Monarch Casino & Resort, Inc., through its wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("Golden Road"), owns and operates the 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 local residents by offering exceptional service, value and an appealing theme to our guests. Our hands-on management style focuses on customer service and cost efficiencies.

Unless otherwise indicated, "Monarch", "Company", "we", "our" 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 third quarter results for 2009 and 2008:

Amounts in millions, except per share amounts

                                  Three Months
                                 Ended September
                                       30,               Percentage
                                 2009        2008    Increase/(Decrease)
Casino revenues                $    24.4    $ 27.6                 (11.6 )
Food and beverage revenues           9.5      10.6                 (10.4 )
Hotel revenues                       6.3       6.3                     -
Other revenues                       1.0       1.2                 (16.7 )
Net revenues                        34.8      38.8                 (10.3 )
Sales, general and admin exp        12.2      12.7                  (3.9 )
Income from operations               3.6       6.2                 (41.9 )
Net income                           2.0       4.0                 (50.0 )

Earnings per share - diluted        0.13      0.25                 (48.0 )
Operating margin                    10.3 %    15.9 %                (5.6 )pts.

                                  Nine Months
                                Ended September
                                      30,               Percentage
                                2009       2008     Increase/(Decrease)
Casino revenues                  $71.3      $77.0                  (7.4 )
Food and beverage revenues        29.0       29.9                  (3.0 )
Hotel revenues                    17.6       17.7                  (0.6 )
Other revenues                     3.3        3.6                  (8.3 )
Net revenues                     101.9      108.4                  (6.0 )
Sales, general and admin exp      36.1       38.7                  (6.7 )
Income from operations             8.8       13.7                 (35.8 )
Net income                         4.8        9.1                 (47.3 )

Earnings per share - diluted      0.29       0.53                 (45.3 )

The decline in revenues for the three months ended September 30, 2009 compared to the same period of the prior year reflect the effects of a challenging operating environment. As in many other areas around the country, the economic slowdown in Reno in the fourth quarter of 2007 deepened throughout 2008 and has continued through the first nine-months of 2009. Additionally, aggressive marketing programs by our competitors that began in 2008 have continued through the first nine-months of 2009. Income from operations was impacted by an increase in depreciation expense of $681 thousand for the quarter ended September 30, 2009 compared to the same prior year period. This increase in depreciation expense was due to the completion and placing into service of our expansion, remodel and Atlantis Convention Center Skybridge capital projects (see "CAPITAL SPENDING AND DEVELOPMENT" below). These adverse effects were mitigated somewhat by our ability to reduce sales, general and administrative expense. We anticipate that downward pressure on revenue will persist as long as we continue to experience the adverse effects of the negative macroeconomic environment and the aggressive marketing programs of our competitors.

These factors were the primary drivers of:

† Decreases of 11.6% in our casino revenue and 10.4% in our food and beverage revenue resulting in a net revenue decline of 10.3%;

† A decrease in income from operations and diluted earnings per share of 41.9% and 48.0%, respectively;

† A decrease in our operating margin by 5.6 points or 35.2%.

CAPITAL SPENDING AND DEVELOPMENT

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

In June 2007, we broke ground on an expansion project several phases of which we completed and opened in the second half of 2008. New space was added to the first floor casino level, the second and third floors and the basement level totaling approximately 116,000 square feet. The existing casino floor was expanded by over 10,000 square feet, or approximately 20%. The first floor casino expansion included a redesigned, updated and expanded race and sports book of approximately 4,000 square feet and an enlarged poker room. The expansion also included the new Manhattan deli, a New York deli-

style restaurant. The second floor expansion created additional ballroom and convention space of approximately 27,000 square feet, doubling the existing facilities. We constructed and opened a pedestrian skywalk over Peckham Lane that connects the Reno-Sparks Convention Center directly to the Atlantis. In January 2009, we opened the final phase of the expansion project, the new Spa Atlantis featuring an atmosphere, amenities and treatments that are unique from any other offering in our market. Additionally, many of the pre-expansion areas of the Atlantis were remodeled to be consistent with the upgraded look and feel of the new facilities. The total cost of these capital projects (the "Capital Projects") was approximately $73 million.

