food and beverage revenue increased to 48.6% in2008 from 47.9% in 2007 primarily related to higher commodity costs and a 12%increase in the legal minimum wage in July 2008.**

#### ** **

Hotel revenues totaled$22.3 million in 2008, a decrease of 20.1% from $27.9 million in 2007. Thedecrease reflects decreases in both the average daily room rate (“ADR”) andoccupancy rate during the twelve month period of 2008 compared to the sameperiod in 2007.  The Atlantis’ ADR was$65.52 in 2008 compared to $74.04 in 2007. The average occupancy rate at the Atlantis was 84.9% in 2008 compared to93.8% in 2007.  Hotel operating expensesincreased to 35.4% of hotel revenues in 2008, compared to 30.0% in 2007.  This increase in operating expenses as apercentage of hotel revenues resulted primarily from the decreased revenuepartially offset by lower direct hotel operating expenses.

 

Promotional allowancesincreased to $26.2 million in 2008 compared to $25.5 million in 2007.  As a percentage of gross revenue, the amountin 2008 increased to 15.6% as compared to 13.8% for 2007.  The increase is attributable to continued promotionalefforts to maintain existing, and generate additional, revenues.

 

Other revenues in 2008increased slightly to $5.0 million as compared to $4.9 million in 2007.

 

Selling,general and administrative (“SG&A”) expenses totaled $51.2 million, or36.2% of net revenues, in 2008 compared to $50.0 million, or 31.3% of netrevenues, in 2007 for a year over year increase of $1.2 million or 2.4%.  The primary drivers of this increase are: i)higher marketing and promotional expense primarily related to our efforts tomitigate the negative effects of the disruption our guests experienced relatedto construction of our expansion project (see additional discussion above under“CAPITAL SPENDING AND DEVELOPMENT”), aggressive marketing discount programs byour nearest competitor to promote the grand opening of its major expansionproject and negative macroeconomic trends experienced in Reno, our feedermarkets and the nation as a whole and ii) higher bad debt expense partiallyoffset by iii) lower legal expense and iv) lower payroll and benefits expenserelated to lower headcount in 2008 as compared to 2007.

 

Depreciation andamortization expense was $9.9 million in 2008, an increase of 21.6% compared to$8.1 million in 2007.

 

Interestexpense increased to $539,000 in 2008 from $152,000 in 2007 due to increasedborrowings under our credit facility (see “THE CREDIT FACILITY” below).  Interest income derived 

 

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from investment of surplus cash in short-term,interest bearing instruments decreased to $371,000 from $1.9 million in2007.  This increase was driven primarilyby lower surplus cash invested in 2008 as compared to 2007.  The surplus cash was used in 2007 and throughthe second quarter of 2008 for our capital projects (see “CAPITAL SPENDING ANDDEVELOPMENT” above) and share repurchases.

 

2007 Compared with 2006

 

For the year ended December 31,2007, we earned net income of $24.5 million, or $1.27 per diluted share, on netrevenues of $159.9 million, compared to net income of $22.1 million, or $1.15per diluted share, on net revenues of $152.0 million for the year ended December 31,2006.  Net revenue for 2007 is thehighest in Company history.  Income fromoperations totaled $35.7 million for 2007, a 6.6% increase when compared to$33.5 million for 2006. Net income for the year 2007 represents a record highfor our Company. We believe that for much of 2007, the Atlantis continued tobenefit from the increasing popularity of the Atlantis with visitors to theReno area, from our commitment to ongoing property upgrades and renovations andfrom the rapid growth occurring in the residential and commercial areas southof the Atlantis in Reno.

 

Casino revenues totaled$110.3 million in 2007, up 6.8% from $103.3 million in 2006, driven byincreases in slot, table games, poker and Keno win.  Revenue from slot and video poker machines (“slotmachines”) increased approximately 7.3% in 2007 compared to 2006. We believethat increased slot machine play was due to continued effective marketing andcontinuous upgrade of facilities and equipment. Table game win increasedapproximately 2.4% in 2007 compared to 2006. Keno and poker room revenuescombined increased approximately 11.0% in 2007 over 2006 due to continuedeffective marketing and the quality of the product and service offering at theAtlantis. Casino operating expenses were 32.6% of casino revenues in 2007, aslight improvement from 33.0% in 2006.

 

#### **Food and beverage revenuesincreased 3.4% to $42.4 million in 2007 from $41.0 million in 2006, primarilydue to a 3.5% increase in average revenue per cover. Food and beverageoperating expenses as a percentage of food and beverage revenue increasedslightly to 47.9% in 2007 from to 47.6% in 2006.**

#### ** **

Hotel revenues totaled$27.9 million in 2007, an increase of 5.7% from $26.4 million in 2006. Theincrease reflects an increase in both the average daily room rate (“ADR”) andoccupancy rate during the twelve month period of 2007 compared to the sameperiod in 2006.  The Atlantis’ ADR was$74.04 in 2007, compared to $69.87 in 2006. The average occupancy rate at the Atlantis was 93.8% in 2007 compared to93.3% in 2006.  Hotel operating expensesdecreased slightly to 30.0% of hotel revenues in 2007, compared to 31.7% in 2006.  This decrease in operating expenses as apercentage of hotel revenues resulted primarily from the revenue impact of theincreased ADR partially offset by increased direct hotel operating expenses.

 

Promotional allowancesincreased to $25.5 million in 2007 compared to $23.7 million in 2006.  As a percentage of gross revenue, the amountin 2007 increased slightly to 13.8% as compared to 13.5% for 2006.  The dollar increase is attributable tocontinued efforts to generate additional revenues and reflects efforts toensure that promotional costs are directed toward gaming guests.

 

Other revenues in 2007remained flat at $4.9 million when compared to 2006.  Other operating expenses were 30.5% of otherrevenues in 2007, an increase from 29.7% in 2006.

 

Selling,general and administrative (“SG&A”) expenses totaled $50.0 million, or31.3% of net revenues, in 2007 compared to $46.3 million, or 30.5% of netrevenues, in 2006 for a year over year increase of $3.7 million or 8.0%.  The primary drivers of this increase are: i)higher legal expense related to the ongoing Kerzner litigation (see ITEM 3.LEGAL PROCEEDINGS above); ii) higher marketing and promotional expenseprimarily related to our efforts to mitigate the negative effects of disruptionour guests experienced related to construction of our expansion project (seeadditional discussion below 

 

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under Capital Spending and Development),aggressive marketing programs by our nearest competitor to promote the grandopening of its major expansion project and negative macroeconomic trendsexperienced in the Reno, our feeder markets and the nation as a whole and iii)higher payroll and benefits expense primarily related to increased headcountrelated to our expansion project (see additional discussion below under CapitalSpending and Development), higher health care benefits expense and an increasein the minimum wage all partially offset by the impact of a $1.2 millionnon-cash charge in the second quarter of 2006, which did not recur in 2007,related to early vesting of stock options for the Company’s former Co-Chairmanand Chief Financial Officer who resigned in 2006.

 

Depreciation andamortization expense was $8.1 million in 2007, a decrease of 5.8% compared to$8.6 million in 2006.

 

Interestexpense, reflecting amortization of various one-time fees and other loan costsrequired to open our credit facility (see THE CREDIT FACILITY below), totaled$152,000 in 2007 as compared to $98,000 in 2006.  Interest income derived from investment ofsurplus cash in short-term, interest bearing instruments was $1.9 million in2007 compared to $466,000 in 2006.  Thisincrease was driven primarily by higher average surplus cash invested in 2007as compared to 2006.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Wehave historically funded our daily hotel and casino activities with net cashprovided by operating activities and borrowings under our credit facility (see “THECREDIT FACILITY” below).  For the yearsended December 31, 2008, 2007 and 2006, net cash provided by operatingactivities totaled $23.0 million, $30.1 million and $35.2 million,respectively.

 

Netcash used in investing activities, which consisted of acquisitions of propertyand equipment, totaled $64.4 million**,**$15.3million and $5.8 million in 2008, 2007 and 2006, respectively.  Total capital expenditures, including amountsfinanced, were $67.9 million,****$17.3million and $5.8 million in 2008, 2007 and 2006, respectively.

** **

Netcash provided by financing activities totaled $14.3 million in 2008 as comparedto net cash used by financing activities of $13.0 million in 2007 and $5.4million in 2006. Cash provided by financing activities in 2008 was principallyrelated to proceeds from borrowings under our credit facility (see “THE CREDITFACILITY” below) partially offset by repurchases of our stock in 2008.  At March 9, 2009, we had $53.5 millionof borrowings outstanding, and $6.5 million available, under our creditfacility.  Cash used by financingactivities in 2007 was primarily related to repurchases of our stock and wasprimarily related to the paydown of our outstanding debt in 2006.

 

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**COMMITMENTSAND CONTINGENCIES**

** **

Ourcontractual cash obligations as of December 31, 2008 and the next fiveyears and thereafter are as follows:

 
| ** **                                                  | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Cash**                                   | ** ** | ** **                                | ** ** | **less than** | ** ** | **1 to 3** | ** ** | **4 to 5** | ** ** | **more than** | ** ** |
| **Obligations**                                             | ** ** | **Total**                                 | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Operating  Leases(1)                                        |       | $                                         | 4,220,000  |   | $ | 613,000 |   | $ | 740,000 |   | $ | 740,000 |   | $ | 2,127,000 |   |
| Current  Maturities of Borrowings Under Credit Facility (2) |       | 50,000,000                                |       | 2,500,000 |   | 20,000,000 |   | 27,500,000 |   | — |   |
| Purchase  Obligations(3)                                    |       | 9,427,000                                 |       | 9,427,000 |   | — |   | — |   | — |   |
| Total  Contractual Cash Obligations                         |       | $                                         | 63,647,000 |   | $ | 12,540,000 |   | $ | 20,740,000 |   | $ | 28,240,000 |   | $ | 2,127,000 |   |

 

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(1) Operatingleases include $370,000 per year in lease and common expense payments to theshopping center adjacent to the Atlantis (see Capital Spending and Development)and $243,000 per year in lease payments to Triple J (see Note 10 to theConsolidated Financial Statements).

 

(2) The amount represents outstanding draws against our credit facility (see “THECREDIT FACILITY” below) as of December 31, 2008.

 

(3) Ouropen purchase order commitments total approximately $9.4 million.  Of the total purchase order commitments,approximately $1.9 million are cancelable by the Company upon providing a30-day notice.

 

We believe that ourexisting cash balances, cash flow from operations, equipment financing, andborrowings available under the New Credit Facility (see “THE CREDIT FACILITY”below) will provide us with sufficient resources to fund our operations, meetour debt obligations and fulfill our capital expenditure requirements; however,our operations are subject to financial, economic, competitive, regulatory, andother factors, many of which are beyond our control.  If we are unable to generate sufficient cashflow, 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.

 

**THE CREDIT FACILITY**

** **

Until February 20,2004, we had a reducing revolving term loan credit facility with a consortiumof banks (the “First Credit Facility”). On February 20, 2004, the Original Credit Facility was refinanced(the “Second Credit Facility”) for $50 million. The maturity date of the SecondCredit Facility was to be April 18, 2009; however, on January 20,2009, the Second Credit Facility was amended and refinanced (the “New CreditFacility”) for $60 million.  The New CreditFacility may be utilized by us for working capital needs, general corporatepurposes and for ongoing capital expenditure requirements.

 

The maturity date of the New Credit Facilityis January 20, 2012.  Borrowings aresecured by liens on substantially all of the real and personal property of theAtlantis and are guaranteed by Monarch.

 

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The New Credit Facility contains covenantscustomary and typical for a facility of this nature, including, but not limitedto, covenants requiring the preservation and maintenance of our assets andcovenants restricting our ability to merge, transfer ownership of Monarch, incuradditional indebtedness, encumber assets and make certain investments.  The New Credit Facility contains covenantsrequiring that we maintain certain financial ratios and achieve aminimum level of Earnings-Before-Interest-Taxes-Depreciation and Amortization(EBITDA) on a two-quarter rolling basis. It also containsprovisions that restrict cash transfers between Monarch and its affiliates andcontains provisions requiring the achievement of certain financial ratiosbefore we can repurchase our common stock or pay dividends. Management does notconsider the covenants to restrict normal functioning of day-to-day operations.

