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 Reno residents, emphasizing slot machine play in our casino. We capitalize on the Atlantis' location for locals, tour and travel visitors and conventioneers by offering exceptional service, value and an appealing theme to our guests. Our hands-on management style focuses on customer service and cost efficiencies.

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

OPERATING RESULTS SUMMARY

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

Amounts in millions, except per share amounts

                                                             Three Months
                                                          Ended September 30,              Percentage
                                                         2008             2007         Increase/(Decrease)
Casino revenues                                       $     27.6       $     29.9                      (7.7 )
Food and beverage revenues                                  10.6             11.0                      (3.6 )
Hotel revenues                                               6.3              8.0                     (21.3 )
Other revenues                                               1.2              1.2                         -
Net revenues                                                38.8             43.6                     (11.0 )
Sales, general and admin exp                                12.7             12.7                         -
Income from operations                                       6.2             11.7                     (47.0 )
Net Income                                                   4.0              8.0                     (50.0 )

Earnings per share - diluted                                0.25             0.41                     (39.0 )

Operating margin                                            15.9 %           26.9 %                   (11.0 ) pts.

                                       Nine Months
                                   Ended September30,             Percentage
                                    2008          2007        Increase/(Decrease)
  Casino revenues                $     77.0      $  84.5                      (8.9 )
  Food and beverage revenues           29.9         32.1                      (6.9 )
  Hotel revenues                       17.7         21.9                     (19.2 )
  Other revenues                        3.6          3.7                      (2.7 )
  Net revenues                        108.4        123.0                     (11.9 )
  Sales, general and admin exp         38.7         37.1                       4.3
  Income from operations               13.7         30.1                     (54.5 )
  Net Income                            9.1         20.4                     (55.4 )

  Earnings per share - diluted         0.53         1.06                     (50.0 )

  Operating margin                     12.7 %       24.4 %                   (11.7 ) pts.

Our results for the three months ended September 30, 2008 reflect the effects of the challenging operating environment that we have experienced beginning in the three month period ended December 31, 2007. As in many other areas around the country, the economic downturn in northern Nevada in the fourth quarter of 2007 has deepened through the third quarter of 2008. Other factors causing negative financial impact that continued from the fourth quarter of 2007 were disruption from construction related to capital projects (see "COMMITMENTS AND CONTINGENCIES" below) and aggressive marketing programs by our competitors. In response to these challenges, we increased marketing and promotional expenditures to attract and retain guests. We also continued to incur legal expenses associated with the ongoing and previously disclosed Kerzner litigation (see "LEGAL PROCEEDINGS" below). We anticipate that downward pressure on profits will persist as long as we continue to experience the adverse effects of the negative macroeconomic environment, construction disruption, the aggressive marketing programs of our competitors and the legal defense costs associated with the Kerzner lawsuit.

These factors were the primary drivers of:

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

· A decrease in our third quarter 2008 operating margin by 11.0 points or 40.9%.

CAPITAL SPENDING AND DEVELOPMENT

Capital expenditures at the Atlantis totaled approximately $55.1 and $10.2 million during the first nine months of 2008 and 2007, respectively. During the nine months ended September 30, 2008, our capital expenditures consisted primarily of construction costs associated with our $50 million expansion project and the Atlantis Convention Center Skybridge project (see additional discussion of these projects under "COMMITMENTS AND CONTINGENCIES" below). Additional capital expenditures during the nine months ended September 30, 2008 were for acquisition of land to be used for administrative offices, acquisition of gaming equipment to upgrade and replace existing equipment and continued renovation and upgrades to the Atlantis facility. During the nine months ended September 30, 2007, our capital expenditures consisted primarily of construction costs associated with the current expansion phase of the Atlantis that commenced in June 2007 and the acquisition of gaming equipment to upgrade and replace existing gaming equipment.

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

STATEMENT ON FORWARD-LOOKING INFORMATION

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

RESULTS OF OPERATIONS

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

For the three months ended September 30, 2008, our net income was $4.0 million, or $0.25 per diluted share, on net revenues of $38.8 million, a decrease from net income of $8.0 million, or $0.41 per diluted share, on net revenues of $43.6 million for the three months ended September 30, 2007. Income from operations for the three months ended September 30, 2008 totaled $6.2 million when compared to $11.7 million for the same period in 2007. Net revenues decreased 11.0%, and net income decreased 50.0%, when compared to last year's third quarter.

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

Food and beverage revenues totaled $10.6 million in the third quarter of 2008, a 3.6% decrease from $11.0 million in the third quarter of 2007, due primarily to a 6.3% decrease in the number of covers served partially offset by a 2.7% increase in the average revenue per cover. Food and beverage operating expenses amounted to 49.3% of food and beverage revenues during the third quarter of 2008 as compared to 48.9% for the third quarter of 2007. This increase was primarily the result of increased food commodity and labor costs.