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

Capital expenditures at the Atlantis totaled approximately $9.4 and $55.1 million during the first nine months of 2009 and 2008, respectively. During the nine month periods ended September 30, 2009 and 2008, our capital expenditures consisted primarily of construction costs associated with the Capital Projects, the acquisition of land to be used for administrative offices, gaming equipment to upgrade and replace existing equipment and continued renovation and upgrades to the Atlantis facility. During the third quarter of 2009, the Company acquired 5.3 acres of land for $3.25 million financed by a draw down from the Credit Facility. The land is located on the eastern perimeter of the current Atlantis footprint immediately across Coliseum Way. A portion of the parcel includes a 14,376-square-foot building that has been leased back to the seller, but the leased portion is intended to be available for future alternative parking or other facilities as the Company's development needs require.

We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility (see "THE CREDIT FACILITY" below) will provide us with sufficient resources to fund our operations, meet our debt obligations, and 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.

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, legislative and regulation changes, 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, 2009 and 2008

For the three months ended September 30, 2009, our net income was $2.0 million, or $0.13 per diluted share, on net revenues of $34.8 million, a decrease from net income of $4.0 million, or $0.25 per diluted share, on net revenues of $38.8 million for the three months ended September 30, 2008. Income from operations for the three months ended September 30, 2009 totaled $3.6 million when compared to $6.2 million for the same period in 2008. Net revenues decreased 10.3%, and net income decreased 50.0%, when compared to last year's third quarter.

Casino revenues totaled $24.4 million in the third quarter of 2009, an 11.6% decrease from the $27.6 million reported in the third quarter of 2008, which was primarily due to decreased slot revenue. Casino operating expenses amounted to 36.6% of casino revenues in the third quarter of 2009, compared to 36.2% in the third quarter of 2008. The increase was due primarily due to the decreased casino revenue combined with increased complimentary expenses.

Food and beverage revenues totaled $9.5 million in the third quarter of 2009, a 10.4% decrease from $10.6 million in the third quarter of 2008, due primarily to an 11.1% decrease in the number of covers served partially offset by a 0.6% increase in the average revenue per cover. Food and beverage operating expenses amounted to 48.2% of food and beverage revenues during the third quarter of 2009 as compared to 49.3% for the third quarter of 2008. This decrease was primarily the result of lower food and other commodity costs.

Hotel revenues were $6.3 million for each of the third quarters of 2009 and 2008, respectively. The effects of increased revenue from our new spa, which opened in January 2009, higher average daily room rate ("ADR") and revenue from a $10 per day resort fee paid by our guests effective June 1, 2009, were all offset by lower hotel occupancy. During the third quarter of 2009, the Atlantis experienced an 85.5% occupancy rate, as compared to 91.6% during the same period in 2008. The Atlantis' ADR was $67.76 in the third quarter of 2009 compared to $68.68 in the third quarter of 2008. Hotel operating expenses as a percent of hotel revenues increased to 34.8% in the 2009 third quarter, compared to 31.5% in the 2008 third quarter. This decrease is primarily due to the effect of the increased operating expenses of our new spa.

Promotional allowances decreased to $6.4 million in the third quarter of 2009 compared to $6.9 million in the third quarter of 2008. Promotional allowances as a percentage of gross revenues increased to 15.5% during the third quarter of 2009 as compared to 15.1% during the third quarter of 2008. The increase is attributable to continued efforts to generate additional revenues through promotional efforts and in response to aggressive marketing programs by our competitors.

Other revenues decreased slightly to $1.0 million in the third quarter of 2009 compared to $1.2 million in the third quarter of 2008.

