10-Q

c

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

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 of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
3800 S. Virginia St.
Reno, Nevada	89502
(Address of Principal Executive Offices)	(ZIP Code)

Registrant’s telephone number, including area code: (775) 335-4600

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, $0.01 par value per share	MCRI	The Nasdaq Stock Market LLC (Nasdaq-GS)

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 ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻	Accelerated filer ⌧	Non-accelerated filer ◻
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,263,405 shares of common stock are outstanding as of November 3, 2020.

TABLE OF CONTENTS

Item	Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)	3
Consolidated Balance Sheets at September 30, 2020 (unaudited) and December 31, 2019	4
Consolidated Statements of Stockholder’s Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)	5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	27
Item 6. Exhibits	29
Signatures	29

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues
Casino	$	37,292	$	34,169	$	74,267	$	95,981
Food and beverage		12,835		18,341		30,491		54,026
Hotel		6,613		9,878		14,502		27,192
Other		3,129		3,197		6,776		9,887
Net revenues		59,869		65,585		126,036		187,086
Operating expenses
Casino		10,566		11,674		22,836		33,831
Food and beverage		9,635		14,566		24,954		42,885
Hotel		2,796		3,437		6,694		10,014
Other		1,249		1,699		3,120		4,913
Selling, general and administrative		15,856		17,885		41,920		50,843
Depreciation and amortization		3,891		3,686		11,544		10,984
Other operating items, net		2,448		1,115		4,910		1,739
Total operating expenses		46,441		54,062		115,978		155,209
Income from operations		13,428		11,523		10,058		31,877
Income before income taxes		13,428		11,523		10,058		31,877
Provision for income taxes		(2,683)		(2,197)		(1,640)		(6,257)
Net income	$	10,745	$	9,326	$	8,418	$	25,620
Earnings per share of common stock
Net income
Basic	$	0.59	$	0.52	$	0.46	$	1.42
Diluted	$	0.57	$	0.50	$	0.44	$	1.37
Weighted average number of common shares and potential common shares outstanding
Basic		18,218		18,056		18,186		17,997
Diluted		18,861		18,709		18,823		18,665

The Notes to the Consolidated Financial Statements are an integral part of these statements.

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MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except shares)

	September 30, 2020		December 31, 2019
ASSETS		(Unaudited)
Current assets
Cash and cash equivalents	$	30,526	$	60,539
Receivables, net		5,283		5,458
Income taxes receivable		—		185
Inventories		7,348		6,735
Prepaid expenses		7,109		6,238
Total current assets		50,266		79,155
Property and equipment
Land		30,769		30,769
Land improvements		7,856		7,842
Buildings		193,235		193,235
Buildings improvements		32,000		31,986
Furniture and equipment		149,412		152,461
Construction in progress		314,888		285,789
Right of use assets		14,977		15,574
Leasehold improvements		3,848		3,848
		746,985		721,504
Less accumulated depreciation and amortization		(226,562)		(220,021)
Net property and equipment		520,423		501,483
Other assets
Goodwill		25,111		25,111
Intangible assets, net		663		1,538
Deferred income taxes		2,683		2,683
Other assets, net		—		908
Total other assets		28,457		30,240
Total assets	$	599,146	$	610,878
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	10,000	$	20,000
Accounts payable		11,282		17,037
Construction accounts payable		1,393		7,528
Accrued expenses		34,634		34,109
Income taxes payable		1,454		—
Short-term lease liability		800		791
Total current liabilities		59,563		79,465
Long-term lease liability		14,189		14,797
Long-term debt, net		171,864		175,415
Total liabilities		245,616		269,677
Stockholders’ equity
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued		—		—
Common stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 18,260,072 outstanding at September 30, 2020; 18,141,383 outstanding at December 31, 2019		191		191
Additional paid-in capital		37,466		35,215
Treasury stock, 836,228 shares at September 30, 2020; 954,917 shares at December 31, 2019		(11,117)		(12,777)
Retained earnings		326,990		318,572
Total stockholders’ equity		353,530		341,201
Total liabilities and stockholders’ equity	$	599,146	$	610,878

The Notes to the Consolidated Financial Statements are an integral part of these statements.

4

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares, Unaudited)

	Common Stock			Additional
	Shares			Paid-in		Retained		Treasury
	Outstanding	Amount		Capital		Earnings		Stock		Total
Balance, January 1, 2020	18,141,383	$	191	$	35,215	$	318,572	$	(12,777)	$	341,201
Net exercise of stock options	30,545		—		(428)		—		428		—
Stock-based compensation expense	—		—		873		—		—		873
Net income	—		—		—		2,020		—		2,020
Balance, March 31, 2020	18,171,928	$	191	$	35,660	$	320,592	$	(12,349)	$	344,094
Net exercise of stock options	17,634		—		(552)		—		246		(306)
Stock-based compensation expense	—		—		981		—		—		981
Net loss	—		—		—		(4,347)		—		(4,347)
Balance, June 30, 2020	18,189,562	$	191	$	36,089	$	316,245	$	(12,103)	$	340,422
Net exercise of stock options	70,510		—		402		—		986		1,388
Stock-based compensation expense	—		—		897		—		—		897
Capital contribution	—		—		78		—		—		78
Net income	—		—		—		10,745		—		10,745
Balance, September 30, 2020	18,260,072	$	191	$	37,466	$	326,990	$	(11,117)	$	353,530

	Common Stock			Additional
	Shares			Paid-in		Retained		Treasury
	Outstanding	Amount		Capital		Earnings		Stock		Total
Balance, January 1, 2019	17,919,021	$	191	$	30,111	$	286,756	$	(15,876)	$	301,182
Net exercise of stock options	57,670		—		241		—		804		1,045
Stock-based compensation expense	—		—		915		—		—		915
Net income	—		—		—		7,015		—		7,015
Balance, March 31, 2019	17,976,691	$	191	$	31,267	$	293,771	$	(15,072)	$	310,157
Net exercise of stock options	39,043		—		141		—		545		686
Stock-based compensation expense	—		—		1,003		—		—		1,003
Net income	—		—		—		9,279		—		9,279
Balance, June 30, 2019	18,015,734	$	191	$	32,411	$	303,050	$	(14,527)	$	321,125
Net exercise of stock options	66,401		—		290		—		925		1,215
Stock-based compensation expense	—		—		1,027		—		—		1,027
Net income	—		—		—		9,326		—		9,326
Balance, September 30, 2019	18,082,135	$	191	$	33,728	$	312,376	$	(13,602)	$	332,693

The Notes to the Consolidated Financial Statements are an integral part of these statements.

5

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	8,418	$	25,620
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,544		10,984
Amortization of deferred loan costs		466		403
Stock-based compensation		2,751		5,892
Provision for bad debts		75		44
Loss on disposition of assets		5		—
Write off of unamortized debt issuance costs		95		—
Changes in operating assets and liabilities:
Receivables		100		(67)
Income taxes		1,639		4,415
Inventories		(613)		(848)
Prepaid expenses		37		(80)
Right of use asset, net		(2)		10
Accounts payable		(5,755)		(33)
Accrued expenses		525		1,629
Net cash provided by operating activities		19,285		47,969
Cash flows from investing activities:
Proceeds from sale of assets		25		—
Change in construction payable		(6,135)		(4,348)
Acquisition of property and equipment		(30,237)		(106,345)
Net cash used in investing activities		(36,347)		(110,693)
Cash flows from financing activities:
Proceeds from exercise of stock options		1,161		—
Principal payments on long-term debt		(20,000)		—
Loan issuance cost		(2,862)		—
Long-term debt borrowings		8,750		61,350
Net cash (used in) provided by financing activities		(12,951)		61,350
Change in cash and cash equivalents		(30,013)		(1,374)
Cash and cash equivalents at beginning of period		60,539		30,462
Cash and cash equivalents at end of period	$	30,526	$	29,088
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	—	$	1,842
Conversion of long term deposit to short term deposit	$	908		—

The Notes to the Consolidated Financial Statements are an integral part of these statements.