 

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

 

We may prepay borrowings under the New CreditFacility without penalty (subject to certain charges applicable to theprepayment of LIBOR borrowings prior to the end of the applicable interestperiod).  Amounts prepaid may bereborrowed so long as the total borrowings outstanding do not exceed themaximum principal available.

 

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

 

At December 31,2008, we had $50 million outstanding under the First Credit Facility.  At that time our leverage ratio was such thatpricing for borrowings under the First Credit Facility was LIBOR plus 1.25%. AtDecember 31, 2007 and 2006, we had no outstanding borrowings; however, ourleverage ratio was such that the pricing for borrowings would have been theBase Rate plus 0.00 percent or LIBOR plus 1.00 percent.  At December 31, 2008, the one-monthLIBOR rate was 0.44%.  At March 9,2009, we had $53.5 million of borrowings outstanding, and $6.5 millionavailable, under our credit facility.

 

**SHORT-TERMDEBT**

** **

AtDecember 31, 2008, we had $2.5 million of short-term debt outstandingwhich represents the mandatory principal reduction required under the NewCredit Facility on December 31, 2009.

 

**STATEMENT ON FORWARD LOOKINGINFORMATION**

** **

Certain informationincluded herein contains statements that may be considered forward-looking,such as statements relating to projections of future results of operations orfinancial condition, expectations for our casino and expectations of thecontinued availability of capital resources. Any forward-looking statement madeby us necessarily is based upon a number of estimates and assumptions that,while considered reasonable by us, is inherently subject to significantbusiness, economic and competitive uncertainties and contingencies, many ofwhich are beyond our control, and are subject to change.  Actual results of our operations may varymaterially from any forward-looking statement made by us or on our behalf.  Forward-looking statements should not beregarded as representation by us or any other person that the forward-lookingstatements will be achieved.  Unduereliance should not be placed on any forward-looking statements.  Some of the contingencies and uncertaintiesto which any forward-looking statement contained herein are subject to include,but are not limited to, those set forth above in the heading “ITEM 1A. RiskFactors.”

 

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**RECENTLYISSUED ACCOUNTING STANDARDS**

** **

In February 2008, the FASB issued FASB StaffPosition No. FAS 157-2, *Effective Date of SFAS 157*(“FSP FAS 157-2”).  The FSP amends SFAS 157, to delay the effective dateof SFAS 157 for all nonfinancial assets and nonfinancial liabilities, exceptthose that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually). The FSP defers theeffective date of SFAS 157 to fiscal years beginning after November 15,2008, and interim periods within those fiscal years for items within the scopeof the FSP.  The adoption of SFAS 157-2is not expected to have a material impact on our financial position, results ofoperations or cash flows.

 

In September 2006, the FASB issued SFAS 157, FairValue Measurements.  SFAS 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles and expands disclosures about fair valuemeasurements. This Statement applies under other accounting pronouncements thatrequire or permit fair value measurements, accordingly, this Statement does notrequire any new fair value measurements. However, for some entities, theapplication of this Statement will change current practice. This Statement iseffective for financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  The adoption did not have a material impactour financial position or results of operations.

 

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities Including an Amendment of FASB Statement No. 115.”SFAS No. 159 permits entities to choose to measure many financialinstruments and certain other items at fair value, with unrealized gains andlosses related to these financial instruments reported in earnings at eachsubsequent reporting date. SFAS No. 159 is effective for fiscal yearsbeginning after November 15, 2007. The adoption did not have a material impact our financial position orresults of operations.

 

In December 2007, theFASB issued SFAS No. 141 (revised 2007) (SFAS 141(R)), “BusinessCombinations,” which is a revision of SFAS 141, “Business Combinations.”The primary requirements of SFAS 141(R) are as follows: (i.) Uponinitially obtaining control, the acquiring entity in a business combinationmust recognize 100% of the fair values of the acquired assets, includinggoodwill, and assumed liabilities, with only limited exceptions even if theacquirer has not acquired 100% of its target. As a consequence, the currentstep acquisition model will be eliminated. (ii.) Contingent considerationarrangements will be fair valued at the acquisition date and included on thatbasis in the purchase price consideration. The concept of recognizingcontingent consideration at a later date when the amount of that considerationis determinable beyond a reasonable doubt, will no longer be applicable. (iii.)All transaction costs will be expensed as incurred. SFAS 141 (R) iseffective as of the beginning of an entity’s first fiscal year beginning after December 15,2008. Adoption is prospective and early adoption is not permitted.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interest in ConsolidatedFinancial Statements, an amendment of ARB No. 51.”  This statement establishes accounting andreporting standards for ownership interest in subsidiaries held by partiesother than the parent and for the deconsolidation of a subsidiary. It also clarifiesthat a noncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements. SFAS No. 160 changes the way the consolidated incomestatement is presented by requiring consolidated net income to be reported atamounts that include the amount attributable to both the parent and thenoncontrolling interests. The statement also establishes reporting requirementsthat provide sufficient disclosure that clearly identify and distinguishbetween the interest of the parent and those of the noncontrolling owners. Thisstatement is effective for fiscal years beginning on or after December 15,2008. The adoption of SFAS No. 160 is not expected to have a materialimpact on our financial position, results of operations or cash flows.

 

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In March 2008, theFASB issued SFAS 161, “Disclosures about Derivative Instruments and HedgingActivities — an amendment of FASB Statement No. 133”. SFAS 161 changes thedisclosure requirements for derivative instruments and hedging activities.Under SFAS 161, entities are required to provide enhanced disclosures about howand why they use derivative instruments, how derivative instruments and relatedhedged items are accounted for and the affect of derivative instruments on theentity’s financial position, financial performance and cash flows.  SFAS 161is effective for financial statements issued for fiscal years and interimperiods beginning after November 15, 2008. We will adopt SFAS 161 in thefirst quarter of 2009. The adoption of SFAS No. 161 is not expected tohave a material impact on our financial position, results of operations or cashflows.

 

In May 2008, theFASB issued SFAS 162, “The Hierarchy of Generally Accepted AccountingPrinciples”, which identifies the sources of accounting principles and theframework for selecting the principles used in the preparation of financialstatements of nongovernmental entities that are presented in conformity withgenerally accepted accounting principles. SFAS 162 will become effective sixty days following the Securities andExchange Commission’s approval of the Public Company Accounting Oversight Boardamendments to AU Section 411, “The Meaning of Present Fairly in ConformityWith Generally Accepted Accounting Principles”. The adoption of SFAS 162 is not anticipated to materially impact ourfinancial position, results of operations or cash flows.

 

InOctober 2008, the FASB issued FASB Staff Position No. FAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Assetis Not Active (FSP 157-3 or the FSP). FSP 157-3 clarifies the application ofSFAS 157, Fair Value Measurements (Statement 157), in a market that is notactive. The FSP amends Statement 157 to include an example that illustrates keyconsiderations when applying the principles in Statement 157 to financialassets when the market for these instruments is not active.  The adoption of FSP 157-3 is not anticipatedto materially impact our financial position, results of operations or cashflows.

 

**ITEM7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

Marketrisk is the risk of loss arising from adverse changes in market risks andprices, such as interest rates, foreign currency exchange rates and commodityprices.  We do not have any cash or cashequivalents as of December 31, 2008 that are subject to market risk.  As of December 31, 2008 we had $50million of outstanding debt under our Second Credit Facility that was subjectto credit risk.  A 1% increase in theinterest rate on the balance outstanding under the Second Credit Facility at December 31,2008 would result in a change in our annual interest cost of approximately$500,000.

 

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**ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

**TheBoard of Directors and Stockholders’ of Monarch Casino & Resort, Inc.:**

** **

Wehave audited the accompanying consolidated balance sheets of Monarch Casino &Resort, Inc. and subsidiaries (the “Company”) as of December 31, 2008and 2007, and the related consolidated statements of income, stockholders’equity, and cash flows for each of the three years in the period ended December 31,2008.  Our audits also included the financial statements schedule listedin the index at Item 15(2). These financial statements and schedule are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements and schedule based on ouraudits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, inall material respects, the consolidated financial position of Monarch Casino &Resort, Inc. and subsidiaries at December 31, 2008 and 2007, and theconsolidated results of their operations and their cash flows for each of thethree years in the period ended December 31, 2008, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, the relatedfinancial statements schedule, when considered in relation to the basicfinancial statements taken as a whole, present fairly in all material respectsthe information set forth therein.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the Company’s internal controlover financial reporting as of December 31, 2008, based on criteriaestablished in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 12,2009 expressed an unqualified opinion thereon.

 

 
|                 | /s/  Ernst & Young LLP |
|----------------------|---------------------------------|
|                 |                            |
| Las  Vegas, Nevada   |                            |
| March 12,  2009 |                            |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

**TheBoard of Directors and Stockholders’ of Monarch Casino & Resort, Inc.:**

** **

We have auditedMonarch Casino & Resort, Inc. and subsidiaries (the “Company”)internal control over financial reporting as of December 31, 2008 based oncriteria established in Internal Control—Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (the COSO criteria). TheCompany’s management is responsible for maintaining effective internal controlover financial reporting, and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanyingManagement’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinionon the company’s internal control over financial reporting based on our audit.

 

We conductedour audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal controlover financial reporting, assessing the risk that a material weakness exists,testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

 

A company’sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

 

Inour opinion, Monarch Casino & Resort, Inc. and subsidiariesmaintained, in all material respects, effective internal control over financialreporting as of December 31, 2008, based on the COSO criteria.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets asof December 31, 2008 and 2007, and the related consolidated statements ofincome, stockholders’ equity and cash flows for each of the three years in theperiod ended December 31, 2008 of Monarch Casino & Resort, Inc.and subsidiaries and our report dated March 12, 2009 expressed anunqualified opinion thereon.

 
|                | /s/  Ernst & Young LLP |
|---------------------|---------------------------------|
|                |                            |
|                |                            |
| Las Vegas, Nevada   |                            |
| March 12, 2009 |                            |

 

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**MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                                                        | ** ** | **Years ended December 31,** | ** **  |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------|-------------|
| ** **                                                                        | ** ** | **2008**                                    | ** **  | **2007** | ** ** | **2006** | ** ** |
| Revenues                                                                          |       |                                        |        |   |   |   |   |
| Casino                                                                            |       | $                                           | 100,904,355 |   | $ | 110,259,104 |   | $ | 103,332,559 |   |
| Food and  beverage                                                                |       | 39,465,734                                  |        | 42,364,225 |   | 41,037,321 |   |
| Hotel                                                                             |       | 22,270,776                                  |        | 27,885,858 |   | 26,412,755 |   |
| Other                                                                             |       | 4,951,006                                   |        | 4,866,536 |   | 4,878,840 |   |
| Gross revenues                                                                    |       | 167,591,871                                 |        | 185,375,723 |   | 175,661,475 |   |
| Less promotional  allowances                                                      |       | (26,222,402                                 | )           | (25,519,352 | ) | (23,692,521 | ) |
| Net revenues                                                                      |       | 141,369,469                                 |        | 159,856,371 |   | 151,968,954 |   |
|                                                                              |       |                                        |        |   |   |   |   |
| Operating  Expenses                                                               |       |                                        |        |   |   |   |   |
| Casino                                                                            |       | 37,275,786                                  |        | 35,927,672 |   | 34,134,518 |   |
| Food and  beverage                                                                |       | 19,186,872                                  |        | 20,283,267 |   | 19,533,532 |   |
| Hotel                                                                             |       | 7,879,234                                   |        | 8,357,541 |   | 8,383,382 |   |
| Other                                                                             |       | 1,289,489                                   |        | 1,485,550 |   | 1,450,100 |   |
| Selling, general  and administrative                                              |       | 51,160,484                                  |        | 49,976,753 |   | 46,416,415 |   |
| Depreciation and  amortization                                                    |       | 9,891,803                                   |        | 8,137,886 |   | 8,559,374 |   |
| Total operating  expenses                                                         |       | 126,683,668                                 |        | 124,168,669 |   | 118,477,321 |   |
| Income from  operations                                                           |       | 14,685,801                                  |        | 35,687,702 |   | 33,491,633 |   |
|                                                                              |       |                                        |        |   |   |   |   |
| Other (expense)  income                                                           |       |                                        |        |   |   |   |   |
| Interest income                                                                   |       | 370,632                                     |        | 1,928,450 |   | 466,050 |   |
| Interest expense                                                                  |       | (538,684                                    | )           | (152,274 | ) | (97,722 | ) |
| Total other  (expense) income                                                     |       | (168,052                                    | )           | 1,776,176 |   | 368,328 |   |
| Income before  income taxes                                                       |       | 14,517,749                                  |        | 37,463,878 |   | 33,859,961 |   |
| Provision for  income taxes                                                       |       | (4,976,781                                  | )           | (12,983,660 | ) | (11,779,590 | ) |
| Net income                                                                        |       | $                                           | 9,540,968   |   | $ | 24,480,218 |   | $ | 22,080,371 |   |
|                                                                              |       |                                        |        |   |   |   |   |
| Earnings per  share of common stock                                               |       |                                        |        |   |   |   |   |
|                                                                              |       |                                        |        |   |   |   |   |
| Basic                                                                             |       | $                                           | 0.56        |   | $ | 1.28 |   | $ | 1.16 |   |
| Diluted                                                                           |       | $                                           | 0.56        |   | $ | 1.27 |   | $ | 1.15 |   |
|                                                                              |       |                                        |        |   |   |   |   |
| Weighted average  number of common shares and potential common shares outstanding |       |                                        |        |   |   |   |   |
| Basic                                                                             |       | 16,957,692                                  |        | 19,057,583 |   | 18,990,331 |   |
| Diluted                                                                           |       | 17,017,859                                  |        | 19,329,131 |   | 19,274,847 |   |

