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 Spa, a hotel/casino facility in Reno, Nevada (the "Atlantis"). Monarch's other wholly owned subsidiary, High Desert Sunshine, Inc., owns a parcel of land located adjacent to the Atlantis. Monarch was incorporated in 1993 under Nevada law for the purpose of acquiring all of the stock of Golden Road. The principal asset of Monarch is the stock of Golden Road, which holds all of the assets of the Atlantis.

Our sole operating asset, the Atlantis, is a hotel/casino resort located in Reno, Nevada. Our business strategy is to maximize the Atlantis' revenues, operating income and cash flow primarily through our casino, our food and beverage operations and our hotel operations. We capitalize on the Atlantis' location for tour and travel visitors, conventioneers and Locals 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 and High Desert Sunshine, Inc subsidiaries.

OPERATING RESULTS SUMMARY



Below is a summary of our results for the twelve month periods ended December 31
for 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

Our results for the twelve months ended December 31, 2008 reflect the effects of the challenging operating environment that began 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 throughout 2008. Other factors causing negative financial impact that continued from the fourth quarter of 2007 were disruption from construction related to capital projects through the third quarter of 2008 (see "CAPITAL SPENDING AND DEVELOPMENT" below) and aggressive discounting 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, 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 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%.

† A decrease in our 2008 operating margin by 11.9 points or 53.4%.

CAPITAL SPENDING AND DEVELOPMENT

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

In June 2007, we broke ground on an expansion project several phases of which we completed and opened in the second half of 2008. New space was added to the first floor casino level, the second and third floors and the basement level totaling approximately 116,000 square feet. The existing casino floor was expanded by over 10,000 square feet, or approximately 20%. The first floor casino expansion includes a redesigned, updated and expanded race and sports book of approximately 4,000 square feet and an enlarged poker room. The expansion also included the new "Manhattan Deli", a New York deli-style restaurant. The second floor expansion created additional ballroom and convention space of approximately 27,000 square feet, doubling the existing facilities. We constructed and opened a pedestrian skywalk over Peckham Lane that connects the Reno-Sparks Convention Center directly to the Atlantis. In January 2009, we opened the final phase of the expansion project, the new Spa Atlantis featuring an atmosphere, amenities and treatments that are unique from any other offering in our market. Additionally, many of the pre-expansion areas of the Atlantis were remodeled to be consistent with the upgraded look and feel of the new facilities. The remodeling work will continue into 2009. The total cost of these capital projects is approximately $73 million. Through December 31, 2008, the Company had incurred approximately $68 million of that total.

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

Capital expenditures at the Atlantis were $67.9 million in 2008, $17.3 million in 2007 and, $5.8 million in 2006. During 2008 and 2007, capital expenditures primarily consisted of construction costs associated with the expansion, skybridge and remodel capital projects that commenced in June 2007. During 2006, capital expenditures primarily consisted of acquisition of gaming and computer equipment, the installation of a casino high-definition video display system, renovation of our Java Coast Gourmet Coffee and pastry bar, initial design and planning expenditures associated with our expansion and ongoing public area renovations and upgrades.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. Certain of our policies, including the estimated lives assigned to

our assets, the determination of bad debt reserves, self insurance reserves, concentration of credit risk, and the calculation of income tax liabilities, require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on historical experience, terms of existing contracts, observations of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. There can be no assurance that actual results will not differ from our estimates. To provide an understanding of the methodologies applied, our significant accounting policies are discussed where appropriate in this discussion and analysis and in the Notes to Consolidated Financial Statements.

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

Self-insurance Reserves

The Company reviews self-insurance reserves at least quarterly. The reserve is determined by reviewing the actual expenditures for the previous twelve-month period and reports prepared by the third party plan administrator for any significant unpaid claims. The reserve is an amount estimated to pay both reported and unreported claims as of the balance sheet date, which management believes are adequate.

Casino Revenues

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

Promotional Allowances

The retail value of hotel, food and beverage services provided to customers without charge is included in gross revenue and deducted as promotional allowances.

Income Taxes

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

The Company also applies the requirements of FIN 48 which prescribes minimum recognition thresholds a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Implementation has resulted in no material impact on the Company's financial position or results of operations.

