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

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

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

OPERATING RESULTS SUMMARY

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

Amounts in millions, except per share amounts


                                                    Three Months                 Percentage
                                                   Ended March 31,           Increase/(Decrease)
                                                 2008           2007              08 vs 07
Casino revenues                               $     23.8      $    25.3                      (5.9 )
Food and beverage revenues                           9.8           10.5                      (6.7 )
Hotel revenues                                       5.8            6.8                     (14.7 )
Other revenues                                       1.2            1.2                         -
Net revenues                                        34.3           37.8                      (9.3 )
Sales, general and administrative expense           13.1           11.5                      13.9
Income from operations                               3.3            8.2                     (59.8 )

Net Income                                           2.3            5.5                     (58.2 )

Earnings per share - diluted                        0.12           0.28                     (57.1 )

Operating margin                                     9.6 %         21.8 %        12.2 points

Our results for the three months ended March 31, 2008 reflect the effects of the challenging operating environment that we also experienced in the three month period ended December 31, 2007. As in many other areas around the country, the economic slowdown in Reno in the fourth quarter of 2007 accelerated in the first quarter of 2008. Other factors causing negative financial impact that continued from the fourth quarter were disruption from construction related to our on-going $50 million expansion project (see "COMMITMENTS AND CONTINGENCIES" below) and aggressive marketing programs by our competitors. Consistent with the fourth quarter of 2007, we increased marketing and promotional expenditures to attract and retain guests in response to these challenges and we incurred greater bad debt expense. We also had higher legal expenses associated with the ongoing and previously disclosed Kerzner litigation (see "LEGAL PROCEEDINGS" below). We anticipate that downward pressure on profits will persist as long as we continue to experience the adverse effects of the negative macroeconomic environment, construction disruption, the aggressive marketing programs of our competitors and the legal defense costs associated with the Kerzner lawsuit.

These factors were the primary drivers of:

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

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

· A decrease in our operating margin by 12.2 points or 56%.

CAPITAL SPENDING AND DEVELOPMENT

Capital expenditures at the Atlantis totaled approximately $19.1 and $2.2 million during the first three months of 2008 and 2007, respectively. During the three months ended March 31, 2008, our capital expenditures consisted primarily of construction costs associated with our ongoing $50 million expansion project and the Atlantis Convention Center Skybridge project (see additional discussion of these projects under "COMMITMENTS AND CONTINGENCIES" below). Additional capital expenditures during the quarter ended March 31, 2008 were for acquisition of land to be used for administrative offices, acquisition of gaming equipment to upgrade and replace existing equipment and continued renovation and upgrades to the Atlantis facility. During the first three months of 2007, capital expenditures consisted primarily of acquisitions of gaming equipment and the preliminary engineering and design costs associated with the current expansion phase of the Atlantis.

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

STATEMENT ON FORWARD-LOOKING INFORMATION

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

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2008 and 2007

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

Casino revenues totaled $23.8 million in the first quarter of 2008, a 5.9% decrease from $25.3 million in the first quarter of 2007, which was primarily due to decreased slot revenues. Casino operating expenses amounted to 36.8% of casino revenues in the first quarter of 2008, compared to 33.5% in the first quarter of 2007; the increase was due primarily due to the decreased casino revenue.

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

Hotel revenues were $5.8 million for the first quarter of 2008, a decrease of 14.7% from the $6.8 million reported in the 2007 first quarter. This decrease was the result of lower hotel occupancy and a decrease in the average daily room rate ("ADR"). Both 2008 and 2007 first quarter revenues included a $3 per occupied room energy surcharge. During the first quarter of 2008, the Atlantis experienced an 85.7% occupancy rate, as compared to 95.5% during the same period in 2007. The Atlantis' ADR was $68.55 in the first quarter of 2008 compared to $71.89 in the first quarter of 2007. Hotel operating expenses as a percent of hotel revenues increased to 36.1% for the first quarter of 2008 from 31.4% for the first quarter of 2007 primarily due to the decreased revenue.

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

Other revenues remained flat at $1.2 million in the 2008 first quarter as compared to the first quarter of 2007.

Depreciation and amortization expense was $2.0 million in the first quarter of 2008 as compared to $2.1 million in the first quarter of 2007. This depreciation expense primarily relates to property and equipment acquired in the ordinary course of business as part of the Company's ongoing capital expenditures to replace old and obsolete equipment with newer, more current equipment.