 

*Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.*

 

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**MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                      | ** ** | **December 31,** | ** **  |
|-------------------------------------------------|------------|-----------------------|-------------|
| ** **                                      | ** ** | **2008**              | ** **  | **2007** | ** ** |
| ASSETS                                          |       |                  |        |   |   |
| Current assets                                  |       |                  |        |   |   |
| Cash                                            |       | $                     | 11,756,900  |   | $ | 38,835,820 |   |
| Receivables, net                                |       | 3,344,441             |        | 4,134,099 |   |
| Federal income  tax refund receivable           |       | —                |        | 998,123 |   |
| Inventories                                     |       | 1,564,347             |        | 1,496,046 |   |
| Prepaid expenses                                |       | 2,851,872             |        | 3,144,374 |   |
| Deferred income  taxes                          |       | 429,300               |        | 1,084,284 |   |
| Total current  assets                           |       | 19,946,860            |        | 49,692,746 |   |
|                                            |       |                  |        |   |   |
| Property and  equipment                         |       |                  |        |   |   |
| Land                                            |       | 12,162,522            |        | 10,339,530 |   |
| Land  improvements                              |       | 3,511,484             |        | 3,166,107 |   |
| Buildings                                       |       | 133,332,232           |        | 78,955,538 |   |
| Building  improvements                          |       | 10,435,062            |        | 10,435,062 |   |
| Furniture and  equipment                        |       | 96,767,076            |        | 72,511,165 |   |
| Leasehold  improvements                         |       | 1,346,965             |        | 1,346,965 |   |
|                                            |       | 257,555,341           |        | 176,754,367 |   |
| Less accumulated  depreciation and amortization |       | (101,825,190          | )           | (92,215,149 | ) |
|                                            |       | 155,730,151           |        | 84,539,218 |   |
| Construction in  progress                       |       | 4,026,536             |        | 17,236,062 |   |
| Net property and  equipment                     |       | 159,756,687           |        | 101,775,280 |   |
| Other assets,  net                              |       | 2,797,949             |        | 2,817,842 |   |
| Total assets                                    |       | $                     | 182,501,496 |   | $ | 154,285,868 |   |

 

*The accompanying Notes to Consolidated Financial Statements are anintegral part of these statements.*

 

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**MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                             | ** ** | **December 31,** | ** **  |
|----------------------------------------------------------------------------------------|------------|-----------------------|-------------|
| ** **                                                                             | ** ** | **2008**              | ** **  | **2007** | ** ** |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                             |       |                  |        |   |   |
| Current liabilities                                                                    |       |                  |        |   |   |
| Current  maturities of long-term debt                                                  |       | $                     | 2,500,000   |   | $ | — |   |
| Accounts payable                                                                       |       | 10,213,418            |        | 10,840,318 |   |
| Construction  payable                                                                  |       | 5,404,372             |        | 1,971,022 |   |
| Accrued expenses                                                                       |       | 8,940,110             |        | 9,230,157 |   |
| Federal income  taxes payable                                                          |       | 233,736               |        | — |   |
| Total current liabilities                                                              |       | 27,291,636            |        | 22,041,497 |   |
|                                                                                   |       |                  |        |   |   |
| Long-term debt,  less current maturities                                               |       | 47,500,000            |        | — |   |
| Deferred income  taxes                                                                 |       | 2,115,371             |        | 2,825,433 |   |
| Total  liabilities                                                                     |       | 76,907,007            |        | 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 12/31/08                                                    |       |                  |        |   |   |
| 18,566,540  outstanding at 12/31/07                                                    |       | 190,963               |        | 190,963 |   |
| Additional paid-in  capital                                                            |       | 28,051,009            |        | 25,741,972 |   |
| Treasury stock,  2,974,252 shares at 12/31/08                                          |       |                  |        |   |   |
| 529,760 shares  at 12/31/07, at cost                                                   |       | (48,943,359           | )           | (13,268,905 | ) |
| Retained  earnings                                                                     |       | 126,295,876           |        | 116,754,908 |   |
| Total  stockholders’ equity                                                       |       | 105,594,489           |        | 129,418,938 |   |
| Total liability  and stockholder’s equity                                         |       | $                     | 182,501,496 |   | $ | 154,285,868 |   |

 

*Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.*

 

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**MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

 
| ** **                                                | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | ** **  | ** ** | ** **   | ** ** | ** **   | ** **  |
|-----------------------------------------------------------|------------|-----------------------|------------|----------------|------------|-------------|------------|--------------|------------|--------------|-------------|
| ** **                                                | ** ** | **Shares**            | ** ** | ** **     | ** ** | **Paid-in** | ** ** | **Retained** | ** ** | **Treasury** | ** **  | ** ** | ** ** |
| ** **                                                | ** ** | **Outstanding**       | ** ** | **Amount**     | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Stock**    | ** **  | **Total** | ** ** |
|                                                      |       |                  |       |           |       |        |       |         |       |         |        |   |   |
| Balance,  January 1, 2006                            |       | 18,879,310            |       | $              | 190,726    |        | $          | 17,882,827   |       | $            | 70,194,319  |   | $ | (708,877 | ) | $ | 87,558,995 |   |
| Exercise of stock  options, including related tax benefit |       | 186,658               |       | —         |       | 1,528,757   |       | —       |       | 684,732      |        | 2,213,489 |   |
| Share based  compensation expense                         |       | —                |       | —         |       | 3,793,461   |       | —       |       | —       |        | 3,793,461 |   |
| Net income                                                |       | —                |       | —         |       | —      |       | 22,080,371   |       | —       |        | 22,080,371 |   |
| Balance,  December 31, 2006                          |       | 19,065,968            |       | 190,726        |       | 23,205,045  |       | 92,274,690   |       | (24,145      | )           | 115,646,316 |   |
| Exercise of stock  options, including related tax benefit |       | 56,080                |       | 237            |       | (26,887     | )          | —       |       | 629,286      |        | 602,636 |   |
| Purchase of  treasury stock                               |       | (555,508              | )          | —         |       | —      |       | —       |       | (13,874,046  | )           | (13,874,046 | ) |
| Share based  compensation expense                         |       | —                |       | —         |       | 2,563,814   |       | —       |       | —       |        | 2,563,814 |   |
| Net income                                                |       | —                |       | —         |       | —      |       | 24,480,218   |       | —       |        | 24,480,218 |   |
| Balance,  December 31, 2007                          |       | 18,566,540            |       | 190,963        |       | 25,741,972  |       | 116,754,908  |       | (13,268,905  | )           | 129,418,938 |   |
| Exercise of stock  options, including related tax benefit |       | —                |       | —         |       | —      |       | —       |       | —       |        | — |   |
| Purchase of  treasury stock                               |       | (2,444,492            | )          | —         |       | —      |       | —       |       | (35,674,454  | )           | (35,674,454 | ) |
| Share based  compensation expense                         |       | —                |       | —         |       | 2,309,037   |       | —       |       | —       |        | 2,309,037 |   |
| Net income                                                |       | —                |       | —         |       | —      |       | 9,540,968    |       | —       |        | 9,540,968 |   |
| Balance,  December 31, 2008                          |       | 16,122,048            |       | $              | 190,963    |        | $          | 28,051,009   |       | $            | 126,295,876 |   | $ | (48,943,359 | ) | $ | 105,594,489 |   |

 

*The accompanying Notes to Consolidated Financial Statements are anintegral part of these statements.*

 

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**MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

 
| ** **                                                                         | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cash flows from  operating activities:                                             |       |                                        |       |   |   |   |   |
| Net income                                                                         |       | $                                           | 9,540,968  |   | $ | 24,480,218 |   | $ | 22,080,371 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                        |       |   |   |   |   |
| Depreciation and  amortization                                                     |       | 9,891,803                                   |       | 8,137,886 |   | 8,559,374 |   |
| Amortization of  deferred loan costs                                               |       | 19,893                                      |       | 148,838 |   | 38,277 |   |
| Share based  compensation                                                          |       | 2,309,037                                   |       | 2,271,057 |   | 3,273,708 |   |
| Provision for  bad debts                                                           |       | 1,225,145                                   |       | 554,891 |   | 903,426 |   |
| (Gain) loss on  disposal of assets                                                 |       | (33,652                                     | )          | (6,969 | ) | 55,115 |   |
| Deferred income  taxes                                                             |       | (55,078                                     | )          | (1,542,439 | ) | (1,343,380 | ) |
| Changes in  operating assets and liabilities:                                      |       |                                        |       |   |   |   |   |
| Receivables, net                                                                   |       | 562,636                                     |       | (2,418,143 | ) | (326,034 | ) |
| Inventories                                                                        |       | (68,301                                     | )          | (24,379 | ) | (15,214 | ) |
| Prepaid expenses                                                                   |       | 292,502                                     |       | (311,248 | ) | (431,507 | ) |
| Other assets                                                                       |       | —                                      |       | (2,735,433 | ) | — |   |
| Accounts payable                                                                   |       | (626,900                                    | )          | 2,249,649 |   | 1,255,038 |   |
| Accrued expenses                                                                   |       | (290,047                                    | )          | (648,694 | ) | 1,156,630 |   |
| Federal income  taxes payable                                                      |       | 233,736                                     |       | (16,457 | ) | 16,457 |   |
| Net cash  provided by operating activities                                         |       | 23,001,742                                  |       | 30,138,777 |   | 35,222,261 |   |
| Cash flows from  investing activities:                                             |       |                                        |       |   |   |   |   |
| Proceeds from  sale of assets                                                      |       | 42,400                                      |       | 6,969 |   | 38,280 |   |
| Change in  construction payable                                                    |       | 3,433,350                                   |       | 1,971,022 |   | — |   |
| Acquisition of  property and equipment                                             |       | (67,881,958                                 | )          | (17,287,483 | ) | (5,795,089 | ) |
| Net cash used in  investing activities                                             |       | (64,406,208                                 | )          | (15,309,492 | ) | (5,756,809 | ) |
| Cash flows from  financing activities:                                             |       |                                        |       |   |   |   |   |
| Proceeds from  exercise of stock options                                           |       | —                                      |       | 602,636 |   | 2,213,489 |   |
| Deferred tax  asset write-off                                                      |       | —                                      |       | — |   | (203,067 | ) |
| Tax benefit of  stock option exercise                                              |       | —                                      |       | 292,757 |   | 722,819 |   |
| Proceeds from  long-term borrowings                                                |       | 50,000,000                                  |       | — |   | — |   |
| Principal  payments on long-term debt                                              |       | —                                      |       | — |   | (8,100,000 | ) |
| Purchase of  treasury stock                                                        |       | (35,674,454                                 | )          | (13,874,045 | ) | — |   |
| Net cash  provided by (used in) financing activities                               |       | 14,325,546                                  |       | (12,978,652 | ) | (5,366,759 | ) |
| Net (decrease)  increase in cash                                                   |       | (27,078,920                                 | )          | 1,850,633 |   | 24,098,693 |   |
| Cash and cash  equivalents at beginning of year                                    |       | 38,835,820                                  |       | 36,985,187 |   | 12,886,494 |   |
| Cash and cash  equivalents at end of year                                          |       | $                                           | 11,756,900 |   | $ | 38,835,820 |   | $ | 36,985,187 |   |
|                                                                               |       |                                        |       |   |   |   |   |
| Supplemental  disclosure of cash flow information:                                 |       |                                        |       |   |   |   |   |
| Cash paid for  interest net of $499,990, $0 and $0 capitalized respectively        |       | $                                           | 398,119    |   | $ | 3,437 |   | $ | 66,659 |   |
| Cash paid for  income taxes                                                        |       | $                                           | 3,800,000  |   | $ | 15,247,923 |   | $ | 12,300,000 |   |

