-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CLKdJSbkjYdukS62sk4rQqlJgFijZpznKD3S2mz2xedipfbWNCe1ugfDQb5qqzBr DmxBJ4j9LbzWYe9+SIcJ6g== 0000907242-05-000021.txt : 20050513 0000907242-05-000021.hdr.sgml : 20050513 20050513165723 ACCESSION NUMBER: 0000907242-05-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050513 DATE AS OF CHANGE: 20050513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONARCH CASINO & RESORT INC CENTRAL INDEX KEY: 0000907242 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880300760 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22088 FILM NUMBER: 05830156 BUSINESS ADDRESS: STREET 1: 1175 W MOANA LANE STREET 2: STE 200 CITY: RENO STATE: NV ZIP: 89509 BUSINESS PHONE: 7758253355 MAIL ADDRESS: STREET 1: 1175 W MOANA LANE STREET 2: STE 200 CITY: RENO STATE: NV ZIP: 89509 10-Q 1 q1q05.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______. Commission File No. 0-22088 MONARCH CASINO & RESORT, INC. (Exact name of registrant as specified in its charter) ------------------------- NEVADA 88-0300760 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1175 W. MOANA LANE, SUITE 200 RENO, NEVADA 89509 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code: (775) 825-3355 ------------------------- NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ___ NO _X_ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 12, 2005, there were 18,831,316 shares of Monarch Casino & Resort, Inc. $0.01 par value common stock outstanding. TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income for the three months ended March 31, 2005 and 2004 (unaudited).................................................... 3 Condensed Consolidated Balance Sheets at March 31, 2005 (unaudited) and December 31, 2004............... 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)......... 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 20 Item 4. Controls and Procedures......................................... 20 PART II - OTHER INFORMATION Item 6. Exhibits........................................................ 22 Signatures...................................................... 23 Exhibit 31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ..................................... 24 Exhibit 31.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ..................................... 25 Exhibit 32.1 Certification of John Farahi pursuant to Section 906 of the Sarbanes-Oxley Act of 2002................... 26 Exhibit 32.2 Certification of Ben Farahi pursuant to Section 906 of the Sarbanes-Oxley Act of 2002................... 27 -2- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, ---------------------------- 2005 2004 ------------ ------------ (Unaudited) (Unaudited) Revenues Casino...................................... $ 20,901,908 $ 19,902,851 Food and beverage........................... 9,026,336 8,825,823 Hotel....................................... 5,588,152 5,518,305 Other....................................... 1,048,337 863,030 ------------ ------------ Gross revenues........................... 36,564,733 35,110,009 Less promotional allowances................. (5,002,031) (4,624,031) ------------ ------------ Net revenues............................. 31,562,702 30,485,978 ------------ ------------ Operating expenses Casino...................................... 7,534,847 7,440,671 Food and beverage........................... 4,437,365 4,391,722 Hotel....................................... 2,027,873 2,067,987 Other....................................... 321,646 318,463 Selling, general, and administrative........ 8,809,293 8,519,406 Gaming development expense.................. 204,398 - Depreciation and amortization............... 2,038,200 3,003,359 ------------ ------------ Total operating expenses................. 25,373,622 25,741,608 ------------ ------------ Income from operations................... 6,189,080 4,744,370 Other expense Interest expense............................ (305,374) (429,961) Stockholder guarantee fee expense........... - (136,164) ------------ ------------ Total other expense...................... (305,374) (566,125) ------------ ------------ Income before income taxes............... 5,883,706 4,178,245 Provision for income taxes.................... 2,030,000 1,420,000 ------------ ------------ Net income............................... $ 3,853,706 $ 2,758,245 ============ ============ Earnings per share of common stock Net income Basic..................................... $ 0.20 $ 0.15 Diluted................................... $ 0.20 $ 0.15 Weighted average number of common shares and potential common shares outstanding Basic................................... 18,816,819 18,689,472 Diluted................................. 19,043,546 18,764,512
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -3- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2005 2004 ------------- ------------- (Unaudited) ASSETS Current assets Cash............................................ $ 9,308,672 $ 11,814,778 Receivables, net................................ 2,414,332 2,959,894 Federal income tax refund receivable............ - 493,797 Inventories..................................... 1,252,778 1,452,696 Prepaid expenses................................ 2,535,061 2,346,242 Deferred income taxes........................... 1,115,719 1,115,719 ------------- ------------- Total current assets......................... 16,626,562 20,183,126 ------------- ------------- Property and equipment Land............................................ 10,339,530 10,339,530 Land improvements............................... 3,226,913 3,226,913 Buildings....................................... 78,955,538 78,955,538 Building improvements........................... 7,524,680 7,524,680 Furniture and equipment......................... 65,561,447 65,146,594 Leasehold improvement........................... 1,346,965 1,346,965 ------------- ------------- 166,955,073 166,540,220 Less accumulated depreciation and amortization.. (70,382,468) (68,791,045) ------------- ------------- Net property and equipment................... 96,572,605 97,749,175 ------------- ------------- Other assets, net................................. 383,746 406,620 ------------- ------------- Total assets................................. $ 113,582,913 $ 118,338,921 ============= =============