SG&A expenses amounted to $13.1 million in the first quarter of 2008, a 13.9% increase from $11.5 million in the first quarter of 2007. The increase was primarily due to increased bad debt expense, higher marketing and promotional expense and higher legal expense related to the Kerzner lawsuit (see "LEGAL PROCEEDINGS" discussion below). As a percentage of net revenue, SG&A expenses increased to 38.2% in the first quarter of 2008 from 30.5% in the same period in 2007.

Net interest income increased to $247,000 for the first quarter of 2008 from $195,000 for the first quarter of 2007. This increase was driven by a decrease in interest income which was more than offset by a decrease in interest expense. The decrease in interest income was the result of a lower average balance of interest bearing cash and cash equivalents during the first quarter of 2008 as compared to the same quarter in 2007. The decrease in interest expense was the result of a charge for deferred loan costs in the first quarter of 2007 that did not recur in 2008.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2008, net cash provided by operating activities totaled $5.9 million, a decrease of 35.2% compared to the same period last year. Net cash used in investing activities totaled $17.1 million and $2.2 million in the three months ended March 31, 2008 and 2007, respectively. During the first three months of 2008, net cash used in investing activities consisted primarily of construction costs associated with the current expansion phase of the Atlantis that commenced in June 2007, and the acquisition of property and equipment. During the first three months of 2007, net cash used in investing activities was used primarily in the purchase of property and equipment and continued property renovations and upgrades. Net cash used in financing activities totaled $11.9 million for the first three months of 2008 compared to net cash provided by financing activities of $318,180 for the same period in 2007. Net cash used in financing activities for the first three months of 2008 was due to our purchase of Monarch common stock pursuant to the Repurchase Plan (see "COMMITMENTS AND CONTINGENCIES" below). During the first three months of 2007, we received approximately $318,180 in cash form the proceeds of stock option exercises and the related tax benefits. At March 31, 2008, we had a cash and cash equivalents balance of $15.7 million compared to $38.8 million at December 31, 2007.

We have historically funded our daily hotel and casino activities with net cash provided by operating activities. However, to provide the flexibility to execute the share Repurchase Plan (see Commitments and Contingencies section below) should we decide to do so, and to provide for other capital needs should they arise, we entered into an agreement to amend our Credit Facility (see "THE CREDIT FACILITY" below) on April 14, 2008. The amendment increased the available borrowings under the facility from $5 million to $50 million and extended the maturity date from February 23, 2009 to April 18, 2009. At March 31, 2008, we had no balance outstanding on the Credit Facility and had $50 million available to be drawn under the Credit Facility.

OFF BALANCE SHEET ARRANGEMENTS

A driveway was completed and opened on September 30, 2004, that is being shared between the Atlantis and a shopping center (the "Shopping Center") directly adjacent to the Atlantis. The Shopping Center is controlled by an entity whose owners include our controlling stockholders. As part of this project, in January 2004, we leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 months based on the Consumer Price Index. We also use part of the common area of the Shopping Center and pay our proportional share of the common area expense of the Shopping Center. We have the option to renew the lease for three five-year terms, and at the end of the extension periods, we have the option to purchase the leased section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by us for pedestrian and vehicle access to the Atlantis, and we may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; we were responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the initial 15-year lease term; some components of the new driveway are being depreciated over a shorter period of time. We paid approximately $75,000 in lease payments for the leased driveway space at the Shopping Center during the three months ended March 31, 2008.

Critical Accounting Policies

A description of our critical accounting policies and estimates can be found in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the year ended December 31, 2007 ("2007 Form 10-K"). For a more extensive discussion of our accounting policies, see Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in our 2007 Form 10-K filed on March 17, 2008.

OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS

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

As discussed below in "COMMITMENTS AND CONTINGENCIES" we commenced construction on an expansion project to the Atlantis in the second quarter of 2007. The expected construction period of twelve months will continue into the second quarter of 2008 with the exception of the spa facilities, which we expect to open in the third quarter of 2008. During the construction period, there could be disruption to our operations from various construction activities. In addition, the construction activity may make it inconvenient for our patrons to access certain locations and amenities at the Atlantis which may in turn cause certain patrons to patronize other Reno area casinos rather than deal with construction-related inconveniences. As a result, our business and our results of operations may be adversely impacted so long as we are experiencing construction related operational disruption.

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

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

In June 2004, five California Indian tribes signed compacts with the state that allow the tribes to increase the number of slot machines beyond the previous 2,000-per-tribe limit in exchange for higher fees from each of the five tribes. In February 2008, the voters of the State of California approved compacts with four tribes located in Southern California that increase the limit of Native American operated slot machines in the State of California.

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