RESULTS OF 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 net revenues of $141.4 million, compared to net income of $24.5 million, or $1.27 per 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 for 2007.

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

Food and beverage revenues decreased 6.8% to $39.5 million in 2008 from $42.4 million in 2007, due primarily due to a 3.7% increase in average revenue per cover combined with a 10.2% decrease in the number of covers served. Food and beverage operating expenses as a percentage of food and beverage revenue increased to 48.6% in 2008 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. The decrease reflects decreases in both the average daily room rate ("ADR") and occupancy rate during the twelve month period of 2008 compared to the same period 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 to 93.8% in 2007. Hotel operating expenses increased to 35.4% of hotel revenues in 2008, compared to 30.0% in 2007. This increase in operating expenses as a percentage of hotel revenues resulted primarily from the decreased revenue partially offset by lower direct hotel operating expenses.

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

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

Selling, general and administrative ("SG&A") expenses totaled $51.2 million, or 36.2% of net revenues, in 2008 compared to $50.0 million, or 31.3% of net revenues, 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 to mitigate the negative effects of the disruption our guests experienced related to construction of our expansion project (see additional discussion above under "CAPITAL SPENDING AND DEVELOPMENT"), aggressive marketing discount programs by our nearest competitor to promote the grand opening of its major expansion project and negative macroeconomic trends experienced in Reno, our feeder markets and the nation as a whole and ii) higher bad debt expense partially offset by iii) lower legal expense and iv) lower payroll and benefits expense related to lower headcount in 2008 as compared to 2007.

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

Interest expense increased to $539,000 in 2008 from $152,000 in 2007 due to increased borrowings under our credit facility (see "THE CREDIT FACILITY" below). Interest income derived

from investment of surplus cash in short-term, interest bearing instruments decreased to $371,000 from $1.9 million in 2007. This increase was driven primarily by lower surplus cash invested in 2008 as compared to 2007. The surplus cash was used in 2007 and through the second quarter of 2008 for our capital projects (see "CAPITAL SPENDING AND DEVELOPMENT" 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 net revenues of $159.9 million, compared to net income of $22.1 million, or $1.15 per diluted share, on net revenues of $152.0 million for the year ended December 31, 2006. Net revenue for 2007 is the highest in Company history. Income from operations 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 high for our Company. We believe that for much of 2007, the Atlantis continued to benefit from the increasing popularity of the Atlantis with visitors to the Reno area, from our commitment to ongoing property upgrades and renovations and from the rapid growth occurring in the residential and commercial areas south of the Atlantis in Reno.

Casino revenues totaled $110.3 million in 2007, up 6.8% from $103.3 million in 2006, driven by increases in slot, table games, poker and Keno win. Revenue from slot and video poker machines ("slot machines") increased approximately 7.3% in 2007 compared to 2006. We believe that increased slot machine play was due to continued effective marketing and continuous upgrade of facilities and equipment. Table game win increased approximately 2.4% in 2007 compared to 2006. Keno and poker room revenues combined increased approximately 11.0% in 2007 over 2006 due to continued effective marketing and the quality of the product and service offering at the Atlantis. Casino operating expenses were 32.6% of casino revenues in 2007, a slight improvement from 33.0% in 2006.

Food and beverage revenues increased 3.4% to $42.4 million in 2007 from $41.0 million in 2006, primarily due to a 3.5% increase in average revenue per cover. Food and beverage operating expenses as a percentage of food and beverage revenue increased slightly 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. The increase reflects an increase in both the average daily room rate ("ADR") and occupancy rate during the twelve month period of 2007 compared to the same period 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 to 93.3% in 2006. Hotel operating expenses decreased slightly to 30.0% of hotel revenues in 2007, compared to 31.7% in 2006. This decrease in operating expenses as a percentage of hotel revenues resulted primarily from the revenue impact of the increased ADR partially offset by increased direct hotel operating expenses.