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -4- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2005 2004 ------------- ------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt............ $ - $ - Accounts payable................................ 6,680,008 5,747,775 Accrued expenses................................ 6,121,811 7,918,299 Federal income taxes payable.................... 1,710,203 - ------------- ------------- Total current liabilities.................... 14,512,022 13,666,074 Long-term debt, less current maturities........... 23,100,000 32,400,000 Deferred income taxes............................. 6,335,505 6,509,505 Commitments and contingencies..................... Stockholders' equity Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued................. - - Common stock, $.01 par value, 30,000,000 shares authorized; 19,072,550 shares issued; 18,819,116 outstanding at 03/31/2005, 18,812,448 outstanding at 12/31/2004........... 95,363 95,363 Additional paid-in capital...................... 17,457,149 17,463,272 Treasury stock, 253,434 shares at 03/31/2005, 260,102 shares at 12/31/2004, at cost......................... (929,691) (954,152) Retained earnings............................... 53,012,565 49,158,859 ------------- ------------- Total stockholders' equity................... 69,635,386 65,763,342 ------------- ------------- Total liabilities and stockholders' equity... $ 113,582,913 $ 118,338,921 ============= =============
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -5- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ---------------------------- 2005 2004 ------------ ------------ (Unaudited) (Unaudited) Cash flows from operating activities: Net income.................................. $ 3,853,706 $ 2,758,245 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............. 2,038,200 3,003,359 Amortization of deferred loan costs....... 22,875 105,084 Provision for bad debt.................... 89,913 100,120 (Gain) Loss on disposal of assets......... (6,500) 98,606 Deferred income taxes..................... (174,000) 78,840 Changes in assets and liabilities Receivables, net.......................... 949,446 547,683 Inventories............................... 199,919 91,764 Prepaid expenses.......................... (188,819) (57,187) Other assets.............................. - (454,823) Accounts payable.......................... 932,233 (203,734) Accrued expenses and federal income taxes payable........................... (86,285) (356,736) ------------ ------------ Net cash provided by operating activities.................... 7,630,688 5,711,221 ------------ ------------ Cash flows from investing activities: Proceeds from sale of assets................ 6,500 5,230 Acquisition of property and equipment....... (861,631) (3,775,103) ------------ ------------ Net cash used in investing activities.... (855,131) (3,769,873) ------------ ------------ Cash flows from financing activities: Proceeds from exercise of stock options..... 18,337 133,417 Proceeds from long-term borrowings.......... - 46,400,000 Principal payments on long-term debt........ (9,300,000) (47,109,610) ------------ ------------ Net cash used in financing activities.................... (9,281,663) (576,193) ------------ ------------ Net (decrease) increase in cash.......... (2,506,106) 1,365,155 Cash at beginning of period................... 11,814,778 9,711,310 ------------ ------------ Cash at end of period......................... $ 9,308,672 $ 11,076,465 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest...................... $ 381,164 $ 542,974 Cash paid for income taxes.................. $ - $ 120,000 Supplemental schedule of non-cash investing and financing activities: The Company financed the purchase of property and equipment in the following amounts........................... $ - $ -
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -6- MONARCH CASINO & RESORT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Monarch Casino & Resort, Inc. ("Monarch"), a Nevada corporation, was incorporated in 1993. Monarch's wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("Golden Road"), operates the Atlantis Casino Resort (the "Atlantis"), a hotel/casino facility in Reno, Nevada. Unless stated otherwise, the "Company" refers collectively to Monarch and its Golden Road subsidiary. The consolidated financial statements include the accounts of Monarch and Golden Road. Intercompany balances and transactions are eliminated. Interim Financial Statements The accompanying condensed consolidated financial statements for the three-month period ended March 31, 2005 and 2004 are unaudited. In the opinion of management, all adjustments, (which include normal recurring adjustments) necessary for a fair presentation of the Company's financial position and results of operations for such periods, have been included. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2004. The results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005, or for any other period. Use of Estimates In preparing these financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the respective periods. Actual results could differ from those estimates. Self-insurance Reserves The Company reviews self-insurance reserves at least quarterly. The amount of reserve is determined by reviewing the actual expenditures for the previous twelve-month period and reviewing reports prepared by third party plan administrators for any significant unpaid claims. The reserve is accrued at an amount that approximates amounts needed to pay both reported and unreported claims as of the balance sheet dates, which management believes are adequate. Stockholder Guarantee Fees All of the Company's bank debt was personally guaranteed by the Company's three largest stockholders since the inception of our original loan agreement on December 29, 1997. Effective January 1, 2001, until February 20, 2004, the Company compensated the guarantors at the rate of 2% per annum of the -7- quarterly average outstanding bank debt amount. During the three months ended March 31, 2004, the Company recorded interest expense in the amount of approximately $136,000 in guarantee fees. No guarantee fees were paid during the three months ended March 31, 2005, because the individuals who guaranteed the Original Credit Facility (as defined below) were not required to do so for the New Credit Facility. Inventories Inventories, consisting primarily of food, beverages, and retail merchandise, are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Since inception, property and equipment have been depreciated principally on a straight line basis over the estimated service lives as follows: Land improvements ........... 15-40 years Buildings ................... 30-40 years Building improvements ....... 15-40 years Furniture ................... 5-10 years Equipment ................... 5-20 years In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets," the Company evaluates the carrying value of its long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable from related future undiscounted cash flows. Indicators which could trigger an impairment review include legal and regulatory factors, market conditions and operational performance. Any resulting impairment loss, measured as the difference between the carrying amount and the fair value of the assets, could have a material adverse impact on the Company's financial condition and results of operations. 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 -8- 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. Stock Based Compensation The Company maintains three stock option plans. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related interpretations in accounting for its plans. No stock-based compensation costs are reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. If the Company had elected to recognize compensation cost on the fair market value at the grant dates for awards under the stock option plans, consistent with the method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," (and as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which the Company adopted for the fiscal quarter ended March 31, 2005), net income and income per share would have been changed to the pro forma amounts indicated below:
Three Months ended March 31, ----------------------------- 2005 2004 ----------- ----------- Net income, as reported $ 3,853,706 $ 2,758,245 Stock based employee compensation expensed determined under the fair value based method for all awards, net of related income tax effects (252,204) (2,934) ----------- ----------- Pro forma net income $ 3,601,502 $ 2,755,311 =========== =========== Basic earnings per share As reported $ 0.20 $ 0.15 Pro forma $ 0.19 $ 0.15 Diluted earnings per share As reported $ 0.20 $ 0.15 Pro forma $ 0.19 $ 0.15
Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of bank deposits and trade receivables. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Concentrations of credit risk with -9- respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company believes it is not exposed to any significant credit risk on cash and accounts receivable. Certain Risks and Uncertainties A significant portion of the Company's revenues and operating income are generated from patrons who are residents of northern California. A change in general economic conditions or the extent and nature of casino gaming in California, Washington or Oregon could adversely affect the Company's operating results. On September 10, 1999, California lawmakers approved a constitutional amendment that gave Indian tribes the right to offer slot machines and a range of house-banked card games. On March 7, 2000, California voters approved the constitutional amendment. Several Native American casinos have opened in Northern California since passage of the constitutional amendment. A large Native American casino facility opened in the Sacramento area, one of our primary feeder markets, in June of 2003. Other new Native American casinos are under construction in the northern California market, as well as other markets the Company currently serves, that could have an impact on the Company's financial position and results of operations. In addition, the Company relies on non-conventioneer visitors partially comprised of individuals flying into the Reno area. The "War on Terrorism," combined with the ongoing situation in Iraq and the threat of further terrorist attacks could have an adverse effect on the Company's revenues from this segment. The terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that created economic and business uncertainties, especially for the travel and tourism industry. The potential for future terrorist attacks, the national and international responses, and other acts of war or hostility including the ongoing situation in Iraq, have created economic and political uncertainties that could materially adversely affect our business, results of operations, and financial condition in ways we cannot predict. A change in regulations on land use requirements with regard to development of new hotel casinos in the proximity of the Atlantis could have an adverse impact on our business, results of operations, and financial condition. NOTE 2. EARNINGS PER SHARE The Company reports "basic" earnings per share and "diluted" earnings per share in accordance with the provisions of SFAS No. 128, "Earnings Per Share." Basic earnings per share is computed by dividing reported net earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock options. On March 31, 2005, the Company split its common stock on a 2 for 1 basis. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands): -10-