6

MONARCH CASINO & RESORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

Monarch Casino & Resort, Inc. was incorporated in 1993. Unless otherwise indicated, “Monarch,” “us,” “we,” and the “Company” refer to Monarch Casino & Resort, Inc. and its subsidiaries. Monarch owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk, a casino in Black Hawk, Colorado (the “Monarch Casino Black Hawk”). In addition, Monarch owns separate parcels of land located next to the Atlantis and a parcel of land with an industrial warehouse located between Denver, Colorado and Monarch Casino Black Hawk. Monarch also owns Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to licensure requirements for extended hours of liquor operation in Black Hawk, Colorado.

The accompanying unaudited consolidated financial statements include the accounts of Monarch and its subsidiaries (the “Consolidated Financial Statements”). Intercompany balances and transactions are eliminated.

Interim Financial Statements:

The Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the management of the Company, all adjustments considered necessary for a fair presentation are included. Operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

Impact of COVID-19:

In March 2020, a global pandemic was declared due to an outbreak of a new strain of coronavirus (“COVID-19”). In an effort to contain the virus, on March 16^th the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17^th the state of Nevada mandated the temporary closure of all casinos including Atlantis Casino Resort Spa in Reno. The COVID-19 outbreak has had, and will continue to have, an adverse effect on the Company's results of operations.

Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. The poker room and buffet at Atlantis resumed operations at the beginning of August. The table games at our Colorado property resumed operation on September 11, 2020. The buffet at our Colorado property is temporarily being operated as a table-service restaurant. Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors. The convention business at Atlantis was affected by the state-mandated gathering limits, which at this time are 50 persons or 50% of fire code capacity, whichever is less. We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been lower than prior to the state-mandated closures, and are expected to remain lower for the near future.

7

The Company has taken steps to mitigate the effects of the economic downturn and uncertainty by reducing the operating expenses taking advantage of federal and state government programs that support companies affected by the COVID-19 pandemic and their employees, and entering in an amended and restated credit agreement with its lender, which extended the maturity date of the Company’s credit facility to September 3, 2023 and increased the aggregated principal amount of the facility from $241.3 million to $270.0 million with an option to increase the facility by up to an additional $75.0 million revolving line of credit. See NOTE 6. LONG-TERM DEBT.

The Company believes that the $4.0 million of cash in our interest-bearing money market fund and the $70.0 million available under our Amended Credit Facility as of September 30, 2020, as well as the anticipated operating cash flow, will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months. Given the Company's liquidity position at September 30, 2020, management believes the Company has sufficient liquidity to fund operations and satisfy its obligations for the next twelve months.

Goodwill:

The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC Topic 350”). ASC Topic 350 gives companies the option to perform a qualitative assessment that may allow them to skip the quantitative test as appropriate. The Company tests its goodwill for impairment annually during the fourth quarter of each year, or whenever events or circumstances make it more likely than not that impairment may have occurred. Impairment testing for goodwill is performed at the reporting unit level, and each of the Company’s casino properties is considered to be a reporting unit.

Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations in April 2012. As of September 30, 2020, we had goodwill totaling $25.1 million related to the purchase of Monarch Casino Black Hawk, Inc.

Due to the COVID-19 pandemic related government orders to suspend operations at our properties and the continued adverse effect of the pandemic on our business, after reopening of our properties, we performed a qualitative assessment for the quarters ended March 31, 2020 and June 30, 2020 to determine if the Company’s goodwill was impaired. The impairment testing, resulted in the recognition of no impairment loss. Based upon the financial performance of the company during the third quarter, management determined that there was no continued indicator of impairment. The evaluations used to assess the Company’s goodwill for impairment incorporate inherent uncertainties that are difficult to predict in the current economic environment. When evaluating for impairment, we make numerous highly subjective and judgmental estimates and assumptions, all of which are subject to a variety of risks and uncertainties, and many of which are based on significant unobservable inputs. The most significant assumptions and inputs used in evaluating for impairment are projected short-term and long-term operating results and cash flows, projected capital expenditures, estimated long-term growth rates and the weighted-average cost of capital of market participants, adjusted for the risk profile of the assets being evaluated. The timing and trajectory of the expected post-pandemic economic recovery is unknown, and accordingly, estimates and assumptions are likely to change as more information becomes available.

The Company believes that it has made reasonable estimates and judgments in performing its analysis in light of the risks and uncertainties surrounding the COVID-19 pandemic. However, if the excess of fair value over the carrying amount declines by a significant amount in the future as a result of changes in actual and projected operating results or other internal or external economic factors, the Company could be required to recognize goodwill impairment charges in future periods.

Segment Reporting:

The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Casino Black Hawk, meet the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment.

8

Inventories:

Inventories, consisting primarily of food, beverages, and retail merchandise, are stated at the lower of cost and net realizable value. Cost is determined by the weighted average and specific identification methods. Net realizable value is defined by the Financial Accounting Standards Board (“FASB”) as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Debt Issuance Costs:

Costs incurred in connection with the issuance of long-term debt are amortized to interest expense over the term of the related debt agreement utilizing the effective interest rate method. Unamortized amounts of debt issuance costs are recorded as a reduction of the outstanding debt and included in “Long-term debt, net”.

On September 3, 2020, the Company refinanced its credit facility. The unamortized costs related to the existing credit facility as of August 31, 2020 was $476 thousand. As the credit facility is a loan syndication with separate debt instruments existing between the debtor and the individual creditors participating in the syndication, in accordance to ASC 470-50, the Company expensed $95 thousand, representing a portion of unamortized debt issuance cost, allocated to the lenders that left the syndication and deferred the rest of the unamortized debt issuance cost of the existing credit facility, together with the issuance costs of the new facility.

As of September 30, 2020, debt issuance costs, net of amortization, were $3.1 million.

Capitalized Interest:

The Company capitalizes interest costs associated with debt incurred in connection with major construction projects. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project at the Company’s average borrowing cost. Interest capitalization is ceased when the project is substantially complete. The Company capitalized $1.8 million and $5.0 million during the three and nine months ended September 30, 2020, respectively.

Revenue Recognition:

The majority of the Company’s revenue is recognized when products are delivered or services are performed. For certain revenue transactions (when a patron uses a club loyalty card), in accordance with accounting standard update No. 2014-09 (“ASC 606”), a portion of the revenue is deferred until the points earned by the patron are redeemed or expire.

Casino revenue: Casino revenues represent the net win from gaming activity, which is the difference between the amounts won and lost, which represents the transaction price. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. Funds deposited by customers in advance and outstanding chips and slot tickets in the customers’ possession are recognized as a liability until such amounts are redeemed or used in gaming play by the customer. Additionally, net win is reduced by the performance obligations for the players’ club program, progressive jackpots and any pre-arranged marker discounts. Progressive jackpot provisions are recognized in two components: 1) as wagers are made for the share of players’ wagers that are contributed to the progressive jackpot award, and 2) as jackpots are won for the portion of the progressive jackpot award contributed by the Company. Cash discounts and other cash incentives to guests related to gaming play are recorded as a reduction to gaming revenue.

Players’ Club Program: The Company operates a players’ club program under which as players perform gaming activities they earn and accumulate points, which may be redeemed for a variety of goods and services. Given the significance of the players’ club program and the ability for members to bank such points based on their past play, the Company has determined that players’ club program points granted in conjunction with gaming activity constitute a material right and, as such, represent a performance obligation associated with the gaming contracts. At the time points are earned, the Company recognizes deferred revenue at the standalone selling prices (“SSP”) of the goods and services that the points are expected to be redeemed for, with a corresponding decrease in gaming revenue. The points estimated SSP is computed as the cash redemption value of the points expected to be redeemed, which is determined through an analysis of all redemption activity over the preceding twelve-month period.

9

As of September 30, 2020, the Company had estimated the obligations related to the players’ club program at $10.4 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet.