 

*Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.*

 

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**MONARCH CASINO & RESORT,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE1.  SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

Basisof Presentation

 

MonarchCasino & Resort, Inc. (“Monarch”), a Nevada corporation, wasincorporated in 1993.  Monarch’swholly-owned subsidiary, Golden Road Motor Inn, Inc. (“Golden Road”),operates the Atlantis Casino Resort Spa (the “Atlantis”), a hotel/casino facilityin Reno, Nevada.  Monarch’s other whollyowned subsidiary, High Desert Sunshine, Inc., owns a parcel of landlocated adjacent to the Atlantis.  Unlessstated otherwise, the “Company” refers collectively to Monarch and its GoldenRoad subsidiary.

 

Theconsolidated financial statements include the accounts of Monarch and GoldenRoad. Intercompany balances and transactions are eliminated.

 

Useof Estimates

 

Inpreparing financial statements in conformity with U.S. generally acceptedaccounting principles, management is required to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and the disclosureof contingent assets and liabilities at the date of the financial statementsand revenues and expenses during the year. Actual results could differ from those estimates.

 

Self-insuranceReserves

 

The Company reviewsself-insurance reserves at least quarterly. The reserve is determined byreviewing the actual expenditures for the previous twelve-month period andreports prepared by the third party plan administrator for any significantunpaid claims.  The reserve is accrued atan amount that approximates amounts needed to pay both reported and unreportedclaims as of the balance sheet date, which management believes are adequate.

 

CapitalizedInterest

 

The Company capitalizes interest costs associated with debt incurred inconnection with major construction projects. When no debt is specifically identified as being incurred in connectionwith a construction project, the Company capitalizes interest on amountsexpended on the project at the Company’s average borrowing cost.  Interest capitalization is ceased when theproject is substantially complete.  TheCompany capitalized interest of $499,990 during the year ended December 31,2008.The Company did notcapitalize interest during the years ended December 31, 2007 and 2006.

 

Cashand Cash Equivalents

 

Cashand cash equivalents include cash on hand, as well as investments purchasedwith an original maturity of 90 days or less.

 

Inventories

 

Inventories, consistingprimarily of food, beverages, and retail merchandise, are stated at the lowerof cost or market.  Cost is determined ona first-in, first-out basis.

 

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Propertyand Equipment

 

Propertyand equipment are stated at cost, less accumulated depreciation andamortization.  Property and equipment isdepreciated principally on a straight line basis over the estimated servicelives 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 withStatement of Financial Accounting Standards (“SFAS”) No. 144, “Accountingfor the Impairment and Disposal of Long-Lived Assets,” the Company evaluatesthe carrying value of its long-lived assets for impairment at least annually orwhenever events or changes in circumstances indicate that the carrying value ofthe assets may not be recoverable from related future undiscounted cashflows.  Indicators which could trigger animpairment review include legal and regulatory factors, market conditions andoperational performance.  Any resultingimpairment loss, measured as the difference between the carrying amount and thefair value of the assets, could have a material adverse impact on the Company’sfinancial condition and results of operations. All recognized impairment losses, whether for assets to be disposed orfor assets to be held and used, are recorded as operating expenses.

 

CasinoRevenues

 

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

 

PromotionalAllowances

 

TheCompany’s frequent player program, Club Paradise, allows members, through thefrequency of their play at the Company’s casino, to earn and accumulate pointswhich may be redeemed for a variety of goods and services at the Atlantis.Points may be applied toward room stays at the hotel, food and beverageconsumption at the food outlets, gift shop items as well as goods and servicesat the spa and beauty salon. Points earned may also be applied towardoff-property events such as concerts, shows and sporting events. Points may notbe redeemed for cash.

 

Awards under ourfrequent player program are recognized as promotional expenses at the time ofredemption.

 

Theretail value of hotel, food and beverage services provided to customers withoutcharge is included in gross revenue and deducted as promotionalallowances.  The estimated departmentalcosts of providing such promotional allowances are included in casino costs andexpenses as follows:

 
| ** **         | ** ** | **Years ended December 31,** | ** ** |
|--------------------|------------|---------------------------------------------|------------|
| ** **         | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Food and  beverage |       | $                                           | 13,979,386 |   | $ | 12,735,942 |   | $ | 11,706,382 |   |
| Hotel              |       | 2,948,354                                   |       | 2,143,988 |   | 2,004,909 |   |
| Other              |       | 623,766                                     |       | 460,099 |   | 504,945 |   |
|               |       | $                                           | 17,551,506 |   | $ | 15,340,029 |   | $ | 14,216,236 |   |

 

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AdvertisingCosts

 

Alladvertising costs are expensed as incurred. Advertising expense, which is included in selling, general andadministrative expense, was $4,368,908, $3,657,712 and $3,533,057 for the yearsended December 31, 2008, 2007 and 2006, respectively.

 

IncomeTaxes

 

Income taxes are recordedin accordance with the liability method specified by SFAS No. 109, “Accountingfor Income Taxes.”  Under the asset andliability approach for financial accounting and reporting for income taxes, thefollowing basic principles are applied in accounting for income taxes at thedate of the financial statements: (a) a current liability or asset isrecognized for the estimated taxes payable or refundable on taxes for thecurrent year; (b) a deferred income tax liability or asset is recognizedfor the estimated future tax effects attributable to temporary differences andcarryforwards; (c) the measurement of current and deferred tax liabilitiesand assets is based on the provisions of the enacted tax law; the effects offuture changes in tax laws or rates are not anticipated; and (d) themeasurement of deferred income taxes is reduced, if necessary, by the amount ofany tax benefits that, based upon available evidence, are not expected to berealized.

 

The Company also appliesthe requirements of FIN 48 which prescribes minimum recognition thresholds atax position is required to meet before being recognized in the financialstatements.  FIN 48 also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition.  Implementation, effective January 2007,has resulted in no material impact on the Company’s financial position orresults of operations.

 

Allowance for Doubtful Accounts

 

The Company extendsshort-term credit to its gaming customers. Such credit is non-interest bearingand due on demand. In addition, the Company also has receivables due from hotelguests which are primarily secured with a credit card at the time a customerchecks in. An allowance for doubtful accounts is set up for all Companyreceivables based upon the Company’s historical collection and write-offexperience, unless situations warrant a specific identification of a necessaryreserve related to certain receivables. The Company charges off its uncollectible receivables once all effortshave been made to collect such receivables. The book value of receivablesapproximates fair value due to the short-term nature of the receivables.

 

Stock Based Compensation

 

The Company accounts forstock-based compensation in accordance with the provisions of SFAS No. 123(R),“Share-Based Payments”, requiring the compensation cost relating to share-basedpayment transactions be recognized in the Company’s consolidated statements ofincome. The cost is measured at the grant date, based on the calculated fairvalue of the award using the Black-Scholes option pricing model for stockoptions, and based on the closing share price of the Company’s stock on thegrant date for restricted stock awards. The cost is recognized as an expenseover the employee’s requisite service period (the vesting period of the equityaward). The Company’s stock-based employee compensation plan is more fullydiscussed in Note 8 - Share-Based Compensation.

 

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EarningsPer Share

 

TheCompany reports “basic” earnings per share and “diluted” earnings per share inaccordance with the provisions of SFAS No. 128, “Earnings Per Share.”  Basic earnings per share is computed bydividing reported net earnings by the weighted-average number of common sharesoutstanding during the period.  Dilutedearnings per share reflect the additional dilution for all potentially dilutivesecurities such as stock options.

 

Thefollowing is a reconciliation of the number of shares (denominator) used in thebasic and diluted earnings per share computations (shares in thousands):

 
| ** **                        | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **Shares**                                  | ** ** | **Per Share  Amount** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| Net income                        |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Basic                             |       | 16,958                                      |       | $ | 0.56 |   | 19,058 |   | $ | 1.28 |   | 18,990 |   | $ | 1.16 |   |
| Effect of  dilutive stock options |       | 60                                          |       | — |   | 271 |   | (0.01 | ) | 285 |   | (0.01 | ) |
| Diluted                           |       | 17,018                                      |       | $ | 0.56 |   | 19,329 |   | $ | 1.27 |   | 19,275 |   | $ | 1.15 |   |

 

The following optionswere not included in the computation of diluted earnings per share because theoptions’ exercise prices were greater than the average market price of thecommon shares and their inclusion would be antidilutive:

 
| ** **                                                 | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Options to  purchase shares of common stock (in thousands) |       | 861                                         |       | 232 |   | 122 |   |
| Exercise prices                                            |       | $13.82-$29.00                               |       | $27.39-$30.07 |   | $25.89-$28.25 |   |
| Expiration dates  (mo./yr.)                                |       | 11/14-5/18                                  |       | 5/16-10/17 |   | 5/16-6/16 |   |

 

FairValue of Financial Instruments

 

As required by SFAS No. 107“Disclosures About Fair Value of Financial Instruments.”  The estimated fair value of the Company’sfinancial instruments has been determined by the Company, using availablemarket information and valuation methodologies. However, considerable judgment is required to develop the estimates offair value; thus, the estimates provided herein are not necessarily indicativeof the amounts that the Company could realize in a current market exchange.

 

Thecarrying amounts of cash, receivables, accounts payable and accrued expensesapproximate fair value because of the short-term nature of these instruments.

 

Concentrationsof Credit Risk

 

Financialinstruments which potentially subject the Company to concentrations of creditrisk consist principally of bank deposits and trade receivables.  The Company maintains its surplus cash inbank accounts which, at times, may exceed federally insured limits.  The Company has not experienced any losses insuch accounts.  Concentrations of creditrisk with respect to trade receivables are limited 

 

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due to the large number of customerscomprising the Company’s customer base. The Company believes it is not exposed to any significant credit risk oncash and accounts receivable.

 

Impactof Recently Issued Accounting Standards

 

In February 2008,the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of SFAS*” 157* (“FSP FAS 157-2”).  The FSP amends SFAS 157, todelay the effective date of SFAS 157 for all nonfinancial assets andnonfinancial liabilities, except those that are recognized or disclosed at fairvalue in the financial statements on a recurring basis (at least annually). TheFSP defers the effective date of SFAS 157 to fiscal years beginning after November 15,2008, and interim periods within those fiscal years for items within the scopeof the FSP.  The adoption of SFAS 157-2is not expected to have a material impact on the Company’s financial position,results of operations or cash flows.

 

In September 2006, the FASB issued SFAS 157, Fair ValueMeasurements.  SFAS 157 defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements.This Statement applies under other accounting pronouncements that require orpermit fair value measurements, accordingly, this Statement does not requireany new fair value measurements. However, for some entities, the application ofthis Statement will change current practice. This Statement is effective forfinancial statements issued for fiscal years beginning after November 15, 2007,and interim periods within those fiscal years. The adoption did not have a material impact our financial position orresults of operations.