Three Months ended March 31, ----------------------------------- 2005 2004 ---------------- ---------------- Per Share Per Share Shares Amount Shares Amount ------ --------- ------ --------- Weighted average common shares outstanding Basic..................... 18,817 $ 0.20 18,689 $ 0.15 Effect of dilutive stock options............ 227 - 76 - ------ ------- ------ ------- Diluted................... 19,044 $ 0.20 18,765 $ 0.15 ====== ======= ====== =======
Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the market price as their effects would be anti-dilutive in the computation of diluted earnings per share. NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R (Revised 2004), "Share-Based Payment ("SFAS No.123R"), which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost will be measured based on fair value models of the equity or liability instruments issued. We currently disclose pro forma compensation expense quarterly and annually by calculating the stock option grants' fair value using the Black-Scholes model and disclosing the impact on net income and net income per share in a Note to the Consolidated Financial Statements. Upon adoption, pro forma disclosure will no longer be an alternative. SFAS No.123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company will begin to apply SFAS No.123R using an appropriate fair value model beginning January 1, 2006. We are currently evaluating the provisions of SFAS No. 123(R) to determine its impact on our future financial statements. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently evaluating the provisions of SFAS No. 151 to determine its impact on our future financial statements. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets." This statement is based on the principle that exchanges of nonmonetary assets should be measured based on fair value of the assets exchanged. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We are currently evaluating the provisions of SFAS No. 153 to determine its impact on our future financial statements. -11- NOTE 5. RELATED PARTY TRANSACTIONS The three principal stockholders of the Company, through their affiliates, control the ownership and management of a shopping center directly adjacent to the Atlantis (the "Shopping Center"). The Shopping Center occupies 18.7 acres and consists of approximately 213,000 square feet of retail space. The Company currently rents various spaces totaling approximately 7,700 square feet in the Shopping Center which it uses as office space, and paid rent of approximately $14,800 plus common area expenses for the three months ended March 31, 2005, and approximately $15,100 for the three months ended March 31, 2004. In addition, a new driveway that is being shared between the Atlantis and the Shopping Center was completed on September 30, 2004. As part of this project, in January 2004, the Company leased a 37,368 square-foot corner section of the Shopping 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. The Company began paying rent to the Shopping Center on September 30, 2004. The Company also uses part of the common area of the Shopping Center and pays its proportional share of the common area expense of the Shopping Center. The Company has the option to renew the lease for 3 five- year terms, and at the end of the extension periods, the Company has 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 the Company for pedestrian and vehicle access to the Atlantis, and the Company may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; the Company was 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. The Company paid approximately $75,000 for its leased driveway space at the Shopping Center during the three months ended March 31, 2005. On September 23, 2003, the Company entered into an option agreement with an affiliate of its controlling stockholders to purchase property in South Reno for development of a new hotel casino. The Company, through the current property owner, filed an application with the City of Reno for both master plan and zoning changes for 13 acres of the property. On January 20, 2005, the City of Reno Planning Commission approved the application for zoning change on the property; the Reno City Council would next have to approve the application. On April 13, 2005, the Reno City Council rejected the application for master plan and zoning change. As a result of the City Council's decision, the Company expensed in the first quarter ended March 31, 2005, a charge of approximately $204,000 in gaming development costs related to the potential new hotel casino. The Company is currently leasing billboard advertising space from affiliates of its controlling stockholders for a total cost of $7,000 for each of the three months ended March 31, 2005 and 2004. The Company is currently renting office and storage space from a company affiliated with Monarch's controlling stockholders and paid rent of approximately $7,000 for these spaces for each of the three month periods ended March 31, 2005 and 2004. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 During the first quarter of 2005, we exceeded all previously reported Company first quarter casino revenues, hotel revenues, net revenues, net income and earnings per share.