Food and Beverage, Hotel and Other (retail) Revenues: Food and Beverage, Hotel and Other Revenues in general are recognized when products are delivered or services are performed. The Company recognizes revenue related to the products and services associated with the players points’ redemptions at the time products are delivered or services are performed, with corresponding reduction in the deferred revenue, at SSP. Other complimentaries in conjunction with the gaming and other business are also valued at SSP. Hotel revenue is presented net of non-third-party rebates and commissions. The cost of providing these complimentary goods and services are included as expenses within their respective categories.

Other Revenues: Other revenues (excluding retail) primarily consist of commissions received on ATM transactions and cash advances, which are recorded on a net basis as the Company represents the agent in its relationship with the third-party service providers, and commissions and fees received in connection with pari-mutuel wagering, which are also recorded on a net basis.

Sales and other taxes: Sales taxes and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. In addition, tips and other gratuities, excluding service charges, collected from customers on behalf of the Company’s employees are also accounted for on a net basis and are not included in revenues or operating expenses.

Other Operating items, net:

Other operating items, net, in general consist of miscellaneous operating charges or proceeds. For the three months ended September 30, 2020, Other operating items, net, was $2.4 million and included: $0.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.5 million in professional service fees relating to our construction litigation; $0.5 million in Colorado legislation lobbying expenses; $0.4 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations; and $0.1 million in unamortized debt issuance cost write off. For the nine months ended September 30, 2020, Other operating items, net, was $4.9 million and included: $1.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.8 million in professional service fees relating to our construction litigation; $1.4 million in Colorado legislation lobbying expenses; $0.7 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations; and $0.1 million in unamortized debt issuance cost write off. For the three and nine months ended September 30, 2019, Other operating items, net, was $1.1 million and $1.7 million, representing: $0.9 million and $1.5 million pre-opening expenses relating to the Monarch Black Hawk Expansion project, respectively; and $0.2 million in professional service fees relating to our construction litigation for each of the periods.

Impact of Recently Adopted Accounting Standards:

Financial Instruments - Credit Losses: In June 2016, the FASB issued amended accounting guidance for the measurement of credit losses on financial instruments. The Accounting Standards Update (“ASU”) 2016-13 significantly changes the way entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amended accounting guidance replaces the incurred loss impairment model with a forward-looking expected loss model, and is applicable to most financial assets, including trade receivables other than those arising from operating leases. In the first quarter of 2020, the Company adopted ASU 2016-13. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

10

The Company extends short-term credit to its gaming customers. Such credit is non-interest bearing and is due on demand. In addition, the Company also has receivables due from hotel guests and convention groups and events, which are primarily secured with a credit card. An allowance for doubtful accounts is set up for all Company receivables based upon the Company’s historical collection and write-off experience and taking in consideration the current economic conditions and management’s expectations of future economic conditions. The allowance is applied even when the risk of credit loss is remote. When a situation warrants, the Company may create a specific identification reserve for a high collection risk receivables. The Company writes off its uncollectible receivables once all efforts have been made to collect such receivables. The book value of receivables approximates fair value due to the short-term nature of the receivables.

Cloud Computing Arrangement Implementation Costs: In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The Company adopted the guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

Goodwill impairment: In January 2017, the FASB issued ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The Company adopted the guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, the Company has not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements.

NOTE 2. ACCOUNTING FOR LEASES

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of the lease payments over the lease term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into its determination of lease payments when appropriate. As permitted by ASC 842, the Company elected not to separate non-lease components from their related lease components.

As of September 30, 2020, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (as defined and discussed in NOTE 5. RELATED PARTY TRANSACTIONS), as well as certain billboard leases.

Upon adoption of the new lease standard, incremental borrowing rates used for existing leases were established using the rates in effect as of the lease inception or modification date. The weighted-average incremental borrowing rate of the leases presented in the lease liability as of September 30, 2020 was 4.33%.

The weighted-average remaining lease term of the leases presented in the lease liability as of September 30, 2020 was 21.3 years.

Cash paid related to the operating leases presented in the lease liability for each of the nine months ended September 30, 2020 and 2019, was $1.1 million.

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NOTE 3. STOCK-BASED COMPENSATION

In accordance with ASU No. 2016-09, the Company records any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Income in the reporting periods in which vesting occurs. As a result, the Company’s income tax expense and associated effective tax rate are impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards.

Reported stock-based compensation expense was classified as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Casino	$	46	$	51	$	102	$	152
Food and beverage		45		52		114		150
Hotel		33		28		88		71
Selling, general and administrative		773		896		2,447		2,572
Total stock-based compensation, before taxes		897		1,027		2,751		2,945
Tax benefit		(189)		(216)		(578)		(618)
Total stock-based compensation, net of tax	$	708	$	811	$	2,173	$	2,327

NOTE 4. 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. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

	Three months ended September 30,
	2020			2019
		Per Share			Per Share
	Shares	Amount		Shares	Amount
Basic	18,218	$	0.59	18,056	$	0.52
Effect of dilutive stock options	643		(0.02)	653		(0.02)
Diluted	18,861	$	0.57	18,709	$	0.50

	Nine months ended September 30,
	2020			2019
		Per Share			Per Share
	Shares	Amount		Shares	Amount
Basic	18,186	$	0.46	17,997	$	1.42
Effect of dilutive stock options	637		(0.02)	668		(0.05)
Diluted	18,823	$	0.44	18,665	$	1.37

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. For the three months ended September 30, 2020 and 2019, options for approximately 1,062 thousand and 847 thousand shares, respectively, were excluded from the computation. For the nine months ended September 30, 2020 and 2019, options for approximately 1,077 thousand and 795 thousand shares, respectively, were excluded from the computation.

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NOTE 5. RELATED PARTY TRANSACTIONS

The shopping center adjacent to the Atlantis (the “Shopping Center”) is owned by Biggest Little Investments, L.P. (“BLI”). John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of the Company, and Ben Farahi have significant holdings (the “Farahi Family Stockholders”) in Monarch and each also beneficially owns limited partnership interests in BLI. Maxum LLC is the sole general partner of BLI, and Ben Farahi is the sole managing member of Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational control over BLI or the Shopping Center. Until May 2006, Ben Farahi held the positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company.

On August 28, 2015, Monarch, through its subsidiary Golden Road Motor Inn, Inc., entered into a 20-year lease agreement with BLI for a portion of the Shopping Center, consisting of an approximate 46,000 square-foot commercial building on approximately 4.2 acres of land adjacent to the Atlantis (the “Parking Lot Lease”). This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, comprised of a commercial building and surrounding land adjacent to the Atlantis. The primary purpose of the Parking Lot Lease is to provide additional, convenient, Atlantis surface parking. The Company demolished the building and converted the land into approximately 300 additional surface parking spaces for the Atlantis. The minimum annual rent under the Parking Lot Lease is $695 thousand commencing on November 17, 2015. The minimum annual rent is subject to a cost of living adjustment increase on each five-year anniversary. In addition, the Company is responsible for the payment of property taxes, utilities and maintenance expenses related to the Leased Property. The Company has an option to renew the Parking Lot Lease for an additional ten-year term. If the Company elects not to exercise its renewal option, the Company will be obligated to pay BLI $1.6 million. For each of the three-month periods ended September 30, 2020 and 2019, the Company paid $174 thousand in rent, plus $13 and $6 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2020 and 2019, the Company paid $522 thousand in rent, plus $20 thousand and $19 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2020, recognized in the Consolidated Balance Sheet, was $10.6 million.