 

In February 2007, the FASB issued SFAS No. 159, “The FairValue Option for Financial Assets and Financial Liabilities Including anAmendment of FASB Statement No. 115.” SFAS No. 159 permits entitiesto choose to measure many financial instruments and certain other items at fairvalue, with unrealized gains and losses related to these financial instrumentsreported in earnings at each subsequent reporting date. SFAS No. 159 iseffective for fiscal years beginning after November 15, 2007.  The adoption did not have a material impactour financial position or results of operations.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007) (SFAS 141(R)), “BusinessCombinations,” which is a revision of SFAS 141, “Business Combinations.”The primary requirements of SFAS 141(R) are as follows: (i.) Uponinitially obtaining control, the acquiring entity in a business combinationmust recognize 100% of the fair values of the acquired assets, includinggoodwill, and assumed liabilities, with only limited exceptions even if theacquirer has not acquired 100% of its target. As a consequence, the currentstep acquisition model will be eliminated. (ii.) Contingent considerationarrangements will be fair valued at the acquisition date and included on thatbasis in the purchase price consideration. The concept of recognizingcontingent consideration at a later date when the amount of that considerationis determinable beyond a reasonable doubt, will no longer be applicable. (iii.)All transaction costs will be expensed as incurred. SFAS 141 (R) iseffective as of the beginning of an entity’s first fiscal year beginning after December 15,2008. Adoption is prospective and early adoption is not permitted.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interest in ConsolidatedFinancial Statements, an amendment of ARB No. 51.”  This statement establishes accounting andreporting standards for ownership interest in subsidiaries held by partiesother than the parent and for the deconsolidation of a subsidiary. It alsoclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity that should be reported as equity in theconsolidated financial statements. SFAS No. 160 changes the way theconsolidated income statement is presented by requiring consolidated net incometo be reported at amounts that include the amount attributable to both theparent and the noncontrolling interests. The statement also establishesreporting requirements that provide sufficient disclosure that clearly identifyand distinguish between the interest of the parent and those of thenoncontrolling owners. This statement is effective for fiscal years beginningon or after 

 

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December 15, 2008. Theadoption of SFAS No. 160 is not expected to have a material impact on theCompany’s financial position, results of operations or cash flows.

 

In March 2008, theFASB issued SFAS 161, “Disclosures about Derivative Instruments and HedgingActivities — an amendment of FASB Statement No. 133”. SFAS 161 changes thedisclosure requirements for derivative instruments and hedging activities.Under SFAS 161, entities are required to provide enhanced disclosures about howand why they use derivative instruments, how derivative instruments and relatedhedged items are accounted for and the affect of derivative instruments on theentity’s financial position, financial performance and cash flows.  SFAS161 is effective for financial statements issued for fiscal years and interimperiods beginning after November 15, 2008. The Company will adopt SFAS 161in the first quarter of 2009. The adoption of SFAS No. 161 is not expectedto have a material impact on the Company’s financial position, results ofoperations or cash flows.

 

In May 2008, theFASB issued SFAS 162, “The Hierarchy of Generally Accepted AccountingPrinciples”, which identifies the sources of accounting principles and theframework for selecting the principles used in the preparation of financialstatements of nongovernmental entities that are presented in conformity withgenerally accepted accounting principles. SFAS 162 will become effective sixty days following the Securities andExchange Commission’s approval of the Public Company Accounting Oversight Boardamendments to AU Section 411, “The Meaning of Present Fairly in ConformityWith Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not anticipated to have amaterial impact on the Company’s financial position, results of operations orcash flows.

 

In October 2008,the FASB issued FASB Staff Position No. FAS 157-3, Determining the FairValue of a Financial Asset When the Market for That Asset is Not Active (FSP157-3 or the FSP). FSP 157-3 clarifies the application of SFAS No. 157, FairValue Measurements (Statement 157), in a market that is not active. The FSPamends Statement 157 to include an example that illustrates key considerationswhen applying the principles in Statement 157 to financial assets when themarket for these instruments is not active. FSP 157-3 is not anticipated tohave a material impact on the Company’s financial position, results ofoperations or cash flows.

 

NOTE 2.  ACCOUNTS RECEIVABLE

 

Accountsreceivable consist of the following:

 
| ** **                            | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Casino                                |       | $                     | 4,686,816  |   | $ | 4,135,884 |   |
| Hotel                                 |       | 403,830               |       | 665,079 |   |
| Other                                 |       | 141,991               |       | 751,255 |   |
|                                  |       | 5,232,637             |       | 5,552,218 |   |
| Less allowance  for doubtful accounts |       | (1,888,196            | )          | (1,418,119 | ) |
|                                  |       | $                     | 3,344,441  |   | $ | 4,134,099 |   |

 

TheCompany recorded bad debt expense of $1,225,145, $554,891 and $903,426 in 2008,2007 and 2006, respectively.

 

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NOTE3.  ACCRUED EXPENSES

 

Accruedexpenses consist of the following:

 
| ** **                                          | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Accrued  salaries, wages and related benefits       |       | $                     | 3,336,069  |   | $ | 4,022,526 |   |
| Progressive slot  machine and other gaming accruals |       | 3,132,586             |       | 2,785,054 |   |
| Accrued gaming  taxes                               |       | 365,093               |       | 374,754 |   |
| Accrued interest                                    |       | 146,205               |       | 25,534 |   |
| Other accrued  liabilities                          |       | 1,960,157             |       | 2,022,289 |   |
|                                                |       | $                     | 8,940,110  |   | $ | 9,230,157 |   |

 

NOTE4.  LEASE COMMITMENTS

 

In 2004, a driveway wasconstructed that is being shared between the Atlantis and the adjacent SierraMarketplace Shopping Center that is owned and controlled by affiliates of theCompany’s principal stockholders (the “Shopping Center”). A traffic signal waserected at mid-block on South Virginia Street, serving the driveway.  As part of this project, the Company isleasing a 37,368 square-foot corner section of the Shopping Center for aminimum lease term of 15 years at an annual rent of $300,000, subject toincrease every 60 months based on the Consumer Price Index.  The Company is also using part of the commonarea of the Shopping Center and pays its proportional share of the common areaexpense of the Shopping Center. The Company has the option to renew the leasefor 3 five-year terms, and at the end of the extension periods, the Company hasthe option to purchase the leased section of the Shopping Center at a price tobe determined based on an MAI appraisal. The Company uses the leased drivewayspace for pedestrian and vehicle access to the Atlantis, and the Company hasuse of a portion of the parking spaces at the Shopping Center. The total costof the project was $2.0 million; the Company was responsible for two thirds ofthe total cost, or $1.35 million. The project was completed, the driveway wasput into use and the Company began paying rent on September 30, 2004. Thecost of the driveway is being depreciated over the initial 15-year lease term;some components of the driveway are being depreciated over a shorter period oftime.

 

OnDecember 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 “theProperty”), across Virginia Street from the Atlantis, that the Company plans toutilize for administrative offices and storage space for Atlantis staff. Themanaging partner of Triple J is a first-cousin of John and Bob Farahi, theCompany’s Chief Executive Officer and President, respectively.  The term of the lease is two years requiringmonthly rental payments of $20,256. Commensurate with execution of the lease, the Company entered into anagreement that provides the Company with a purchase option on the Property atthe expiration of the lease period while also providing Triple J with a putoption to cause the Company to purchase the Property during the leaseperiod.  The purchase price of theProperty has been established by a third party appraisal company.  Lastly, as a condition of the lease andpurchase option, the Company entered into a promissory note (the “Note”) withTriple J whereby the Company advanced a $2.7 million loan to Triple J.  The Note requires interest only payments at5.25% and matures on the earlier of i) the date the Company acquires theProperty or ii) January 1, 2010.  AtDecember 31, 2008, the fair value of the loan approximated book value.

 

The Company accounts forits rental expense using the straight-line method over the original leaseterm.  Rental increases based on thechange in the CPI are contingent and accounted for prospectively.

 

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Followingis a summary of future minimum payments under operating leases that haveinitial or remaining noncancelable lease terms in excess of one year at December 31,2008:

 
| ** **                     | ** ** | **Operating  Leases** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| Year ending  December 31, |       |                  |       |
| 2009                           |       | 613,000               |       |
| 2010                           |       | 370,000               |       |
| 2011                           |       | 370,000               |       |
| 2012                           |       | 370,000               |       |
| 2013                           |       | 370,000               |       |
| Thereafter                     |       | 2,127,000             |       |
| Total minimum  lease payments  |       | $                     | 4,220,000  |   |
|                                |            |                       |            |  |

 

Rental expense foroperating leases amounted to $1,316,835, $1,043,415 and****$837,968 in 2008, 2007 and 2006,respectively, as reported in selling, general and administrative expenses inthe statements of income.

 

NOTE5.  LONG-TERM DEBT

 

THE CREDIT FACILITY

 

Until February 20,2004, the Company had a reducing revolving term loan credit facility with aconsortium of banks (the “First Credit Facility”).  On February 20, 2004, the OriginalCredit Facility was refinanced (the “Second Credit Facility”) for $50 million.The maturity date of the Second Credit Facility was to be April 18, 2009;however, on January 20, 2009, the Second Credit Facility was amended andrefinanced (the “New Facility”) for $60 million.  The New Credit Facility may be utilized bythe Company for working capital needs, general corporate purposes and forongoing capital expenditure requirements.

 

The maturity date of the New Credit Facilityis January 20, 2012.  Borrowings aresecured by liens on substantially all of the real and personal property of theAtlantis and are guaranteed by Monarch.

 

The New Credit Facility contains covenantscustomary and typical for a facility of this nature, including, but not limitedto, covenants requiring the preservation and maintenance of Company assets andcovenants restricting the Company’s ability to merge, transfer ownership ofMonarch, incur additional indebtedness, encumber assets and make certaininvestments.  The New Credit Facilitycontains covenants requiring that the Company maintain certain financial ratiosand achieve a minimum level ofEarnings-Before-Interest-Taxes-Depreciation and Amortization (EBITDA) on atwo-quarter rolling basis.  It also contains provisions that restrict cashtransfers between Monarch and its affiliates and contains provisions requiringthe achievement of certain financial ratios before the Company can repurchaseits common stock or pay dividends. Management does not consider the covenantsto restrict normal functioning of day-to-day operations.

 

As of December 31, 2008, the Company wasrequired to maintain a leverage ratio, defined as consolidated debt divided byEBITDA , of no more than 2.875:1 and a fixed charge coverage ratio (EBITDAdivided by fixed charges, as defined) of at least 1.25:1.  As of December 31, 2008, the Company’sleverage ratio and fixed charge coverage ratios were 1.86:1 and 21.6:1,respectively.  As of December 31,2007, the Company was required to maintain a leverage ratio of no more than2.25:1 and a fixed charge coverage ratio of at least 1.10:1.  As of December 31, 2007 the Company’sleverage ratio and fixed charge coverage ratio were 0.0:1 and 4.26:1,respectively.

 

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The maximum principal available under the NewCredit Facility is reduced by $2.5 million per quarter beginning on December 31,2009.  The Company may permanently reducethe maximum principal available at any time so long as the amount of suchreduction is at least $500,000 and a multiple of $50,000.  Maturities of the Company’s borrowings foreach of the next five years and thereafter as of December 31, 2008 are asfollows (amounts in thousands):

 
| **Year** | ** ** | **Maturities** | ** ** |
|----------|------------|----------------|------------|
| 2009     |       | $              | 2,500      |   |
| 2010     |       | 10,000         |       |
| 2011     |       | 10,000         |       |
| 2012     |       | 27,500         |       |
| 2013     |       | —         |       |
|     |       | $              | 50,000     |   |

 

The Company may prepay borrowings under theNew Credit Facility without penalty (subject to certain charges applicable tothe prepayment of LIBOR borrowings prior to the end of the applicable interestperiod).  Amounts prepaid may bereborrowed so long as the total borrowings outstanding do not exceed themaximum principal available.