Three Months Percentage ended March 31, Increase / (Decrease) ------------------- ------------------------ 2005 2004 First Quarter '05 vs '04 -------- -------- ------------------------ (In millions, except earnings per share and percentages) Casino revenues......................... $ 20.9 $ 19.9 5.0% Food and beverage revenues.............. 9.0 8.8 2.3% Hotel revenues.......................... 5.6 5.5 1.3% Other revenues.......................... 1.0 0.9 21.5% Net revenues............................ 31.6 30.5 3.5% Income from operations.................. 6.2 4.7 30.5% Net income.............................. 3.9 2.8 39.7% Earnings per share - diluted............ 0.20 0.15 33.3% Operating margin........................ 19.6% 15.6% 4.0 pts
Some significant items that affected our first quarter results in 2005 are listed below. These items are discussed in greater detail elsewhere in our discussion of operating results and in the Liquidity and Capital Resources section. -13- - Casino revenues increased approximately $1.0 million, or 5.0%, during the first quarter of 2005 over the same period in 2004 driven primarily by a 10.3% increase in slot revenues. Food and beverage, hotel and other revenue centers all achieved increases in revenues during the quarter for a combined 3.0% improvement over the 2004 first quarter. - Our operating expenses decreased 1.4% during the quarter due to a 32.1% decrease in depreciation and amortization. - The increased revenues, combined with the decrease in depreciation expense and across the board margin improvements, led to an increase in income from operations of 30.5%. CAPITAL SPENDING AND DEVELOPMENT Capital expenditures at the Atlantis totaled approximately $862,000 and $3.8 million during the first three months of 2005 and 2004, respectively. During the three months ended March 31, 2005, our capital expenditures consisted primarily of acquisitions of gaming and computer systems equipment. During last year's first three months, capital expenditures consisted primarily of renovations to our second tower hotel rooms and suites, the installation of a new slot player tracking system and continued acquisitions of and upgrades to gaming equipment. Future cash needed to finance ongoing maintenance capital spending is expected to be made available from operating cash flow, the Credit Facility (see "Liquidity and Capital Resources - THE CREDIT FACILITY" below) and, if necessary, additional borrowings. STATEMENT ON FORWARD-LOOKING INFORMATION Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as statements relating to anticipated expenses, capital spending and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include, but are not limited to, those relating to competitive industry conditions, expansion of Indian casinos in California, Reno-area tourism conditions, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), the regulation of the gaming industry (including actions affecting licensing), outcome of litigation, domestic or global economic conditions including those affected by the events of September 11, 2001 and the ongoing situation in Iraq, and changes in federal or state tax laws or the administration of such laws. RESULTS OF OPERATIONS Comparison of Operating Results for the Three-Month Periods Ended March 31, 2005 and 2004 For the three-month period ended March 31, 2005, the Company's net income was $3.9 million, or $0.20 per diluted share, on net revenues of $31.6 -14- million, an increase from net income of $2.8 million, or $0.15 per diluted share, on net revenues of $30.5 million for the three months ended March 31, 2004. Income from operations for the three months ended March 31, 2005 totaled $6.2 million, a 30.5% increase when compared to $4.7 million for the same period in 2004. Both net revenues and net income for the first quarter of 2005 represent new first quarter records for the Company. Net revenues increased 3.5%, and net income increased 39.7% when compared to last year's first quarter. Casino revenues totaled $20.9 million in the first quarter of 2005, a 5.0% increase from $19.9 million in the first quarter of 2004, which was primarily due to an increase in slot revenue partially offset by decreases in table games, poker and Keno revenues. Casino operating expenses amounted to 36.0% of casino revenues in the first quarter of 2005, compared to 37.4% in the first quarter of 2004, with the difference due primarily to reduced payroll and benefit expenses and reduced direct operating costs as a percentage of casino revenues partially offset by an increase in complimentaries. Food and beverage revenues totaled $9.0 million in the first quarter of 2005, a 2.3% increase from $8.8 million in the first quarter of 2004, due primarily to a 2.0% increase in the average revenue per food cover partially offset by an approximate 0.1% decrease in the number of food covers served during the quarter. Food and beverage operating expenses amounted to 49.2% of food and beverage revenues during the first quarter of 2005, a slight improvement from 49.8% in the first quarter of 2004. The decrease is primarily due to more efficient operations partially offset by a slight increase in cost of sales. Hotel revenues were $5.6 million for the first quarter of 2005, an increase of 1.3% from the $5.5 million reported in the 2004 first quarter. This increase was the result of increases in both the average daily room rate (ADR) and hotel occupancy. Both first quarters' 2005 and 2004 revenues also included a $3 per occupied room energy surcharge. During the first quarter of 2005, the Atlantis experienced a 91.4% occupancy