In addition, the Atlantis shares a driveway with the Shopping Center and leases approximately 37,400 square feet from BLI (the “Driveway Lease”) for an initial lease term of 15 years, which commenced on September 30, 2004, at an original annual rent of $300 thousand plus common area expenses. The annual rent is subject to a cost of living adjustment increase on each five-year anniversary of the Driveway Lease. Effective August 28, 2015, in connection with the Company entering into the Parking Lot Lease, the Driveway Lease was amended to: (i) make the Company solely responsible for the operation and maintenance costs of the shared driveway (including the fountains thereon); (ii) eliminate the Company’s obligation to reimburse the Shopping Center for its proportionate share of common area expenses; and (iii) exercise the three successive five-year renewal terms beyond the initial 15-year term in the existing Driveway Lease agreement. At the end of the renewal terms, the Company has the option to purchase the leased driveway section of the Shopping Center. For the three-month periods ended September 30, 2020 and 2019, the Company paid $101 thousand and $94 thousand in rent, respectively, plus $8 thousand and $7 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2020 and 2019, the Company paid $303 thousand and $282 thousand in rent, respectively, plus $17 thousand and $20 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2020, recognized in the Consolidated Balance Sheet, was $4.0 million.

The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders and paid $27 thousand and $48 thousand for the three-month periods ended September 30, 2020 and 2019 respectively, for such leases, and paid $101 thousand and $117 thousand, respectively, for the nine-month periods ended September 30, 2020 and 2019, for such leases.

NOTE 6. LONG-TERM DEBT

On September 3, 2020, the Company entered into the Fourth Amended and Restated Credit Agreement with Wells Fargo Bank, N.A., as administrative agent and certain banks (the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility amends and restates the Company’s $250.0 million credit facility, dated as of July 20, 2016 (the “Amended Credit Facility”). On September 29, 2020, the Company and its lender executed an Amendment to the Fourth Amended Credit Facility, which amends the definition of “Financial Covenant Start Date”.

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The Fourth Amended Credit Facility extends the maturity date of the Amended Credit Facility from July 20, 2021 to September 3, 2023. In addition, the Fourth Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million. The $270.0 million Fourth Amended Credit Facility consists of: $200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”).

The Company is required to make quarterly principal payments under the Term Loan Facility on each Term Loan Installment Date, commencing on December 31, 2020, in an amount equal to (x) the percentage set forth opposite the applicable period during which such Term Loan Installment Date occurs (i.e., 1.25% for the period from December 31, 2020 to September 30, 2021, and 2.50% for the period from December 31, 2021 and thereafter) multiplied by (y) $200.0 million. Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Fourth Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio. The estimated amount of the mandatory principal payments due in the next twelve months is $10.0 million.

As of September 30, 2020, the Company had an outstanding principal balance of $185.0 million under the Term Loan Facility, from which $10 million is expected to have a maturity date in next twelve months. As of September 30, 2020, the Company had no borrowings under the Revolving Credit Facility, therefore all $70.0 million remained available for borrowing.

Borrowings are secured by liens on substantially all of the Company’s real and personal property.

In addition to other customary covenants for a facility of this nature, as of September 30, 2020, the Company is required to maintain a Total Leverage Ratio (as defined in the Fourth Amended Credit Facility) of no more than 4.75:1 and Fixed Charge Coverage Ratio (as defined in the Fourth Amended Credit Facility) of at least 1.15:1. As of September 30, 2020, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.2:1 and 9.1:1.

The Fourth Amended Credit Facility added a new definition, “Operational Liquidity”, to the Amended Credit Facility. Operational Liquidity as defined is, as of any date of determination, the amount by which (a) (i) the Unused Revolving Commitment as of such date, plus (ii) cash (including cage cash) as of such date exceeds (b) (i) $24,000,000 minus (ii) any retainage costs with respect to the expansion project and any settlement or judgment under the PCL Litigation paid in cash; provided that from and after the expansion project completion date, the receipt of a final certificate of occupancy (or its local equivalent) for the expansion project and the final resolution or disposition of the PCL Litigation, the amount in this clause (b) shall be deemed to be zero. The Borrowers shall not permit Operational Liquidity to be less than $25,000,000 at any time. In addition, any borrowing under the Amended Credit Facility, greater than $51,000,000 shall be used solely to pay retainage costs with respect to the Expansion Project and any settlement or judgment under the PCL Litigation. As of September 30, 2020, the Company’s Operational Liquidity were $76.5 million.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate. The applicable margins vary depending on Company’s leverage ratio. Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.35% to 0.575%, based on our leverage ratio.

On the terms and subject to some conditions, the Company may, at any time before the Maturity Date, request an increase of Revolving Credit Facility, provided that each such increase is equal to $15.0 million or an integral multiple of $1.0 million in excess and, after giving effect to the requested increase, the aggregate amount of the increases in the total revolving loan commitment shall not exceed $75.0 million.

The Company may prepay borrowings under the Fourth Amended Credit Facility revolving loan without penalty (subject to certain conditions and certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period). Once reduced or cancelled, the Revolving Credit Facility may not be increased or reinstated without the prior written consent of all lenders.

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The Company believes that the $4.0 million cash in its interest-bearing money market fund and the $70.0 million available under its Amended Credit Facility as of September 30, 2020 will be sufficient to support its current operations, meet its debt obligations and fulfill its capital expenditure plans for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2020; however, the Company is surrounded by uncertainty about COVID-19 and the reopening of its operations, as well as financial, economic, competitive, regulatory, and other factors, many of which are beyond its control. If the Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed the Company’s borrowing capacity under the Fourth Amended Credit Facility, it could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

NOTE 7. TAXES

For the nine months ended September 30, 2020 and 2019, the Company’s effective tax rate was 16.3% and 19.6%, respectively. The low effective tax rate for the nine months ended September 30, 2020 was a result of the high weight of excess tax benefit on stock option exercises on the provision for income taxes, as the suspension of the operations in mid-March for about three months and continued negative effect of the COVID-19 pandemic resulted in reduced income before income tax for the nine-month period ended September 30, 2020.

Deferred tax assets were evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies.

No uncertain tax positions were recorded as of September 30, 2020 and 2019. No change in uncertain tax positions is anticipated over the next twelve months.

NOTE 8. STOCK REPURCHASE PLAN

On October 22, 2014, the board of directors of Monarch authorized a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the board of directors authorized a program to repurchase up to 3,000,000 shares of the Company’s common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other factors. The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and the plan may be suspended at any time at the Company’s discretion, and it will continue until exhausted. The actual timing, number and value of shares repurchased under the repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market economic conditions and applicable legal requirements. The Company has made no purchases under the Repurchase Plan.

NOTE 9. LEGAL MATTERS

On August 30, 2019, PCL Construction Services, Inc. (“PCL”) filed a complaint in District Court, City and County of Denver, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for Monarch Casino Black Hawk. The complaint alleges, among other things, the defendants breached the construction contract with PCL and certain implied warranties. On December 5, 2019, the Company filed its answer and counterclaim, which alleges, among other items, that PCL breached the construction contract, duties of good faith and fair dealing, and implied and express warranties, made fraudulent or negligent misrepresentations on which the Company and its Colorado subsidiaries relied, and included claims for monetary damages as well as equitable and declaratory relief.

The court has set a trial date for May 17, 2021. Discovery in the action is ongoing, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

The Company recognized $0.5 million and $0.8 million in construction litigation expense relating to this lawsuit for the three and nine months ended September 30, 2020, respectively, which are included in Other operating items, net on the Consolidated Statements of Operations.

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From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. Management believes that the amount of any reasonably possible or probable loss for such other known matters would not have a material adverse impact on our financial conditions, cash flows or results of operations; however, the outcome of these actions is inherently difficult to predict.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, “Monarch,” “Company,” “we,” “our,” and “us” refer to Monarch Casino & Resort, Inc. and its subsidiaries.

STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) including, but not limited to (i) the impact of the COVID-19 pandemic on our revenues, cash flows, liquidity, construction projects, results of operations and financial condition; (ii) our expectations regarding the return to normalized operations; (iii) our beliefs regarding the sufficiency of our cash and other financial resources; (iv) our expectations regarding discussions with our lenders about refinancing and/or additional relief options and steps under the Amended Credit Facility that may be requested in light of currently-changing circumstances, as well as our expectations regarding credit facility covenant compliance and our ability to continue to obtain necessary covenant waivers; (v) our expectations regarding changes in our operations and services relating to restrictions in occupancy and social distancing requirements; (vi) our beliefs regarding the effectiveness of the actions we've taken with respect to the COVID-19 pandemic and the quality of our properties as key factors in Monarch's long-term success; (vii) our expectations and beliefs concerning the project scope, timing for completion, receipt of all occupancy and other regulatory approvals for portion of the expansion project, impact of the ongoing construction litigation, budget and estimated costs, pre-opening expenses, transformative potential and our continued investment in our expansion project at the Monarch Casino Black Hawk (the "Monarch Black Hawk Expansion"); (viii) our expectations regarding financing of the Monarch Black Hawk Expansion; (ix) our expectations and intentions regarding the expenses, defenses and outcomes of the lawsuit filed by the construction project general contractor against us; (x) our expectations regarding our business prospects, strategies and outlook; (xi) our expectations regarding the positioning of our properties to benefit from future macro and local economic growth; (xii) our expectations regarding future capital requirements; (xiii) our anticipated sources of funds and adequacy of such funds to meet our debt obligations and capital requirements; and (xiv) our expectations regarding legal and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressions such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “will,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions are used in this Form 10-Q, as well as statements containing phrases such as “in our view,” “we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made.

Various risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following factors:

● continuing adverse impacts of the COVID-19 outbreak on our business, constructions projects, financial condition, liquidity, cash flows, operating results, and access to capital markets, including the worsening of such impacts and the continuation for an unknown period of time;

● continuing adverse impacts of the COVID-19 outbreak on short-term and long-term travel, leisure and discretionary spending habits and practices of our guests;

● continuing actions by government officials at the federal, state or local level, including, without limitation, further temporary or extended shutdowns, travel restrictions, social distancing and shelter-in-place orders, in connection with the COVID-19 outbreak;

● impact of any further temporary or extended shutdowns on our ability to maintain compliance with the terms and conditions of our credit facilities and other material contracts;

● our ability to manage guest safety concerns caused by COVID-19;

● our ability to  negotiate relief options and amendments to our Amended Credit Facility;

● our ability to maintain strong relationships with our regulators, employees, lenders, suppliers, insurance carriers, customers and other stakeholders;

● impact of any uninsured losses;

● the adverse impact of cancellations and/or postponements of hotel stays and convention and trade shows on

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our business, market position, growth, financial condition and operating results;

● a delay in or failure of the changes in guest visitation, entertainment choices and spending patterns, including a decrease in overall demand after reopening our casinos, due to health and other concerns, to return to normalized pre-pandemic levels;

● the impact of social distancing requirements and other health and safety protocols implemented at our properties, including a reduction in operating margins (or negative operating margins);

● potentially uninsurable liability exposure to customers and staff should they become (or allege that they have become) infected with COVID-19 while at one of our resorts;

● unwillingness of employees to report to work due to the adverse effects of the COVID-19 pandemic or to otherwise conduct work under any revised work environment protocols;

● the potential of increases in state and federal taxation to address budgetary and other impacts of the COVID-19 pandemic;

● the potential of increased regulatory and other burdens to address the direct and indirect impacts of the COVID-19 pandemic;

● our ability to successfully implement our business and growth strategies;

● our ability to realize the anticipated benefits of our expansion and renovation projects, including the Monarch Black Hawk Expansion;

● construction factors, including delays, disruptions, construction defects, increased costs of labor and materials, contractor disagreements, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters, occupancy and building permit issues and other regulatory approvals or issues;

● ongoing disagreements over costs of and responsibility for delays, construction defects and other construction related matters with our Monarch Casino Black Hawk general contractor, PCL Construction Services, Inc., including, as previously reported, the litigation against us by such contractor and our filing of affirmative defenses and extensive counterclaims against the Monarch Casino Black Hawk contractor;

● our potential need to post bonds or other forms of surety to support our legal remedies;

● risks related to development and construction activities (including disputes with and defaults by contractors and subcontractors; construction, equipment or staffing problems and delays; construction defects; shortages of materials or skilled labor; environmental, health and safety issues; weather and other hazards, site access matters, and unanticipated cost increases);

● risks related to pending litigation, which is costly and time-consuming to defend, and if decided against us, could require us to pay substantial judgments or settlements. We cannot predict with certainty the outcomes of such legal proceedings, and the costs incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do sometimes occur;

● risks and uncertainties relating to obtaining court and governmental approval or permits necessary to open the Monarch Black Hawk Expansion to the public;

● our ability to generate sufficient operating cash flow to service our debt obligations and working capital needs and to help finance our expansion plans;

● our ability to effectively manage expenses to optimize our margins and operating results;

● guest acceptance of our expanded facilities once completed and the resulting impact on our market position, growth and future financial results;

● our ability to successfully complete potential acquisitions and investments;

● successful integration of acquisitions;

● access to capital and credit, including our ability to finance future business requirements and the Monarch Black Hawk Expansion;

● risks related to our present indebtedness and future borrowings;

● adverse trends in the gaming industry;

● changes in patron demographics;

● general market and economic conditions, including but not limited to, the effects of local and national economic, housing and energy conditions on the economy in general and on the gaming and lodging industries in particular;

● the impact of rising interest rates and our ability to refinance debt as it matures at commercially reasonable rates or at all;

● fluctuations in interest rates, including the impact of any discontinuance, modification or other reform of LIBOR, or the establishment of alternative reference rates;

● our ability to continue to comply with the covenants and terms of our credit instruments;

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● our dependence on two resorts;

● ability of large stockholders to influence our affairs;

● our dependence on key personnel;

● the availability of adequate levels of insurance;

● changes in federal, state, and local laws and regulations, including environmental and gaming licenses or legislation and regulations, and laws and regulations permitting expanded and other forms of gaming in our key markets;

● ability to obtain and maintain gaming and other governmental licenses and regulatory approvals;

● any violations by us of the anti-money laundering laws;

● cybersecurity risks, including misappropriation of customer information or other breaches of information security;

● impact of natural disasters, severe weather, terrorist activity and similar events;

● our competitive environment, including increased competition in our target market areas;

● increases in the effective rate of taxation at any of our properties or at the corporate level;

● our ability to successfully estimate the impact of accounting, tax and legal matters; and

● risks, uncertainties and other factors described in “Item 1A - Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) and our other filings with the Securities and Exchange Commission.

We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions, except as required by law. New risks emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.

OVERVIEW

Monarch was incorporated in the state of Nevada in 1993. We own and operate the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk, a casino in Black Hawk, Colorado. In addition, we own separate parcels of land located next to the Atlantis and a parcel of land with an industrial warehouse located between Denver, Colorado and Monarch Casino Black Hawk. We also own Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to licensure requirements for extended hours of liquor operation in Black Hawk, Colorado.

We earn revenues, operating income and cash flow from Atlantis and Monarch Casino Black Hawk, primarily through our casino, food and beverage operations and, at Atlantis, our hotel operations. The Monarch Casino Black Hawk does not have a hotel; however, we are in the process of renovations and construction that will include a hotel. We focus on delivering exceptional service and value to our guests. Our hands-on management style focuses on exceptional customer services and cost efficiencies.

Atlantis: Our business strategy is to maximize revenues, operating income and cash flow primarily through our casino, food and beverage operations and hotel operations. We continuously upgrade our property. With quality gaming, hotel and dining products, we believe the Atlantis is well positioned to benefit from future macro and local economic growth, as well as for possible adverse macro-economic conditions.