 

The Company paid various one-time fees andother loan costs upon the closing of the refinancing of the New Credit Facilitythat will be amortized over the facility’s term using the straight-line method.

 

At December 31,2008, the Company had $50 million outstanding under the First CreditFacility.  At that time its leverageratio was such that pricing for borrowings under the First Credit Facility wasLIBOR plus 1.25%.  At December 31,2008 the one-month LIBOR interest rate was 0.44%.  At December 31, 2007 and 2006, theCompany had no outstanding borrowings; however, its leverage ratio was suchthat the pricing for borrowings would have been the Base Rate plus 0.00 percentor LIBOR plus 1.00 percent.

 

NOTE6.  INCOME TAXES

 

Incometax provision (benefit) consists of the following:

 
| ** **                    | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------|------------|---------------------------------------------|------------|
| ** **                    | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Current  provision            |       | $                                           | 5,790,922  |   | $ | 14,494,634 |   | $ | 13,157,285 |   |
| Deferred  provision (benefit) |       | (814,141                                    | )          | (1,510,974 | ) | (1,377,695 | ) |
|                          |       | $                                           | 4,976,781  |   | $ | 12,983,660 |   | $ | 11,779,590 |   |

 

Incometax benefits were recognized through stockholders’ equity of $0, $292,757 and$519,752 during the years of 2008, 2007 and 2006, respectively, as compensationexpense for tax purposes in excess of amounts recognized for financialreporting purposes.

 

Thedifference between the Company’s provision for federal income taxes aspresented in the accompanying Consolidated Statements of Income, and theprovision for income taxes computed at the statutory rate is comprised of theitems shown in the following table as a percentage of pre-tax earnings.

 

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| ** **                        | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Income tax at  the statutory rate |       | 35.00                                       | %          | 35.00 | % | 35.00 | % |
| Tax credits                       |       | -0.70                                       | %          | -0.30 | % | -0.20 | % |
|                              |       | 34.30                                       | %          | 34.70 | % | 34.80 | % |

 

Thecomponents of the deferred income tax assets and liabilities at December 31,2008 and 2007, as presented in the Consolidated Balance Sheets, are as follows:

 
| ** **                         | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|
| DEFERRED TAX  ASSETS               |       |       |       |       |       |
| Share based  compensation          |       | $          | 2,236,090  |       | $          | 1,375,644 |   |
| Compensation and  benefits         |       | 418,222    |       | 337,275    |       |
| Bad debt  reserves                 |       | 660,869    |       | 496,342    |       |
| Accrued gaming  liabilities        |       | 599,064    |       | 489,910    |       |
| Accrued interest                   |       | 8,937      |       | 8,937      |       |
| Accrued other                      |       | 198,654    |       | 216,455    |       |
| Deferred income  tax asset         |       | $          | 4,121,836  |       | $          | 2,924,563 |   |
| DEFERRED TAX  LIABILITIES          |       |       |       |       |       |
| Impairment of  assets              |       | $          | (72,260    | )          | $          | (72,260 | ) |
| Depreciation                       |       | (4,193,760 | )          | (4,059,567 | )          |
| Land basis                         |       | (285,706   | )          | (285,706   | )          |
| Prepaid expenses                   |       | (895,758   | )          | —     |       |
| Real estate  taxes                 |       | (360,423   | )          | (248,179   | )          |
| Deferred income  tax liability     |       | $          | (5,807,907 | )          | $          | (4,665,712 | ) |
| NET DEFERRED  INCOME TAX LIABILITY |       | $          | (1,686,071 | )          | $          | (1,741,149 | ) |

 

TheJanuary 1, 2007 adoption of FASB Interpretation 48, Accounting forUncertainty in Income Taxes, did not affect the Company’s financialposition.  The Company is required tofile a federal tax return only.  As of December 31, 2008, tax years2005 through 2008 were subject to examination by the Internal Revenue Service. The Company’s accounting policy with respect to interest and penaltiesarising from income tax settlements is to recognize them as part of theprovision for income taxes.  The Company does not anticipate that theamount of unrecognized tax benefits will significantly increase or decreasethrough the twelve month period ending December 31, 2009.

 

NOTE7.  BENEFIT PLANS

 

SavingsPlan - Effective November 1, 1995, the Company adopted a savings plan,which qualifies under Section 401(k) of the Internal RevenueCode.  Under the plan, participatingemployees may defer up to 15% of their pre-tax compensation, but not more thanstatutory limits. Prior to 2007, the Company contributed twenty five cents foreach dollar contributed by a participant, with a maximum contribution of 4% ofa participant’s compensation.  Effective January 1,2007, the Company increased its contribution to fifty cents for each dollarcontributed by a participant.  TheCompany’s matching contributions were approximately $236,869, $238,510 and$59,774****in for years ended December 31,2008, 2007 and 2006, respectively.

 

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NOTE8. SHARE-BASED COMPENSATION

 

The Company’s three stockoption plans, consisting of the Directors’ Stock Option Plan, the ExecutiveLong-term Incentive Plan and the Employee Stock Option Plan (the “Plans”),which collectively provide for the granting of options to purchase up to3,250,000 common shares. The exercise price of stock options granted under thePlans is established by the respective plan committees, but the exercise pricemay not be less than the market price of the Company’s common stock on the datethe option is granted. The Company stock options typically vest on a gradedschedule, typically in equal, one-third increments, although the respectivestock option committees have the discretion to impose different vesting periodsor modify existing vesting periods. Options expire ten years from the grantdate. By their amended terms, the Plans will expire in June 2013 after which nooptions may be granted.

 

Asummary of the stock option activity as of and for the year ended December 31,2008 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                             |       | 284,614    |       | 9.81                      |       | —                           |       | — |   |
| Exercised                           |       | —     |       | —                    |       | —                           |       | — |   |
| Forfeited                           |       | (20,000    | )          | 9.23                      |       | —                           |       | — |   |
| Expired                             |       | —     |       | —                    |       | —                           |       | — |   |
| Outstanding at  end of period       |       | 1,560,040  |       | $                         | 18.01      |                             | 7.2 yrs.   |   | $ | 8,778,325 |   |
| Exercisable at  end of period       |       | 733,036    |       | $                         | 9.85       |                             | 4.5 yrs.   |   | $ | 1,936,090 |   |

 

A summary of the statusof the Company’s nonvested shares as of, and for the year ended, December 31,2008 is presented below:

 
| **Nonvested Shares**            | ** ** | **Shares** | ** ** | **Weighted-Average  Grant Date Fair  Value** | ** ** |
|--------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|
| Nonvested at  January 1, 2008   |       | 782,676    |       | $                                                      | 10.43      |   |
| Granted                              |       | 284,614    |       | 9.81                                                   |       |
| Vested                               |       | (220,286   | )          | 10.33                                                  |       |
| Forfeited                            |       | (20,000    | )          | 9.23                                                   |       |
| Nonvested at  December 31, 2008 |       | 827,004    |       | $                                                      | 8.90       |   |

 

Expense Measurement andRecognition:

 

On January 1, 2006,the Company adopted the provisions of SFAS 123R requiring the measurement andrecognition of all share-based compensation under the fair value method. TheCompany implemented SFAS 123R using the modified prospective transitionmethod.  Accordingly, for the years endedDecember 31, 2008, 2007 and 2006, the Company recognized share-basedcompensation for all current award grants and for the unvested portion ofprevious award grants based on grant date fair values. Unrecognized costsrelated to all share-based awards outstanding at December 31, 2008 totaledapproximately $2.6 million and is expected to be recognized over a weightedaverage period of 1.03 years.

 

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The Company useshistorical data and projections to estimate expected employee, executive anddirector behaviors related to option exercises and forfeitures.

 

The Company estimates thefair value of each stock option award on the grant date using the Black-Scholesvaluation model incorporating the assumptions noted in the following table.Option valuation models require the input of highly subjective assumptions, andchanges in assumptions used can materially affect the fair value estimate.  Option valuation assumptions for optionsgranted during each year were as follows:

 
| ** **                                                           | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                           | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                 |       |                                        |       |   |   |   |   |
| Expected  volatility                                                 |       | 111.7                                       | %          | 50.3 | % | 38.0 | % |
| Expected  dividends                                                  |       | —                                      |       | — |   | — |   |
| Expected life  (in years)                                            |       |                                        |       |   |   |   |   |
| Directors’ Plan                                                 |       | 2.5                                         |       | 2.5 |   | 2.5 |   |
| Executive Plan                                                       |       | 4.5                                         |       | 4.5 |   | 6.9 |   |
| Employee Plan                                                        |       | 3.1                                         |       | 3.1 |   | 2.9 |   |
| Weighted average  risk free rate                                     |       | 4.1                                         | %          | 4.1 | % | 4.6 | % |
|                                                                 |       |                                        |       |   |   |   |   |
| Weighted average  grant date fair value per share of options granted |       | $                                           | 5.30       |   | $ | 11.24 |   | $ | 10.64 |   |
|                                                                 |       |                                        |       |   |   |   |   |
| Total intrinsic  value of options exercised                          |       | $                                           | —     |   | $ | 747,770 |   | $ | 2,238,390 |   |
| Cash received  for all stock option exercises                        |       | $                                           | —     |   | $ | 602,636 |   | $ | 2,213,489 |   |
| Tax benefit  realized for tax return deductions                      |       | $                                           | —     |   | $ | 292,757 |   | $ | 519,752 |   |

 

The risk-free interestrate is based on the U.S. treasury security rate in effect as of the dateof grant. The expected lives of options are based on historical data of theCompany.  In 2006, the Company determinedthat an implied volatility is more reflective of market conditions and a betterindicator of expected volatility.

 

Reported stock basedcompensation expense was classified as follows:

 
| ** **                                    | ** ** | **For the years ended December 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                                      | ** ** | **2007** | ** ** |
| Casino                                        |       | $                                                             | 80,148     |   | $ | 72,509 |   |
| Food and  beverage                            |       | 72,424                                                        |       | 53,542 |   |
| Hotel                                         |       | 31,536                                                        |       | 38,071 |   |
| Selling, general  and administrative          |       | 2,124,929                                                     |       | 2,106,935 |   |
| Total  stock-based compensation, before taxes |       | 2,309,037                                                     |       | 2,271,057 |   |
| Tax benefit                                   |       | (808,163                                                      | )          | (794,870 | ) |
| Total  stock-based compensation, net of tax   |       | $                                                             | 1,500,874  |   | $ | 1,476,187 |   |

 

NOTE9.  COMMITMENTS AND CONTINGENCIES

 

SelfInsurance - The Company is self-insured for health care claims for eligibleactive employees. Benefit plan administrators assist the Company in determiningits liability for self-insured claims, and such claims are not discounted. TheCompany is also self-insured for workers’ compensation. 

 

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Both plans limit the Company’s maximumliability through a benefit limitation in the case of the health plan andthrough a stop-loss insurance agreement in the case of the worker’scompensation plan. The maximum liability for health care claims is $500,000 percalendar year, and $1 million over the lifetime, for each eligible employee.The maximum liability for workers’ compensation under the stop-loss agreementis $500,000 per claim.

 

On September 28, 2006,the Company’s Board of Directors (the “Board”) authorized a stock repurchaseplan (the “Repurchase Plan”). Under the Repurchase Plan, the Board authorized aprogram to repurchase up to 1,000,000 shares of our common stock in the openmarket or in privately negotiated transactions from time to time, in compliancewith Rule 10b-18 of the Securities and Exchange Act of 1934, subject tomarket conditions, applicable legal requirements and other factors.  The Repurchase Plan did not obligate theCompany to acquire any particular amount of common stock.

 

On March 11, 2008,the Board increased its initial authorization by 1,000,000 shares and on April 22,2008, the Board increased its authorization a third time by 1,000,000 shareswhich increased the shares authorized to be repurchased to a total of 3,000,000shares.  During the first and secondquarters of 2008, the Company purchased 2,444,492 shares of the Company’scommon stock pursuant to the Repurchase Plan at a weighted average purchaseprice of $14.59 per share, which increased the total number of shares purchasedpursuant to the Repurchase Plan to 3,000,000 at a weighted average purchaseprice of $16.52 per share.  As of June 30,2008, the Company had purchased all shares under the three million share RepurchasePlan authorization.