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

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

Selling, general and administrative ("SG&A") expenses totaled $50.0 million, or 31.3% of net revenues, in 2007 compared to $46.3 million, or 30.5% of net revenues, 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 expense primarily related to our efforts to mitigate the negative effects of disruption our guests experienced related to construction of our expansion project (see additional discussion below

under Capital Spending and Development), aggressive marketing programs by our nearest competitor to promote the grand opening of its major expansion project and negative macroeconomic trends experienced in the Reno, our feeder markets and the nation as a whole and iii) higher payroll and benefits expense primarily related to increased headcount related to our expansion project (see additional discussion below under Capital Spending and Development), higher health care benefits expense and an increase in the minimum wage all partially offset by the impact of a $1.2 million non-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-Chairman and Chief Financial Officer who resigned in 2006.

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

Interest expense, reflecting amortization of various one-time fees and other loan costs required 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 of surplus cash in short-term, interest bearing instruments was $1.9 million in 2007 compared to $466,000 in 2006. This increase was driven primarily by higher average surplus cash invested in 2007 as compared to 2006.

LIQUIDITY AND CAPITAL RESOURCES

We have historically funded our daily hotel and casino activities with net cash provided by operating activities and borrowings under our credit facility (see "THE CREDIT FACILITY" below). For the years ended December 31, 2008, 2007 and 2006, net cash provided by operating activities totaled $23.0 million, $30.1 million and $35.2 million, respectively.

Net cash used in investing activities, which consisted of acquisitions of property and equipment, totaled $64.4 million, $15.3 million and $5.8 million in 2008, 2007 and 2006, respectively. Total capital expenditures, including amounts financed, were $67.9 million, $17.3 million and $5.8 million in 2008, 2007 and 2006, respectively.

Net cash provided by financing activities totaled $14.3 million in 2008 as compared to net cash used by financing activities of $13.0 million in 2007 and $5.4 million in 2006. Cash provided by financing activities in 2008 was principally related to proceeds from borrowings under our credit facility (see "THE CREDIT FACILITY" below) partially offset by repurchases of our stock in 2008. At March 9, 2009, we had $53.5 million of borrowings outstanding, and $6.5 million available, under our credit facility. Cash used by financing activities in 2007 was primarily related to repurchases of our stock and was primarily related to the paydown of our outstanding debt in 2006.

COMMITMENTS AND CONTINGENCIES



Our contractual cash obligations as of December 31, 2008 and the next five years
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

(2) The amount represents outstanding draws against our credit facility (see "THE CREDIT FACILITY" below) as of December 31, 2008.

(3) Our open 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 a 30-day notice.

We believe that our existing cash balances, cash flow from operations, equipment financing, and borrowings available under the New Credit Facility (see "THE CREDIT FACILITY" below) will provide us with sufficient resources to fund our operations, meet our debt obligations and fulfill our capital expenditure requirements; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional equity capital.

THE CREDIT FACILITY

Until February 20, 2004, we had a reducing revolving term loan credit facility with a consortium of banks (the "First Credit Facility"). On February 20, 2004, the Original Credit 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 and refinanced (the "New Credit Facility") for $60 million. The New Credit Facility may be utilized by us for working capital needs, general corporate purposes and for ongoing capital expenditure requirements.

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

The New Credit Facility contains covenants customary and typical for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of our assets and covenants restricting our ability to merge, transfer ownership of Monarch, incur additional indebtedness, encumber assets and make certain investments. The New Credit Facility contains covenants requiring 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 contains provisions that restrict cash transfers between Monarch and its affiliates and contains provisions requiring the achievement of certain financial ratios before we can repurchase our common stock or pay dividends. Management does not consider the covenants to restrict normal functioning of day-to-day operations.

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

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

We paid various one-time fees and other loan costs upon the closing of the refinancing of the New Credit Facility that will be 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 that pricing for borrowings under the First Credit Facility was LIBOR plus 1.25%. At December 31, 2007 and 2006, we had no outstanding borrowings; however, our leverage ratio was such that the pricing for borrowings would have been the Base Rate plus 0.00 percent or LIBOR plus 1.00 percent. At December 31, 2008, the one-month LIBOR rate was 0.44%. At March 9, 2009, we had $53.5 million of borrowings outstanding, and $6.5 million available, under our credit facility.

SHORT-TERM DEBT

. . .