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Monarch Casino Black Hawk: Since the acquisition of Monarch Casino Black Hawk in April 2012, our focus has been to maximize casino and food and beverage revenues while upgrading the existing facility and working on the major expansion. In August 2015, we completed the redesign and upgrade of the existing Monarch Casino Black Hawk, bringing to the facility’s interior the same quality, ambiance and finishes of the ongoing master planned expansion that we expect will transform Monarch Casino Black Hawk into a full-scale casino resort. In the fourth quarter of 2013, we began work on the Monarch Black Hawk Expansion. In November 2016, we opened our elegant nine-story parking facility with about 1,350 spaces for guest use. Construction of a new hotel tower and casino expansion on the site where the old parking structure was sitting is under way. (See CAPITAL SPENDING AND DEVELOPMENT – Monarch Black Hawk Expansion). Once completed, the Monarch Black Hawk Expansion will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites, an upscale spa and pool facility, three additional restaurants (increasing the total to four), additional bars and associated support facilities. The Company expects to open the expanded Monarch Casino Resort Spa Black Hawk in the fourth quarter of 2020.

KEY PERFORMANCE INDICATORS

We use certain Key Performance Indicators (“KPI”) to manage our operation and measure our performance.

Gaming revenue KPI: Our management reviews on a consistent basis the volume metrics and hold percentage metrics for each gaming area. The main volume measurements are slot coin-in, table games drop, sportsbook write and keno write. Slot coin-in represents the dollar amount wagered in slot machines, including free promotional wagers. Table games drop represents the total amount of cash and net markers deposited in the table drop box. Keno write and sportsbook write represents the dollar amount wagered at our counters, along with sportsbook write made through our mobile wagering system. Volume metrics are important in managing the business, as our gaming win is affected by actual hold percentage, which in general varies from the expected hold percentage and historical hold percentage. Gaming win represents the amount of wagers retained by us. Hold percentage represents win as a percentage of slot coin-in, table game drop, sportsbook write, or keno write. Our win and hold percentages are calculated before discounts, commissions, deferring revenue associated with our loyalty programs and allocating casino revenues related to goods and services provided to patrons on a complimentary basis.

Food and Beverage revenue KPI: The main KPIs in managing our food and beverage operations are covers and average revenue per cover. A cover represents the number of guests served and is an indicator of volume. Average revenue per cover represents the average amount spent per food and beverage outlets’ served guests. Changes in the average revenue per cover might be an indicator for changes in menu offerings, changes in menu prices or may indicate changes in our guests’ preferences and purchasing habits.

Hotel revenue KPI: The main KPIs used in managing our hotel operation are the occupancy rate (a volume indicator), which is the average percentage of available hotel rooms occupied during a period, and the average daily rate (“ADR”, a price indicator), which is the average price per sold room. Available rooms exclude those rooms unavailable for occupancy during the period due to renovation, development, or other requirements. Sold rooms include rooms where the guests do not show up for their stay and lose their deposit. The calculations of the occupancy rate and ADR include the impact of rooms provided on a complimentary basis. Revenue per available room ("RevPAR") represents total hotel revenue per available room and is a representation of the occupancy rate, ADR and miscellaneous hotel sales.

Operating margins: Our management is consistently focused on controlling expenses and finding cost savings, without affecting the quality of the product we offer and our guests’ services and experience. We measure our performance using expense margin, which is a percentage of direct expenses, including labor, cost of product and any other operating expenses related to the gaming, food and beverage, or hotel operation to the net gaming, food and beverage, or hotel revenues. Selling, general and administrative (“SG&A”) margin represents SG&A expenses for a period as a percentage of total net revenue for a period. In managing the food and beverage operation we use Cost Of Goods Sold (“COGS”) percentage, which represents a percentage of product cost to the food and beverage revenue and is a measurement of commodity prices and menu sales prices.

Our management evaluates the KPI as compared to prior periods, the peer group, or market, as well as for any trends.

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RESULTS OF OPERATIONS

Impact of the COVID-19 Pandemic

Monarch operating results for the three and nine months ended September 30, 2020 were significantly impacted by the unprecedented government-mandated closure of our Nevada and Colorado properties in response to the COVID 19 pandemic, which lasted approximately three months and the effect of the ongoing pandemic after resuming operations.

In March 2020, the World Health Organization declared the rapidly growing COVID-19 outbreak a global pandemic. On March 16, 2020, in an effort to contain the virus, the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Black Hawk and, on March 17, 2020, the state of Nevada mandated the temporary closure of all casinos including the Atlantis in Reno.

Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. The poker room and buffet at Atlantis resumed operations at the beginning of August. The table games at our Colorado property resumed operation on September 11, 2020. The buffet at our Colorado property is temporarily being operated as a table-service restaurant. Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors. The convention business at Atlantis was affected by the state-mandated gathering limits, which at this time are 50 persons or 50% of fire code capacity, whichever is less. We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been lower than prior to the state-mandated closures, and are expected to remain lower for the near future.

Despite a strong reopening, we are operating in an environment of high uncertainty and there may be additional government restrictions placed on all of our services, such as gaming, restaurants, spas and salons, entertainment venues and convention and meeting space, which could lead to lower demand and revenue. Such restrictions could also increase our costs, further decrease our operating margins and have a material adverse effect on our operations, cash flows and financial results.

While we have incurred significant disruptions from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the possibility of the outbreak levels seen to return, the impact on demand following the reopening of our casinos, and other actions or restrictions that may be taken by governmental authorities, the impact to the general U.S economy and to our customers and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, results of operations, and financial condition.

Comparison of Operating Results for the Three-Month Periods Ended September 30, 2020 and 2019

For the three months ended September 30, 2020, our net income totaled $10.7 million, or $0.57 per diluted share, compared to net income of $9.3 million, or $0.50 per diluted share for the same period in 2019, reflecting a 15.2% and 14.0% increase in net income and diluted earnings per share, respectively. Net revenues in the three months ended September 30, 2020, totaled $59.9 million, a decrease of $5.7 million, or 8.7%, compared to the three months ended September 30, 2019. Income from operations for the three months ended September 30, 2020 totaled $13.4 million compared to $11.5 million for the same period in 2019.

Casino revenue increased 9.1% in the third quarter of 2020 compared to the third quarter of 2019 which was driven by the increased spending per visit. Casino operating expense as a percentage of casino revenue decreased to 28.3% for the three months ended September 30, 2020 compared to 34.2% for the three months ended September 30, 2019, as a result of effective cost management and higher casino revenue at Atlantis.

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Food and beverage revenue for the third quarter of 2020 decreased 30.0% compared to the third quarter of 2019 due to an 42.4% decrease in food and beverage covers, as a result of capacity and other regulatory limitations which remain in effect in Reno and Black Hawk due to the ongoing pandemic. Food and beverage revenue per cover increased year-over-year by a 21.4%. Food and beverage operating expense as a percentage of food and beverage revenue decreased in the third quarter of 2020 to 75.1% compared to 79.4% for the same quarter in 2019 primarily as a result of lower year over year COGS percentage.

Hotel revenue decreased 33.1% in the third quarter of 2020 compared to the same quarter of 2019 as a result of lower hotel occupancy of 80.3% during the period compared to 95.5% during the third quarter of 2019 and a decrease in ADR of $30.22 ($100.76 in the third quarter of 2020 compared to 130.98 in the third quarter of 2019). The occupancy and ADR were negatively impacted by the continuing COVID-19 pandemic government-enforced restrictions and by the continuing decline of travel and convention businesses in general due to the pandemic. REVPAR, was $87.87 and $131.26 for the three months ended September 30, 2020 and 2019, respectively. Hotel operating expense as a percentage of hotel revenue increased to 42.3% in the third quarter of 2020 compared to 34.8% for the comparable prior year period primarily as a result of the decrease in ADR and higher labor costs as a result of an increase in housekeeping wages.

Other revenue decreased 2.1% in the third quarter of 2020 compared to the same prior year period.

SG&A expense decreased to $15.9 million in the third quarter of 2020 from $17.9 million in the third quarter of 2019 primarily due to: a $1.4 million decrease in promotional and marketing expenses; a $0.2 million decrease in labor expense; a $0.2 decrease in travel expense; a $0.2 million decrease in repair and maintenance expense. As a percentage of net revenue, SG&A expense decreased to 26.5% in the third quarter of 2020 compared to 27.3% in the same period in 2019.