 

Aspreviously disclosed, 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 is3:06-cv-00232-ECR (RAM).  The complaintseeks declaratory judgment prohibiting Monarch from using the name “Atlantis”in connection with offering casino services other than at Monarch’s AtlantisCasino Resort Spa located in Reno, Nevada, and particularly prohibiting Monarchfrom using the “Atlantis” name in connection with offering casino services inLas Vegas, Nevada; injunctive relief enforcing the same; unspecifiedcompensatory and punitive damages; and other relief. Monarch believes Kerzner’sclaims to be entirely without merit and is defending vigorously against thesuit. Further, Monarch has filed a counterclaim against Kerzner seeking toenforce the license agreement granting Monarch the exclusive right to use theAtlantis name in association with lodging throughout the state of Nevada; tocancel Kerzner’s registration of the Atlantis mark for casino services on thebasis that the mark was fraudulently obtained by Kerzner; and to obtaindeclaratory relief on these issues. Litigation is in the discovery phase.

 

TheCompany is a defendant in various pending legal proceedings. In the opinion ofmanagement, all pending claims in such litigation will not, in the aggregate,have a material adverse effect on the Company’s financial position, cash flowsor results of operations.

 

NOTE10.  RELATED PARTY TRANSACTIONS

 

OnJuly 26, 2006, the Company submitted a formal offer to Biggest LittleInvestments, L.P. (“BLI”), formulated and delivered by a committee comprised ofthe Company’s independent directors (the “Committee”), to purchase the18.95-acre shopping center (the “Shopping Center”) adjacent to the AtlantisCasino Resort Spa.  On October 16,2006, the Committee received a letter from counsel to BLI advising the Companythat BLI, through its general partner, Maxum, L.L.C. (“Maxum”), had “decidedthat such offer is not in the best interest of the Partnership’s limitedpartners and, therefore, will not be entering into negotiations with Monarch.”  While there have been subsequentcommunications between BLI and the Company from time to time regarding our interest in the Shopping Center, nothinghas resulted. The Board of Directors continues to consider expansionalternatives.

 

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John Farahi and Bob Farahieach individually own non-controlling interests in BLI and Maxim.  John Farahi is Co-Chairman of the Board,Chief Executive Officer, Chief Operating Officer and a Director ofMonarch.  Bob Farahi is Co-Chairman ofthe Board, President, Secretary and a Director of Monarch. Ben Farahi formerlywas the Co-Chairman of the Board, Secretary, Treasurer, Chief Financial Officerand a Director of Monarch.  Monarch’sboard of directors accepted Ben Farahi’s resignation from these positions on May 23,2006.

 

TheCompany currently rents various spaces in the Shopping Center which it uses asoffice, storage space and guest parking and paid rent of approximately $194,800****plus common area expenses in the yearended December 31, 2008. The Company paid rent of approximately $262,700****and$95,520 plus common area expenses in the years ended December 31,2007 and 2006, respectively.

 

Inaddition, a driveway that is being shared between the Atlantis and the ShoppingCenter 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 Centerfor a minimum lease term of 15 years at an annual rent of $300,000, subject toincrease every 60 months based on the Consumer Price Index. The Company beganpaying rent to the Shopping Center on September 30, 2004. The Company alsouses part of the common area of the Shopping Center and pays its proportionalshare of the common area expense of the Shopping Center. The Company has theoption to renew the lease for 3 five-year terms, and at the end of theextension periods, the Company has the option to purchase the leased drivewaysection of the Shopping Center at a price to be determined based on an MAIAppraisal. The leased space is being used by the Company for pedestrian andvehicle access to the Atlantis, and the Company may use a portion of theparking spaces at the Shopping Center. The total cost of the project was $2.0million; the Company was responsible for two thirds of the total cost, or $1.35million. The Company paid approximately $300,000 plus common area charges ineach of the years ended December 31, 2008, 2007 and 2006 for its leaseddriveway space at the Shopping Center.

 

TheCompany leased sign space from the Shopping Center through July 2008.  The Company paid $7,460, $12,420****and $12,000 for the years ended December 31,2008, 2007 and 2006, respectively.

 

The Company is currently leasingbillboard advertising space from affiliates of its principal stockholders for atotal cost of $42,000, $49,000 and $42,000 for the years ended December 31,2008, 2007 and 2006, respectively.

 

UntilDecember 2006, the Company rented office and storage space from a companyaffiliated with Monarch’s principal stockholders and paid rent of approximately$26,000 in the year ended December 31, 2006 and did not incur any suchexpense in the years ended December 31, 2008 or 2007.  Effective December 2006, Monarch’sprincipal stockholders sold this building and, through April 15, 2007, theCompany continued to rent space from the new owner which is not a related partyto Monarch.

 

OnDecember 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 “theProperty”) across Virginia Street from the Atlantis that the Company plans toutilize for administrative staff offices. The managing partner of Triple J is a first-cousin of John and BobFarahi, the Company’s Chief Executive Officer and President, respectively.  The term of the lease is two years requiringmonthly rental payments of $20,256. Commensurate with execution of the lease, the Company entered into an agreementthat provides the Company with a purchase option on the Property at theexpiration of the lease period while also providing Triple J with a put optionto cause the Company to purchase the Property during the lease period.  The purchase price of the Property has beenestablished by a third party appraisal company. Lastly, as a condition of the lease and purchase option, the Companyentered into a promissory note (the Note) with Triple J whereby the Company advanceda $2.7 million loan to Triple J.  TheNote requires interest only payments at 5.25% and matures on the earlier of i)the date the Company acquires the Property or ii) January 1, 2010.

 

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NOTE11.  SELECTED QUARTERLY FINANCIAL DATA(UNAUDITED)

 
| ** **                        | ** ** | **2008**             | ** ** |
|-----------------------------------|------------|----------------------|------------|
| ** **                        | ** ** | **1st Quarter** | ** ** | **2nd Quarter** | ** ** | **3rd Quarter** | ** ** | **4th Quarter** | ** ** | **Total** | ** ** |
| Net revenues                      |       | $                    | 34,273,393 |   | $ | 35,343,765 |   | $ | 38,787,199 |   | $ | 32,965,112 |   | $ | 141,369,469 |   |
| Operating  expenses               |       | 30,998,549           |       | 30,924,665 |   | 32,753,962 |   | 32,006,492 |   | 126,683,668 |   |
| Income from  operations           |       | 3,274,844            |       | 4,419,100 |   | 6,033,237 |   | 958,620 |   | 14,685,801 |   |
| Net income                        |       | 2,302,031            |       | 2,802,903 |   | 4,025,695 |   | 410,339 |   | 9,540,968 |   |
| Income per share  of common stock |       |                 |       |   |   |   |   |   |   |   |   |
| Basic                             |       | $                    | 0.13       |   | $ | 0.16 |   | $ | 0.25 |   | $ | 0.03 |   | $ | 0.56 |   |
| Diluted                           |       | $                    | 0.12       |   | $ | 0.16 |   | $ | 0.25 |   | $ | 0.03 |   | $ | 0.56 |   |

 
| ** **                        | ** ** | **2007**             | ** ** |
|-----------------------------------|------------|----------------------|------------|
| ** **                        | ** ** | **1st Quarter** | ** ** | **2nd Quarter** | ** ** | **3rd Quarter** | ** ** | **4th Quarter** | ** ** | **Total** | ** ** |
| Net revenues                      |       | $                    | 37,781,591 |   | $ | 41,561,320 |   | $ | 43,623,296 |   | $ | 36,890,164 |   | $ | 159,856,371 |   |
| Operating  expenses               |       | 29,551,263           |       | 31,481,233 |   | 31,877,887 |   | 31,258,286 |   | 124,168,669 |   |
| Income from  operations           |       | 8,230,328            |       | 10,080,087 |   | 11,745,409 |   | 5,631,878 |   | 35,687,702 |   |
| Net income                        |       | 5,495,112            |       | 6,900,450 |   | 8,033,871 |   | 4,050,785 |   | 24,480,218 |   |
| Income per share  of common stock |       |                 |       |   |   |   |   |   |   |   |   |
| Basic                             |       | $                    | 0.29       |   | $ | 0.36 |   | $ | 0.42 |   | $ | 0.21 |   | $ | 1.28 |   |
| Diluted                           |       | $                    | 0.28       |   | $ | 0.36 |   | $ | 0.41 |   | $ | 0.21 |   | $ | 1.27 |   |

 

**ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**

 

None.

 

**ITEM 9A.CONTROLS AND PROCEDURES**

 

Disclosure Controls andProcedures

 

Asof the end of the period covered by this Annual Report on Form 10-K, (the “EvaluationDate”), an evaluation was carried out by our management, with the participationof our Chief Executive Officer and our Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) underthe Securities Exchange Act of 1934). Based upon the evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of the end of the period covered bythis report. No changes were made to our internal control over financialreporting (as defined by Rule 13a-15(e) under the Securities ExchangeAct of 1934) during the last fiscal quarter that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

Management’sReport on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequateinternal control over financial reporting. Our internal control system wasdesigned to provide reasonable assurance to our management and Board of Directorsregarding the preparation and fair presentation of published financialstatements.

 

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Allinternal control systems, no matter how well designed, have inherentlimitations, including the possibility of human error and the circumvention oroverriding of controls. Accordingly, even effective internal controls canprovide only reasonable assurances with respect to financial statementpreparation. Further, because of changes in conditions, the effectiveness ofinternal controls may vary over time.

 

Managementassessed the effectiveness of our internal control over financial reporting asof December 31, 2008. In making this assessment, it used the criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commission(COSO) in Internal Control-IntegratedFramework. Based on our assessment we believe that, as of December 31,2008, the Company’s internal control over financial reporting is effectivebased on those criteria.

 

TheCompany’s independent registered public accounting firm has issued an auditreport on our assessment of the Company’s internal control over financialreporting. This report appears in Item 8 of this Form 10-K.

 

**ITEM9B. OTHER INFORMATION**

 

None.

 

**PART III**

 

**ITEM10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

Thisinformation is incorporated by reference from the Company’s Proxy Statement tobe filed with the Commission in connection with the Annual Meeting ofStockholders to be held on May 22, 2009.

 

**ITEM11. EXECUTIVE COMPENSATION**

 

Thisinformation is incorporated by reference from the Company’s Proxy Statement tobe filed with the Commission in connection with the Annual Meeting ofStockholders to be held on May 22, 2009.

 

**ITEM12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**

 

Followingis information related to the Company’s equity compensation.

 

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| **Plan Category**                                       | ** ** | **Number of  securities to be  issued upon  exercise of  outstanding  options, warrants  and rights** | ** ** | **Weighted-average  exercise price of  outstanding  options, warrants  and rights** | ** ** | **Number of  securities remaining  available for future  issuance under  equity  compensation plans  (excluding  securities reflected  in column (a))** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **(a)**                                                                                                                                  | ** ** | **(b)**                                                                                                 | ** ** | **(c)**                                                                                                                                                                                              | ** ** |
| Equity  compensation plans approved by security holders (F1) |       | 1,560,040                                                                                                                                |       | $                                                                                                       | 18.01      |                                                                                                                                                                                                 | 1,073,795  |   |
|                                                         |       |                                                                                                                                     |       |                                                                                                    |       |                                                                                                                                                                                                 |       |
| Equity  compensation plans not approved by security holders  |       | —                                                                                                                                   |       | —                                                                                                  |       | —                                                                                                                                                                                               |       |
| Total                                                        |       | 1,560,040                                                                                                                                |       | $                                                                                                       | 18.01      |                                                                                                                                                                                                 | 1,073,795  |   |

 

----

(F1) Includes the 1993Directors’ Stock Option Plan, 1993 Employee Stock Option Plan and 1993Executive Long-Term Incentive Plan, as amended.

 

Additional informationis incorporated by reference from the Company’s Proxy Statement to be filedwith the Commission in connection with the Annual Meeting of Stockholders to beheld on May 22, 2009.