Depreciation and amortization expense was $3.0 million in the third quarter of 2009 as compared to $2.4 million in the third quarter of 2008. The increase in depreciation expense is primarily related to depreciation of the portion on the Capital Projects (see "COMMITMENTS AND CONTINGENCIES" below) that opened throughout the second half of 2008 and in January 2009.

SG&A expense decreased to $12.2 million in the third quarter of 2009 from $12.7 million in the third quarter of 2008 primarily due to reductions in marketing expense. As a percentage of net revenue, SG&A expenses increased to 35.0% in the third quarter of 2009 from 32.8% in the same period in 2008.

During the three month period ended September 30, 2009, we paid down $3.45 million, net, from our $60 million credit facility which reduced the outstanding balance at September 30, 2009 to $48.65 million. Because of a higher average borrowing balance in the third quarter of 2009 as compared to the third quarter of 2008, interest expense increased during the third quarter of 2009 to $487 thousand from $83 thousand in the third quarter of 2008. The higher borrowing balance was attributable to borrowing to fund the Capital Projects.

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2009 and 2008.

For the nine months ended September 30, 2009, our net income was $4.8 million, or $0.29 per diluted share, on net revenues of $101.9 million, a decrease from net income of $9.1 million, or $0.53 per diluted share, on net revenues of $108.4 million during the nine months ended September 30, 2008. Income from operations for the 2009 nine-month period totaled $8.8 million, compared to $13.7 million for the same period in 2008. Net revenues decreased 6.0%, and net income decreased 47.3% when compared to the nine-month period ended September 30, 2008.

Casino revenues for the nine months ended September 30, 2009 totaled $71.3 million, a 7.4% decrease from $77.0 million for the nine months ended September 30, 2009. Casino operating expenses increased to 37.4% of casino revenues for the nine months ended September 30, 2008, compared to 36.4% for the same period in 2008, primarily due to the decreased casino revenue combined with increased complimentary expenses.

Food and beverage revenues totaled $29.0 million for the nine months ended September 30, 2009, a decrease of 3.0% from the $29.9 million for the nine months ended September 30, 2008, due to an approximate 4.4% decrease in the number of covers served partially offset by an approximate 0.4% increase in the average revenue per cover. Food and beverage operating expenses amounted to 47.6% of food and beverage revenues during the 2009 nine-month period as compared to 48.6% for the same period in 2008. This decrease was primarily the result of decreased food commodity and other costs.

Hotel revenues for the nine months ended September 30, 2009 remained relatively flat at $17.6 million for the nine months ended September 30, 2009 compared to $17.7 million for the nine months ended September 30, 2008. Decreases in hotel occupancy and the average daily room rate ("ADR") were offset by higher revenue from our new spa which opened in January 2009 and revenue from a $10 per day resort fee, paid by our hotel guests, which we implemented on June 1, 2009. Hotel revenues for the first six months of 2009, and all of 2008, also include a $3 per occupied room energy surcharge. The Atlantis experienced a slight decrease in the ADR during the 2009 nine-month period to $66.83, compared to $67.15 for the same period in 2008. The occupancy rate decreased to 83.2% for the nine-month period in 2009, from 87.9% for the same period in 2008. Hotel operating expenses as a percentage of hotel revenues in the first nine months of 2009 were 35.5%, slightly higher than the 34.3% for the same period in 2008. The increase was primarily due to the increased operating costs of the new spa.

Promotional allowances decreased to $19.3 million in the first nine months of 2009 compared to $19.8 million in the same period of 2008. Promotional allowances as a percentage of gross revenues increased to 15.9% for the first nine months of 2009 compared to 15.4% for the same period in 2008. The increase is attributable to continued efforts to generate additional revenues through promotional efforts

Other revenues were $3.3 million for the nine months ended September 30, 2009, an 8.3% decrease from $3.6 million in the same period in 2008.