Depreciation and amortization expense increased to $3.9 million for the three months ended September 30, 2020 compared to $3.7 million for the same prior year period, due to new assets placed into service during the current quarter.

During the third quarter of 2020, we recognized $0.9 million in pre-opening expense related to the Monarch Black Hawk Expansion project, $0.5 million in professional service fees relating to our construction litigation, $0.5 million in Colorado legislation lobbying expenses, $0.4 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations, and $0.1 million in unamortized debt issuance cost write off. During the third quarter of 2019, we recognized $0.9 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk and $0.2 million in professional service fees relating to our construction litigation. These expenses are included in Other operating items, net in the Consolidated Statement of Operations.

During the third quarters of 2020 and 2019, we capitalized $1.8 million and $1.7 million of interest, respectively, which is all interest, paid and accrued during those quarters, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion. See further discussion of our Fourth Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2020 and 2019

The operating results for the 2020 nine-month period reflect the government-mandated closer of our operations for approximately three months, as well as the effect of the continuing regulatory limitations relating to the ongoing pandemic, which remained in force after the reopening of our properties.

For the nine months ended September 30, 2020, we had a net income of $8.4 million, or $0.44 per diluted share, compared to net income of $25.6 million, or $1.37 per diluted share for the same period in 2019, reflecting a 67.1% and 67.9% decrease in net income and diluted earnings per share, respectively. Net revenues in the nine months ended September 30, 2020, totaled $126.0 million, a decrease of $61.1 million, or 32.6%, compared to the nine months ended September 30, 2019. Income from operations for the nine months ended September 30, 2020 totaled a $10.1 million compared to $31.9 million income from operations for the same period in 2019.

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Casino revenue decreased 22.6% in the first nine months of 2020 compared to the first nine months of 2019 and was driven by the COVID-19 outbreak, which culminated in a suspension of our operations in mid-March 2020 through beginning/mid-June 2020, partially offset by an increase in guest spend per visit during the period the properties were opened in 2020 compared to the same period in 2019. Casino operating expense as a percentage of casino revenue decreased to 30.7% for the nine months ended September 30, 2020 compared to 35.2% for the nine months ended September 30, 2019 primarily as a result of targeted cost cutting measures.

Food and beverage revenue for the first nine months of 2020 decreased 43.6% compared to the 2019 same period due to a 52.1% decrease in food and beverage covers, partially offset by a 17.8% increase in food and beverage revenue per cover. Food and beverage operating expense as a percentage of food and beverage revenue increased in the first nine months of 2020 to 81.8% compared to 79.4% for the same period in 2019 primarily as a result of the decline in F&B revenue due to the COVID-19 pandemic and the subsequent shutdown of our operations for approximately three months.

Hotel revenue decreased 46.7% in the first nine months of 2020 compared to the first nine months of 2019 due to the pandemic related hotel shutdown for approximately three months and the decrease in hotel occupancy to 75.7% during the period the hotel was open compared to 89.4% occupancy during the first nine months of 2019, combined with a $16.95 decrease in ADR, from $127.82 in the first nine months of 2019 to $110.87 in the first nine months of 2020. REVPAR was $89.99 and $121.49 for the period the hotel was open in the first nine months ended September 30, 2020 and for the nine months ended September 30, 2019, respectively. Hotel operating expense as a percentage of hotel revenue increased to 46.2% in the first nine months of 2020 compared to 36.8% for the comparable prior year period primarily as a result of the ongoing impact of the COVID-19 pandemic.

Other revenue decreased 31.5% in the first nine months of 2020 compared to the same prior year period.

SG&A expense decreased to $41.9 million in the first nine months of 2020 from $50.8 million in the first nine months of 2019 primarily due to the COVID-19 shutdown and the related cost mitigation measures taken by management. As a percentage of net revenue, SG&A expense increased to 33.3% in the first nine months of 2020 compared to 27.2% in the same period in 2019.

Depreciation and amortization expense increased to $11.5 million for the nine months ended September 30, 2020 compared to $11.0 million for the same prior year period, due to new assets placed into service during the nine-month period.

During the first nine months of 2020, we recognized $1.9 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk, $0.8 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company, $1.4 million in Colorado legislation lobbing expenses, $0.7 in million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations and $0.1 million in unamortized debt issuance cost write off. During the first nine months of 2019, we recognized $1.5 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk and $0.2 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company. Those expenses are included in Other operating items, net in the Consolidated Statement of Operations.

During the first nine months of 2020 and 2019, we capitalized $5.0 million and $4.2 million of interest, respectively, which is all interest, paid and accrued during those periods, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion. See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

CAPITAL SPENDING AND DEVELOPMENT

We seek to continually upgrade and maintain our facilities in order to present a fresh, high quality product to our guests. In addition, we have invested, and continue to invest, in our Monarch Black Hawk Expansion.

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Cash paid for capital expenditures for the nine-month periods ended September 30, 2020 and 2019 totaled $36.3 million and $110.7 million, respectively. During the nine-month period ended September 30, 2020 our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Casino Black Hawk, a restaurant and a bar renovation at Atlantis and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Casino Black Hawk. During the nine-month period ended September 30, 2019, our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Casino Black Hawk, the renovation of hotel suites at Atlantis and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Casino Black Hawk. The capital expenditures during both periods were funded from operating cash flows, available cash and borrowings from the credit facility.

Monarch Black Hawk Expansion

In the fourth quarter of 2013, we began work to convert the Monarch Casino Black Hawk into a full-scale casino resort (the “Monarch Black Hawk Expansion”).

The Monarch Black Hawk Expansion includes a multi-phased expansion of Monarch Casino Black Hawk, which involves construction of a new parking structure, demolition of the existing parking structure, and construction of a new hotel tower and casino expansion. In November 2016, the new nine-story parking structure, offering approximately 1,350 parking spaces, was completed and became available for use by Monarch Casino Black Hawk guests. The demolition and removal of the old parking structure, which included a controlled implosion of the old garage, was completed in the first quarter of 2017.

On February 8, 2017, we broke ground on the hotel tower and casino expansion. The new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms, an upscale spa and pool facility, three additional restaurants and additional bars. Our total overall budget for the completion of the Monarch Casino Black Hawk hotel tower and casino expansion is approximately $264 million to $269 million. We anticipate opening the expanded Monarch Casino Resort Spa Black Hawk in the fourth quarter of 2020, with operations ramping up throughout 2021.

We expect to finance the remaining cost through a combination of operating cash flows, available cash and cash equivalents and the Fourth Amended Credit Facility. We can provide no assurance that any project will be completed on schedule, if at all, or within established budgets, or that any project will result in increased earnings to us. Further, although we intend to seek recovery from our general contractor through the current litigation, we may be required to fund certain costs of correcting construction defects and deficiencies until, and if, recovered from the general contractor.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity have been cash provided by operations, and available cash and cash equivalents, and, for capital expansion projects, borrowings available under our credit facility. On June 4, 2020, Atlantis Casino Resort Spa re-opened, after approximately two and a half months of closure ordered by the Nevada governor in response to the COVID-19 pandemic, and resumed limited operations. On June 17, 2020, Monarch Casino Black Hawk, re-opened, after approximately three months of closure ordered by the Colorado governor in response to the COVID-19 pandemic, and resumed limited operations.

For the nine months ended September 30, 2020, net cash provided by operating activities totaled $19.3 million, compared to net cash provided by operating activities of $48.0 million in the same prior year period. This decrease was primarily a result of a decrease in net income combined with an increase in working capital, especially a decrease in accounts payable and accrued expenses.

Net cash used in investing activities totaled $36.3 million and $110.7 million during the nine months ended September 30, 2020 and 2019, respectively. Net cash used in investing activities during the first nine months of 2020 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Casino Resort Black Hawk, for a restaurant and a bar renovation at Atlantis and for acquisition of gaming and other equipment at both properties. Net cash used in investing activities during the first nine months of 2019 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Casino Black Hawk, for the renovation of hotel suites at Atlantis and for acquisition of gaming and other equipment at both properties.