 

**ITEM13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

Thisinformation is incorporated by reference from the Company’s Proxy Statement tobe filed with the Commission in connection with the Annual Meeting ofStockholders to be held on May 22, 2009.

 

**ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

Thisinformation is incorporated by reference from the Company’s Proxy Statement tobe filed with the Commission in connection with the Annual Meeting ofStockholders to be held on May 22, 2009.

 

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**PART IV**

 

**ITEM15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 
|   | 1. Financial Statements           |
|--------|-----------------------------------|
|   |                              |   |
|   |                              | Included in Part II of this report: |
|   |                              |   |
|   |                              | a) Report of  Independent Registered Public Accounting Firm |
|   |                              |   |
|   |                              | b) Consolidated  Statements of Income for the years ended December 31, 2008, 2007 and 2006. |
|   |                              |   |
|   |                              | c) Consolidated  Balance Sheets at December 31, 2008 and 2007. |
|   |                              |   |
|   |                              | d)  Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008, 2007 and  2006. |
|   |                              |   |
|   |                              | e)  Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006. |
|   |                              |   |
|   |                              | f) Notes to Consolidated Financial Statements. |
|   |                              |   |
|   | 2. Financial Statements Schedules |
|   |                              |   |
|   |                              | Schedule II. - VALUATION AND QUALIFYING ACCOUNTS |

 
| **Year ended  December 31,** | ** ** | **Balance at  beginning of  year** | ** ** | **Charged to  costs and  expenses** | ** ** | **Deductions  (F1)** | ** ** | **Other** | ** ** | **Balance at  end of year** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|----------------------|------------|-----------|------------|--------------------------------------------|------------|
| 2006                                   |       |                                         |       |                                          |       |                 |       |      |       |                                       |       |
| Allowance for  doubtful accounts       |       | $                                            | 1,081,747  |                                          | $          | 903,426              |       | $         | (731,876   | )                                          | $          | — |   | $ | 1,253,297 |   |
| 2007                                   |       |                                         |       |                                          |       |                 |       |      |       |                                       |       |
| Allowance for  doubtful accounts       |       | $                                            | 1,253,297  |                                          | $          | 554,891              |       | $         | (390,069   | )                                          | $          | — |   | $ | 1,418,119 |   |
| 2008                                   |       |                                         |       |                                          |       |                 |       |      |       |                                       |       |
| Allowance for  doubtful accounts       |       | $                                            | 1,418,119  |                                          | $          | 1,225,145            |       | $         | (755,068   | )                                          | $          | — |   | $ | 1,888,196 |   |

 

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(F1)The Company reviews receivables monthly and, accordingly, adjusts the allowancefor doubtful accounts monthly.  TheCompany records write-offs annually.  Theamount charged to Costs and Expenses reflects the bad debt expense recorded inthe consolidated statements of income, while the amount recorded for Deductionsreflects the adjustment to actual allowance for doubtful accounts reserve atthe end of the period.

 

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**Exhibits**

 
| **Number** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.01       |       | Articles  of Incorporation of Monarch Casino & Resort, Inc., filed  June 11, 1993 are incorporated herein by reference from the Company’s  Form S-1 registration statement (SEC File 33-64556), Part II, Item  16, Exhibit 3.01.                                                                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.02       |       | Bylaws  of Monarch Casino & Resort, Inc., adopted June 14, 1993  are incorporated herein by reference from the Company’s Form S-1  registration statement (SEC File 33-64556), Part II, Item 16,  Exhibit 3.02.                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|  3.03 |       | Articles  of Incorporation of Golden Road Motor Inn, Inc. filed March 6,  1973; Certificate Amending Articles of Incorporation of Golden Road Motor  Inn, Inc. filed August 29, 1973; and Certificate of Amendment of  Articles of Incorporation filed April 5, 1984 are incorporated herein by  reference from the Company’s Form S-1 registration statement (SEC File  33-64556), Part II, Item 16, Exhibit 3.03. |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|  3.04 |       | Bylaws  of Golden Road Motor Inn, Inc., adopted March 9, 1973 are  incorporated herein by reference from the Company’s Form S-1  registration statement (SEC File 33-64556), Part II, Item 16,  Exhibit 3.04.                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|  3.05 |       | Amendment  to Bylaws of Monarch Casino & Resort, Inc. adopted  January 24, 1995 is incorporated herein by reference to the Company’s  Form 10-K report (SEC File 0-022088) for the fiscal year ended  December 31, 2006, Exhibit 3.05.                                                                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.01       |       | Specimen  Common Stock Certificate for the Common Stock of Monarch Casino &  Resort, Inc. is incorporated herein by reference from the Company’s  Form S-1 registration statement (SEC File 33-64556), Part II, Item  16, Exhibit 4.01.                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.02       |       | Amended  and Restated Monarch Casino & Resort, Inc. 1993 Directors’  Stock Option Plan is incorporated herein by reference to the Company’s  Form 10-K report (SEC File 0-022088) for the fiscal year ended  December 31, 1998, Item 14(c), Exhibit 4.02.                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.03       |       | Amended  and Restated Monarch Casino & Resort, Inc. 1993 Executive  Long-Term Incentive Plan is incorporated herein by reference to the Company’s  Form 10-K report (SEC File 0-22088) for the fiscal year ended  December 31, 1997, Item 14(c), Exhibit 4.03.                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.04       |       | Amended  and Restated Monarch Casino & Resort, Inc. 1993 Employee Stock  Option Plan is incorporated herein by reference to the Company’s  Form 10-K report (SEC File 0-22088) for the fiscal year ended  December 31, 1997, Item 14(c), Exhibit 4.04.                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.05       |       | Second  Amendment to Monarch Casino & Resort, Inc. 1993 Directors’  Stock Option Plan is incorporated herein by reference to the Company’s Proxy  Statement (SEC File 0-22088) in relation to the Company’s 2003 Annual Meeting  of Stockholders Exhibit A-1.                                                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.06       |       | Second  Amendment to Monarch Casino & Resort, Inc. 1993 Employee Stock  Option Plan is incorporated herein by reference to the Company’s Proxy  Statement (SEC File 0-22088) in relation to the Company’s 2003 Annual Meeting  of Stockholders Exhibit A-2.                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.07       |       | Second  Amendment to Monarch Casino & Resort, Inc. 1993 Executive  Long-Term Incentive Plan is incorporated herein by reference to the Company’s  Proxy Statement                                                                                                                                                                                                                                                                             |

 

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|       |       | (SEC  File 0-22088) in relation to the Company’s 2003 Annual Meeting of  Stockholders Exhibit A-3.                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.08       |       | Third  Amendment to Monarch Casino & Resort, Inc. 1993 Employee Stock  Option Plan is incorporated herein by reference to the Company’s  Form 10-K report (SEC File 0-022088) for the fiscal year ended  December 31, 2006, Exhibit 4.08.                                                                                                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.09       |       | Third  Amendment to Monarch Casino & Resort, Inc. 1993 Executive  Long-Term Incentive Plan is incorporated herein by reference to the Company’s  Form 10-K report (SEC File 0-022088) for the fiscal year ended  December 31, 2006, Exhibit 4.09.                                                                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.01      |       | Non-standardized  401(k) Plan Adoption Agreement between Monarch Casino &  Resort, Inc. and Smith Barney Shearson dated November 7, 1995 is  incorporated herein by reference to the Company’s Form 10-K report (SEC  File 0-22088) for the fiscal year ended December 31, 1995, Item  14(a)(3), Exhibit 10.21.                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.02      |       | Trademark  Agreement between Golden Road Motor Inn, Inc. and Atlantis  Lodge, Inc., dated February 3, 1996 is incorporated herein by  reference to the Company’s Form 10-K report (SEC File 0-22088) for the  fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.23.                                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.03      |       | Credit Agreement, dated as of February 20,  2004, among Golden Road Motor Inn, Inc. as Borrower, Monarch  Casino & Resort, Inc., as Guarantor, the Lenders as defined  therein, and Wells Fargo Bank as administrative and collateral Agent for the  Lenders and Swingline Lender is incorporated herein by reference to the  Company’s Form 8-K report (SEC File 0-22088) dated March 8, 2004,  Exhibit 99.1.                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.04      |       | Lease  Agreement and Option to Purchase dated as of January 29, 2004, between  Golden Road Motor Inn, Inc. as Lessee and Biggest Little Investments,  L.P. as Lessor is incorporated herein by reference to the Company’s  Form 10-K (SEC File 0-22088) dated March 11, 2004,  Exhibit 10.18.                                                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.05      |       | First  Amendment, dated as of February 8, 2007, to the Credit Agreement, dated  as of February 20, 2004, among Golden Road Motor Inn, Inc., as  Borrower, Monarch Casino & Resort, Inc., as Guarantor, the  Lenders as defined therein, and Wells Fargo Bank as administrative and  collateral Agent for the Lenders and Swingline Lender is incorporated herein  by reference to the Company’s Form 10-K report (SEC File 0-022088) for  the fiscal year ended December 31, 2006, Exhibit 10.05. |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.06      |       | Amended  and Restated Credit Agreement, dated as of January 20, 2009, among  Golden road Motor Inn, Ind., as Borrower, Monarch Casino &  Resort, Inc., as Guarantor, the Lenders as defined therein, and Wells  Fargo Bank, National Association, as Swingline Lender, L/C Issuer and Agent  Bank is incorporated herein by reference to the Company’s Form 8-K (SEC  File 0-22088) filed January 26, 2009, Exhibit 10.01.                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 21.01      |       | Amended  and Restated List of Subsidiaries of Monarch Casino &  Resort, Inc. Incorporated by reference to the company’s Form 10-K  (SEC File 0-22088) filed March 17, 2008, Exhibit 21.01                                                                                                                                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 23.1       |       | Consent  of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1       |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2       |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **32.1**   | ** ** | **Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is  filed as an exhibit to this Form 10-K.**                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.2       |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 is filed as an exhibit to this Form 10-K.                                                                                                                                                                                                                                                                                                                                                                  |

 

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SIGNATURES

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
|                       | MONARCH  CASINO & RESORT, INC.                                                                       |
|----------------------------|---------------------------------------------------------------------------------------------------------------|
|                       | (Registrant)                                                                                                  |
|                       |                                                                                                          |
|                       |                                                                                                          |
| Date:  March 13, 2009 | By:                                                                                                           | /s/ RONALD ROWAN |
|                       | Ronald  Rowan, Chief Financial Officerand Treasurer (Principal Financial Officer and Duly Authorized Officer) |
|                            |                                                                                                               |  |  |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| **Signature**           | ** ** | **Title**                               | ** ** | **Date**             |
|-------------------------|------------|-----------------------------------------|------------|----------------------|
|                    |       |                                    |       |                 |
| /S/  JOHN FARAHI        |       | Co-Chairman  of the Board of Directors  |       | March 13,  2009 |
| John  Farahi            |       | Chief  Executive Officer (Principal     |       |                 |
|                    |       | Executive  Officer) and Director        |       |                 |
|                    |       |                                    |       |                 |
| /S/ BOB FARAHI          |       | Co-Chairman of the Board of  Directors, |       | March 13, 2009  |
| Bob Farahi              |       | President, Secretary and  Director      |       |                 |
|                    |       |                                    |       |                 |
|                    |       |                                    |       |                 |
| /S/  RONALD ROWAN       |       | Chief  Financial Officer and Treasurer  |       | March 13,  2009 |
| Ronald  Rowan           |       | (Principal  Financial Officer and       |       |                 |
|                    |       | Principal  Accounting Officer)          |       |                 |
|                    |       |                                    |       |                 |
| /S/  CHARLES W. SCHARER |       | Director                                |       | March 13,  2009 |
| Charles  W. Scharer     |       |                                    |       |                 |
|                    |       |                                    |       |                 |
|                    |       |                                    |       |                 |
| /S/ CRAIG. F. SULLIVAN  |       | Director                                |       | March 13,  2009 |
| Craig  F. Sullivan      |       |                                    |       |                 |
|                    |       |                                    |       |                 |
|                    |       |                                    |       |                 |
| /S/ RONALD R. ZIDECK    |       | Director                                |       | March 13,  2009 |
| Ronald R. Zideck        |       |                                    |       |                 |

 

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