Hotel revenues were $6.3 million for the third quarter of 2008, a decrease of 21.3% from the $8.0 million reported in the 2007 third quarter. This decrease was the result of lower hotel occupancy combined with a decrease in the average daily room rate ("ADR"). Both 2008 and 2007 third quarter revenues included a $3 per occupied room energy surcharge. During the third quarter of 2008, the Atlantis experienced a 91.6% occupancy rate, as compared to 97.9% during the same period in 2007. The Atlantis' ADR was $68.68 in the third quarter of 2008 compared to $81.11 in the third quarter of 2007. Hotel operating expenses as a percent of hotel revenues increased to 31.5% during the third quarter of 2008 as compared to 27.0% in the 2007 third quarter. This increase was primarily the result of the decreased hotel revenues.

Promotional allowances increased to $6.9 million in the third quarter of 2008 compared to $6.6 million in the third 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 15.1% during the third quarter of 2008 as compared to 13.1% during the third quarter of 2007.

Other revenues remained flat at $1.2 million in both the 2008 third quarter and the third quarter of 2007.

Depreciation and amortization expense was $2.4 million in the third quarter of 2008 as compared to $2.0 million in the third quarter of 2007. The increase in depreciation expense is primarily related to depreciation expense of the portion on the Expansion assets (see "COMMITMENTS AND CONTINGENCIES" below) that opened in July 2008.

SG&A expense remained flat at $12.7 million in both the third quarters of 2008 and 2007. Increased marketing expense in the third quarter of 2008 was offset primarily by lower payroll and benefit expenses. As a percentage of net revenue, SG&A expenses increased to 32.8% in the third quarter of 2008 from 29.2% in the same period in 2007.

Through September 30, 2008, we drew $42.5 million from our $50 million credit facility to pay for share repurchases and to fund ongoing capital projects. As a result of this borrowing activity, we incurred interest expense of $83 thousand during the current quarter, as compared to no interest expense for the third quarter of 2007. We used our invested cash reserves during the first and second quarters of 2008 to fund the $50 million expansion project and share repurchases resulting in a decrease in interest income from the $568 thousand reported in the second quarter of 2007 to $36 thousand in the current quarter. Current quarter interest income represents interest earned on the Note with Triple J (see NOTE 5. RELATED PARTY TRANSACTIONS to the Company's consolidated financial statements).

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

For the nine months ended September 30, 2008, our net income was $9.1 million, or $.53 per diluted share, on net revenues of $108.4 million, a decrease from net income of $20.4 million, or $1.06 per diluted share, on net revenues of $123.0 million during the nine months ended September 30, 2007. Income from operations for the 2008 nine-month period totaled $13.7 million, compared to $30.1 million for the same period in 2007. Net revenues decreased 11.9%, and net income decreased 55.4% when compared to the nine-month period ended September 30, 2007.

Casino revenues for the nine months ended September 30, 2008 totaled $77.0 million, an 8.9% decrease from $84.5 million for the nine months ended September 30, 2007. Casino operating expenses amounted to 36.4% of casino revenues for the nine months ended September 30, 2008, compared to 31.9% for the same period in 2007, primarily due to the decreased casino revenue combined with decreased payroll and benefit expenses offset by increased complimentary expenses.

Food and beverage revenues totaled $29.9 million for the nine months ended September 30, 2008, a decrease of 6.9% from the $32.1 million for the nine months ended September 30, 2007, due to an approximate 11.0% decrease in the number of covers served partially offset by an approximate 4.9% increase in the average revenue per cover. Food and beverage operating expenses amounted to 48.6% of food and beverage revenues during the 2008 nine-month period as compared to 47.4% for the same period in 2007. This increase was primarily the result of increased food commodity and labor costs.

Hotel revenues for the nine months ended September 30, 2008 decreased 19.2% to $17.7 million from $21.9 million for the nine months ended September 30, 2007, primarily due to decreases in the occupancy and ADR at the Atlantis. Hotel revenues for the nine months of 2008 and 2007 include a $3 per occupied room energy surcharge. The Atlantis experienced a decrease in the ADR during the 2008 nine-month period to $67.15, compared to $75.20 for the same period in 2007. The occupancy rate decreased to 87.9% for the nine-month period in 2008, from 96.8% for the same period in 2007. Hotel operating expenses in the first nine months of 2008 were 34.3% as compared to 29.4% for the same period in 2007. The increase was primarily due to the decreased revenues.

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

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

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

SG&A expenses increased 4.3% to $38.7 million in the first nine months of 2008, compared to $37.1 million in the first nine months of 2007, primarily as a result of increased marketing and bad debt expense. As a percentage of net revenue, SG&A expenses increased to 35.7% in the 2008 nine-month period from 30.1% in the same period in 2007.