Depreciation and amortization expense was $9.3 million in the first nine months of 2009, an increase of 45.3% compared to $6.4 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 throughout the back half of 2008 and in January 2009.

SG&A expenses decreased 6.7% to $36.1 million in the first nine months of 2009, compared to $38.7 million in the first nine months of 2008, due primarily to reductions in marketing expense of approximately $2.6 million, payroll and benefits expense of approximately $700 thousand and miscellaneous expense reductions of approximately $100 thousand all partially offset by increased utilities expense of approximately $600 thousand related to our expanded facilities and higher bad debt expense of approximately $200 thousand. As a percentage of net revenue, SG&A expenses decreased slightly to 35.5% in the 2009 nine-month period from 35.7% in the same period in 2008.

Interest income for the first nine months of 2009 totaled $108 thousand, compared to $334 thousand for the same period of the prior year. The difference reflects our reduction in interest bearing cash and cash equivalents (see "THE CREDIT FACILITY" below) during the first nine months of 2009 as compared to same period in 2008. During the first nine months of 2008, interest bearing cash and cash equivalents were used to purchase Monarch common stock pursuant to a stock repurchase plan that was in place in the prior year.

Because of a higher average borrowing balance in the first nine months of 2009 as compared to the same period of 2008, interest expense increased during the first nine months of 2009 to $1.6 million from $83 thousand in same period of 2008. The higher borrowing balance was attributable to borrowing to fund the Capital Projects.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2009, net cash provided by operating activities totaled $15.5 million, a decrease of $4.1 million or 21.0% compared to the same period last year. This decrease was primarily related to lower net income, higher depreciation and amortization and higher deferred income taxes during the first nine months of 2009 combined with the timing of the payment of a greater amount of accounts payable during the first nine months of 2009 and the collection of a greater amount of accounts receivable during the first nine months of the prior year.

Net cash used in investing activities totaled $14.7 million and $54.6 million in the nine months ended September 30, 2009 and 2008, respectively. During the nine months of 2009 and 2008, net cash used in investing activities consisted primarily of construction costs associated with the recent expansion phase of the Atlantis (see further discussion of the Capital Projects in the "CAPITAL SPENDING AND DEVELOPMENT" section above) and the acquisition of property and equipment. Because the construction was completed in January 2009, we used $39.9 million, or 73.0%, less net cash in investing activities during the nine months ended September 30, 2009 compared same period in the prior year.

Net cash used in financing activities of $1.3 million during the nine months ended September 30, 2009 represents net payments of our Credit Facility (see "THE CREDIT FACILITY" below). During the nine months ended September 30, 2008, net cash provided by financing activities totaled $6.8 million which consisted of $35.7 million to purchase Monarch common stock pursuant to a stock repurchase plan that was in place in the prior year offset by borrowings under our Credit Facility of $42.5 million.

We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility will provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure plans; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash 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.

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 year beginning in the 61st month 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, 2009.

Critical Accounting Policies

A description of our critical accounting policies and estimates can be found in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the year ended December 31, 2008 ("2008 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 2008 Form 10-K filed on March 13, 2009.

OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS

The economy in northern Nevada and our feeder markets, like many other areas around the country, are experiencing the effects of several negative macroeconomic trends, including a broad economic recession, higher unemployment rates, higher home mortgage defaults 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.

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. In addition, in August 2009, a federal district court ruled that more than 10,000 additional slot machines could be added to California tribal casinos. 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 2008 Form 10-K.

COMMITMENTS AND CONTINGENCIES



Our contractual cash obligations as of September 30, 2009 and the next five
years and thereafter are as follow:



                                                     Payments Due by Period (4)
Contractual Cash                                less than        1 to 3        4 to 5       more than
Obligations                       Total          1 year          years          years        5 years
Operating Leases(1)            $  3,761,000    $   431,000    $    740,000    $ 740,000    $ 1,850,000
Maturities of Borrowings
. . .