rate, as compared to 90.7% during the same period in 2004. The Atlantis' ADR was $60.25 in the first quarter of 2005 compared to $59.76 in the first quarter of 2004. Hotel operating expenses as a percent of hotel revenues decreased to 36.3% in the 2005 first quarter, compared to 37.5% in the 2004 first quarter. The improved margin is primarily due to the increased ADR and more efficient operations resulting in reduced direct operating costs. Promotional allowances increased to $5.0 million in the first quarter of 2005 compared to $4.6 million in the first quarter of 2004. The increase is attributable to continued promotional efforts to generate additional revenues. Promotional allowances as a percentage of gross revenues increased slightly to 13.7% during the first quarter of 2005, from 13.2% in the first quarter of 2004. Other revenues increased 21.5% to $1.0 million in the 2005 first quarter compared to $0.9 million in the same period last year. The increase reflects an approximate 8.0% increase in gift and sundries retail shops revenues and an approximate 2.4% increase in the entertainment fun center revenues. Other revenues include an approximate $100,000 loss on disposal of assets in the quarter ended March 31, 2004, while a slight gain of approximately $7,000 was recorded -15- in the quarter ended March 31, 2005. Other expenses in the 2005 first quarter decreased to 30.7% of other revenues, from 36.9% of the revenues in the 2004 first quarter, which is the result of the approximate $100,000 loss on disposal of assets recorded in the first quarter of 2004. Depreciation and amortization expense was $2.0 million in the first quarter of 2005, down 32.1% compared to $3.0 million in the same period last year. The decrease in depreciation expense was mainly due to the fact that previously capitalized assets have become fully depreciated. The Company, in its ordinary course of business and as part of its ongoing capital expenditures, intends to replace old and obsolete equipment with newer, more current equipment. Selling, general and administrative (SG&A) expenses amounted to $8.8 million in the first quarter of 2005, a 3.4% increase from $8.5 million in the first quarter of 2004. The increase was primarily a result of increased payroll and benefit costs, increased marketing and promotional expenditures and increased energy costs. As a percentage of net revenues, SG&A expenses remained unchanged at 27.9% in both the first quarter of 2005 and the first quarter of 2004. Interest expense for the 2005 first quarter totaled $305,000, a decrease of 46.1%, from $566,000 in the 2004 first quarter. The decrease reflects the Company's reduction in debt outstanding and the elimination of stockholder guarantee fee expenses. Interest expense for the quarter ended March 31, 2004, included guarantee fees in the amount of approximately $136,000 paid to the three principal stockholders of the Company. Effective January 2001, until February 2004, the Company compensated the three principal stockholders of the Company for their personal guarantees of the Company's outstanding bank debt at the rate of 2% per annum of the quarterly average outstanding bank debt. There were no guarantee expenses in the first quarter of 2005. The individuals who guaranteed the Company's Original Credit Facility (defined in "The Credit Facility" below) were not required to provide such guarantees for the New Credit Facility (also defined in "The Credit Facility" below) and, therefore, the Company will no longer be required to pay such fees in the future. LIQUIDITY AND CAPITAL RESOURCES We have historically funded our daily hotel and casino activities with net cash provided by operating activities. For the three months ended March 31, 2005, net cash provided by operating activities totaled $7.6 million, an increase of 33.6% compared to the same period last year. Net cash used in investing activities totaled $855,000 and $3.8 million in the three months ended March 31, 2005 and 2004, respectively. During the first three months of 2005 and 2004, 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 $9.3 million for the first three months of 2005 primarily for debt reduction, compared to $576,000 for the same period last year, as the Company refinanced its credit facility during the first three months of 2004, simultaneously paying off old debt and acquiring new debt. During the first quarter of 2005, the Company reduced its long-term debt by $9.3 million. As a result, at March 31, 2005, the Company had a cash balance of $9.3 million, compared to $11.1 million at March 31, 2004 and $11.8 million at December 31, 2004. -16- The Company has a reducing revolving credit facility with a group of banks (see "THE CREDIT FACILITY" below). At March 31, 2005, the total balance outstanding on the Credit Facility was $23.1 million. OFF BALANCE SHEET ARRANGEMENTS A new driveway was completed and opened on September 30, 2004, that is being shared between the Atlantis and a shopping center directly adjacent to the Atlantis. The shopping center is controlled by our controlling stockholders (the "Shopping Center"). As part of this project, in January 2004, the Company 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. The Company also uses part of the common area of the Shopping Center and pays its proportional share of the common area expense of the Shopping Center. The Company has the option to renew the lease for 3 five-year terms, and at the end of the extension periods, the Company has 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 the Company for pedestrian and vehicle