Net interest income for the first nine months of 2008 totaled $251 thousand compared to $1.2 million for the same period of the prior year. The difference reflects our reduction in interest bearing cash and cash equivalents, combined with increased debt outstanding (see "THE CREDIT FACILITY" below), during the first nine months of 2008 as compared to same period in 2007.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2008, net cash provided by operating activities totaled $19.6 million, a decrease of 21.2% compared to the same period last year. Net cash used in investing activities totaled $54.6 million and $8.7 million in the nine months ended September 30, 2008 and 2007, respectively. During the first nine 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 nine months of 2008, net cash used in investing activities consisted primarily of construction costs associated with the current expansion of the Atlantis and the acquisition of gaming equipment to upgrade and replace existing gaming equipment. Net cash provided by financing activities totaled $6.8 million for the first nine months of 2008 compared to net cash used in financing activities of $237,000 for the same period in 2007. Net cash used in financing activities for the first nine months of 2008 was due to our $35.7 million purchase of Monarch common stock pursuant to the Repurchase Plan offset by $42.5 million in credit line draws under the Credit Facility (see "COMMITMENTS AND CONTINGENCIES" below). Net cash provided by financing activities for the first nine months of 2007 was due to proceeds from the exercise of stock options and the tax benefits associated with such stock option exercises. At September 30, 2008, we had cash and cash equivalents balance of $10.6 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, to fund construction costs associated with our $50 million expansion project and the Atlantis Convention Center Skybridge project (see Commitments and Contingencies section below) and to provide for other capital needs should they arise, we entered into an agreement to amend our Credit Facility (see "THE CREDIT FACILITY" below) on April 14, 2008. The amendment increased the available borrowings under the facility from $5 million to $50 million and extended the maturity date from February 23, 2009 to April 18, 2009. At September 30, 2008, we had $42.5 million outstanding on the Credit Facility and had $7.5 million available to be drawn under the Credit Facility. We plan to amend the Credit Facility to extend its maturity beyond April 18, 2009. Such an amendment will likely result in the amendment of other material provisions of the Credit Facility, such as the interest rate charged and other material covenants. In the event that we are not able to come to mutually acceptable terms with the Credit Facility lender, we believe that the strength of our balance sheet, combined with our operating cash flow, will provide the basis for a successful refinancing of the Credit Facility with an alternative lender. However, there is no assurance that we will be able to reach acceptable terms for a Credit Facility amendment or refinancing. If we are unable to amend or refinance the Credit Facility, we may seek equity or other financing to repay the outstanding principal of the Credit Facility upon its maturity.

OFF BALANCE SHEET ARRANGEMENTS

A driveway was completed and opened on September 30, 2004, that is being shared between the Atlantis and a shopping center (the "Shopping Center") directly adjacent to the Atlantis. The Shopping Center is controlled by an entity whose owners include our controlling stockholders. As part of this project, in January 2004, we leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 months based on the Consumer Price Index. We also use part of the common area of the Shopping Center and pay our proportional share of the common area expense of the Shopping Center. We have the option to renew the lease for three five-year terms, and at the end of the extension periods, we have the option to purchase the leased section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by us for pedestrian and vehicle access to the Atlantis, and we may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; we were responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the initial 15-year lease term; some components of the new driveway are being depreciated over a shorter period of time. We paid approximately $225,000 in lease payments for the leased driveway space at the Shopping Center during the nine months ended September 30, 2008.

Critical Accounting Policies

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

OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS

The economy in northern Nevada and our feeder markets, like many other areas around the country, are experiencing the effects of several negative macroeconomic trends, including a possible broad economic recession, higher fuel prices, home mortgage defaults, higher mortgage interest rates and declining residential real estate values. These negative trends could adversely impact discretionary incomes of our target customers, which, in turn could adversely impact our business. We believe that as recessionary pressures increase or continue for an extended period of time, target customers may further curtail discretionary spending for leisure activities and businesses may reduce spending for conventions and meetings, both of which would adversely impact our business. Management continues to monitor these trends and intends, as appropriate, to adopt operating strategies to attempt to mitigate the effects of such adverse conditions. We can make no assurances that such strategies will be effective.

As discussed below in "COMMITMENTS AND CONTINGENCIES" we commenced construction on an expansion project to the Atlantis, and Skybridge to the Reno-Sparks Convention Center, in the second quarter of 2007. While most of the expansion was completed in July 2008, construction of the Skybridge is expected to continue into the fourth quarter of 2008, construction of the spa facilities is expected to continue into the first quarter of 2009 and various remodeling of the pre-expansion facilities are expected to continue into the first half of 2009. During the construction period, there could be disruption to our operations from various construction activities. In addition, the construction activity may make it inconvenient for our patrons to access certain locations and amenities at the Atlantis which may in turn cause certain patrons to patronize other Reno area casinos rather than deal with construction-related inconveniences. As a result, our business and our results of operations may be adversely impacted so long as we are experiencing construction related operational disruption.

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

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

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

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