access to the Atlantis, and the Company 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. The Company paid approximately $75,000 for its leased driveway space at the Shopping Center during the three months ended March 31, 2005. On September 23, 2003, the Company entered into an option agreement with an affiliate of its controlling stockholders to purchase property in South Reno for development of a new hotel casino. The Company, through the current property owner, filed an application with the City of Reno for both master plan and zoning changes for 13 acres of the property. On January 20, 2005, the City of Reno Planning Commission approved the application for zoning change on the property; the Reno City Council would next have to approve the application. On April 13, 2005, the Reno City Council rejected the application for master plan and zoning change. As a result of the City Council's decision, the Company expensed during the first quarter ended March 31, 2005, a one-time charge of approximately $204,000 in gaming development costs related to the potential new hotel casino. 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, 2004 ("2004 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 2004 Form 10-K filed on March 15, 2005. -17- OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS 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. The extent of this continued impact is difficult to predict, but the Company believes that the impact on the Company will continue to be mitigated to some extent due to the Atlantis' emphasis on Reno-area residents as a significant base of its business, as well as its proximity to the Reno-Sparks Convention Center. However, 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. The Company also believes 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 its business. In June 2004, five California Indian tribes signed compacts with the state that allows 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. The State of California hopes to sign similar compacts with more Indian tribes. COMMITMENTS AND CONTINGENCIES Contractual cash obligations for the Company as of March 31, 2005 over the next five years 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 --------------------------------------------------------------- Long-Term debt $23,100,000 $ - $ - $23,100,000 $ - Operating Leases (1) 5,405,362 410,362 740,000 740,000 3,515,000 Purchase Obligations (2) 3,882,000 3,882,000 - - - ----------- ----------- ----------- ----------- ----------- Total Contractual Cash $32,387,362 $ 4,292,362 $ 740,000 $23,840,000 $3,515,000 Obligations
(1) Operating leases include $370,000 per year in lease and common expense payments to the shopping center adjacent to the Atlantis (see Capital Spending and Development). (2) Our open purchase order commitments total approximately $3.9 million. Of the total purchase order commitments, approximately $1.5 million are cancelable by the Company upon providing a 30-day notice. The Company believes that its existing cash balances, cash flow from operations, reducing revolving credit facility and availability of equipment financing, if necessary, will provide the Company with sufficient resources to fund its operations, meet its existing debt obligations, and fulfill its capital expenditure requirements; however, the Company's operations are subject to financial, economic, competitive, regulatory, and other factors, -18- many of which are beyond its control. If the Company is unable to generate sufficient cash flow, it 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 that was to expire on June 30, 2004, and in the original amount of $80 million but that had been reduced to $46 million at payoff (the "Original Credit Facility"). On February 20, 2004, the Original Credit Facility was refinanced (the "New Credit Facility") for $50 million, which included the $46 million payoff of the unpaid balance of the Original Credit Facility. The amount of the New Credit Facility, which is also a reducing revolving facility, may be increased by up to $30 million on a one-time basis and, if requested by us, before the second anniversary of the closing date, as defined. At our option, borrowings under the New Credit Facility will accrue interest at a rate designated by the agent bank at its base rate (the "Base Rate") or at the London Interbank Offered Rate ("LIBOR") for one, two, three or six month periods. The rate of interest paid by us will include a margin added to either the Base Rate or to LIBOR that is tied to our ratio of funded debt to EBITDA (the "Leverage Ratio"). Depending on our Leverage Ratio, this margin can vary between 0.25 percent and 1.25 percent above the Base Rate, and between 1.50 percent and 2.50 percent above LIBOR (under the Original Credit Facility, this margin varied between 0.00 percent and 2.00 percent above the Base Rate, and between 1.50 percent and 3.50 percent above LIBOR). At March 31, 2005, the applicable margin was the Base Rate plus 0.25%, and the applicable LIBOR margin was LIBOR plus 1.50%. At March 31, 2005, the Base Rate was 5.50% and the LIBOR rate was 2.85%. At March 31, 2005, the Company had no Base Rate loans outstanding and had one LIBOR loan outstanding totaling $23.1 million, for a total obligation of $23.1 million. We may utilize proceeds from the New Credit Facility for working capital needs and general corporate purposes relating to the Atlantis and for ongoing capital expenditure requirements at the Atlantis. The New Credit Facility is secured by liens on substantially all of the real and personal property of the Atlantis, and is guaranteed by Monarch. The Original Credit Facility was guaranteed individually by certain controlling stockholders of the Company. These individuals were not required to provide any personal guarantees for the New Credit Facility and, therefore, going forward, we will no longer incur guarantee fee expenses. 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 also contains covenants requiring us to maintain certain financial ratios and provisions restricting transfers between Monarch and its affiliates. The New Credit Facility also contains provisions requiring the achievement of certain financial ratios before we can repurchase our common stock. We currently meet such ratio requirements. -19- The maturity date of the New Credit Facility is February 23, 2009. Beginning June 30, 2004, the maximum principal available under the Credit Facility will be reduced over five years by an aggregate of $30.875 million in equal increments of $1.625 million per quarter with the remaining balance due at the maturity date. 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 under the New Credit Facility may be re-borrowed so long as the total borrowings outstanding do not exceed the maximum principal available. We may also permanently reduce the maximum principal available under the New Credit Facility at any time so long as the amount of such reduction is at least $500,000 and a multiple of $50,000. We also benefited from a reduced loan amortization schedule, from $3 million per quarter under the Original Credit Facility to $1.625 million per quarter under the New Credit Facility. As of March 31, 2005, our Leverage Ratio had been equal to or less than one-to-one for the second consecutive quarter. Per the New Credit Facility, if we achieve a Leverage Ratio equal to or less than one-to-one for two consecutive quarters, our scheduled reduction of the next consecutive fiscal quarter is waived. Management has assumed that we will maintain a leverage ratio equal to or less than one-to-one for the remaining term of the New Credit Facility and, therefore, no principal reductions will be due until the New Credit Facility matures in 2009. 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 term of the New Credit Facility using the straight-line method. SHORT-TERM DEBT. At March 31, 2005, we had no short-term debt. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market risks and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not have any cash or cash equivalents as of March 31, 2005 that are subject to market risks. We have substantial variable interest rate debt in the amount of approximately $23.1 million as of March 31, 2005, and $46.4 million as of March 31, 2004, which is subject to market risks. A one-point increase in interest rates would have resulted in an increase in interest expense of approximately $69,000 in the first quarter of 2005 and $117,000 in the first quarter of 2004. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. -20- As of the end of the period covered by this report (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level. Our management does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. The design of a control system is also based upon certain assumptions about the likelihood of future events, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost- effective control system, misstatements due to error or fraud may occur and may not be detected. -21- PART II - OTHER INFORMATION ITEM 6. EXHIBITS (a) Exhibits Exhibit No. Description ----------- ----------- 31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of John Farahi, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Ben Farahi, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -22- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MONARCH CASINO & RESORT, INC. (Registrant) Date: May 13, 2005 By: /s/ BEN FARAHI ------------------------------------ Ben Farahi, Co-Chairman of the Board, Secretary, Treasurer, and Chief Financial Officer(Principal Financial Officer and Duly Authorized Officer)
-23- EXHIBIT 31.1 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John Farahi, Chief Executive Officer of Monarch Casino & Resort, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Monarch Casino & Resort, Inc., a Nevada Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control and reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 13, 2005 By: /s/ John Farahi --------------- John Farahi Chief Executive Officer -24- EXHIBIT 31.2 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ben Farahi, Chief Financial Officer of Monarch Casino & Resort, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Monarch Casino & Resort, Inc., a Nevada Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control and reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 13, 2005 By: /s/ Ben Farahi --------------- Ben Farahi Chief Financial Officer, Secretary and Treasurer -25- EXHIBIT 32.1 MONARCH CASINO & RESORT, INC. CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Monarch Casino & Resort, Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Farahi, Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 13, 2005 By: /s/ JOHN FARAHI --------------- John Farahi Chief Executive Officer -26- EXHIBIT 32.2 MONARCH CASINO & RESORT, INC. CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Monarch Casino & Resort, Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ben Farahi, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 13, 2005 By: /s/ BEN FARAHI --------------- Ben Farahi Chief Financial Officer -27- -----END PRIVACY-ENHANCED MESSAGE-----