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Net cash used for financing activities in the first nine months of 2020 totaled $13.0 million and consisted of $11.3 million principal payments, net of the borrowing under the credit facility, $2.9 million bad debt refinancing cost, offset by $1.2 million effect from the stock options net exercise. In the first nine months of 2019, we borrowed $61.4 million under the Amended Credit Facility. The borrowings were used to fund the Monarch Casino Black Hawk Expansion. Net cash provided by financing activities

Amended Credit Facility

On September 3, 2020, we entered into the Fourth Amended and Restated Credit Agreement with Wells Fargo Bank, N.A., as administrative agent and certain banks (the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility amends and restates the Company’s $250.0 million credit facility, dated as of July 20, 2016 (the “Amended Credit Facility”). On September 29, 2020, the Company and its lender executed an Amendment to the Fourth Amended Credit Facility, which amends the definition of “Financial Covenant Start Date”.

The Fourth Amended Credit Facility extends the maturity date of the Amended Credit Facility from July 20, 2021 to September 3, 2023. In addition, the Fourth Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million. The $270.0 million Fourth Amended Credit Facility consists of: $200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”).

We are required to make quarterly principal payments under the Term Loan Facility on each Term Loan Installment Date, commencing on December 31, 2020, in an amount equal to (x) the percentage set forth opposite the applicable period during which such Term Loan Installment Date occurs (i.e., 1.25% for the period from December 31, 2020 to September 30, 2021, and 2.50% for the period from December 31, 2021 and thereafter) multiplied by (y) $200.0 million. Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Fourth Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio. The estimated amount of the mandatory principal payments due in the next twelve months is $10.0 million.

As of September 30, 2020, we had an outstanding principal balance of $185.0 million under the Term Loan Facility, from which $10 million is expected to have a maturity date in next twelve months. As of September 30, 2020, we had $70.0 million available borrowings under the Revolving Credit Facility. The Company has a $0.6 million Standby Letter of Credit, from which there have been no withdrawals.

Borrowings are secured by liens on substantially all of the Company’s real and personal property.

In addition to other customary covenants for a facility of this nature, as of September 30, 2020, we are required to maintain a Total Leverage Ratio (as defined in the Fourth Amended Credit Facility) of no more than 4.75:1; Fixed Charge Coverage Ratio (as defined in the Fourth Amended Credit Facility) of at least 1.15:1; and Minimum Operational Liquidity (as defined in the Fourth Amended Credit Facility) of $25.0 million. As of September 30, 2020, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.2:1 and 9.1:1, respectively and our Operational Liquidity were $76.5 million.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate. The applicable margins vary depending on Company’s leverage ratio.

On the terms and subject to some conditions, the Company may, at any time before the Maturity Date, request an increase of Revolving Credit Facility, provided that each such increase is equal to $15.0 million or an integral multiple of $1.0 million in excess and, after giving effect to the requested increase, the aggregate amount of the increases in the total revolving loan commitment shall not exceed $75.0 million.

The Company may prepay borrowings under the Fourth Amended Credit Facility revolving loan without penalty (subject to certain conditions and certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period). Once reduced or cancelled, the Revolving Credit Facility may not be increased or reinstated without the prior written consent of all lenders.

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We believe that the $4.0 million cash in our interest-bearing money market fund and the $70.0 million available under our Fourth Amended Credit Facility as of September 30, 2020, as well as anticipated operating cash flow, will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2020 and fulfill our capital expenditure plans. However, we are surrounded by uncertainty about COVID-19, as well as financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow in the upcoming months or if our cash needs exceed our borrowing capacity under the Amended Credit Facility, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

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 2019 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 2019 Form 10-K filed with the SEC on March 12, 2020.

CONTRACTUAL OBLIGATIONS

Our contractual obligations as of September 30, 2020 and the next five years and thereafter are as follow (in millions):

	Payments due by period (1)
			Less						Greater
			than 1		1 to 3		3 to 5		than 5
	Total		year		years		years		years
Operating Leases (2)	$	23.0	$	1.4	$	2.3	$	2.1	$	17.2
Purchase Obligations (3)		28.4		25.3		2.3		0.7		0.1
Borrowings Under Amended Credit Facility (4)		185.0		10.0		175.0		—		—
Total Contractual Cash Obligations	$	236.4	$	36.7	$	179.6	$	2.8	$	17.3

(1) Because interest payments under our Fourth Amended Credit Facility are subject to factors that, in our judgment, vary materially, the amount of future interest payments is not presently determinable. These factors include: i) future short-term interest rates; ii) our future leverage ratio which varies with EBITDA and our borrowing levels; and iii) the rate at which we deploy capital and other spending which, in turn, impacts the level of future borrowings. The interest rate under the Fourth Amended Credit Facility is LIBOR plus a margin ranging from 1,75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate. The interest rate is adjusted quarterly based on our leverage ratio. Based on our leverage ratio, at September 30, 2020, pricing was LIBOR plus 2.25%.

(2) Operating leases include the Driveway Lease, the Parking Lot Lease and billboards leases.

(3) Purchase obligations represent approximately $17.5 million of commitments related to capital projects and approximately $11.0 million of materials and supplies used in the normal operation of our business. All of the purchase orders and construction commitments are cancelable by us upon providing a 30-day notice.

(4) The amount represents payment obligations of outstanding draws against the Fourth Amended Credit Facility as of September 30, 2020.

As described in the “CAPITAL SPENDING AND DEVELOPMENT” section above, we commenced a substantial expansion of our Monarch Casino Black Hawk facility starting in 2014. While we have disclosed the estimated cost of that expansion, we have not entered into contracts for substantial portions of the work. For this reason, we have included in the table above only the amounts for which we have contractual commitments. At September 30, 2020, we estimate that the remaining cost to complete the Monarch Black Hawk Expansion is between $5 million and $12 million.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates and commodity prices. Our current primary market risk exposure is interest rate risk relating to the impact of interest rate movements under our Amended Credit Facility.

As of September 30, 2020, we had $185.0 million of outstanding balance under our Fourth Amended Credit Facility. A hypothetical 1% increase in the interest rate on the balance outstanding under the Fourth Amended Credit Facility at September 30, 2020 would result in a change in our annual interest cost of approximately $1.9 million. See “Liquidity and Capital Resources” for further discussion of our Amended Credit Facility and capital structure.

We have not entered into derivative financial instruments for trading or speculative purposes.

We do not have any cash or cash equivalents as of September 30, 2020 that are subject to market risk.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), an evaluation was carried out by our management, with the participation of our Chief Executive Officer and our Chief Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) under the Exchange Act). Based upon the evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date. During the quarter ended September 30, 2020, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 30, 2019, PCL Construction Services, Inc. (“PCL”) filed a complaint in District Court, City and County of Denver, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for Monarch Casino Black Hawk. The complaint alleges, among other things, the defendants breached the construction contract with PCL and certain implied warranties. On December 5, 2019, the Company filed its answer and counterclaim, which alleges, among other items, that PCL breached the construction contract, duties of good faith and fair dealing, and implied and express warranties, made fraudulent or negligent misrepresentations on which the Company and its Colorado subsidiaries relied, and included claims for monetary damages as well as equitable and declaratory relief.

The court has set a trial date for May 17, 2021. Discovery in the action is ongoing, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. Management believes that the amount of any reasonably possible or probable loss for such other known matters would not have a material adverse impact on our financial conditions, cash flows or results of operations; however, the outcome of these actions is inherently difficult to predict.

ITEM 1A. RISK FACTORS

In addition to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the following risk factor was identified:

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business operations, which could have a material adverse impact on our businesses, results of operations, liquidity and financial condition for an extended period of time.

The impact of the COVID-19 pandemic and measures to prevent its spread are expected to continue to impact our operations, financial results, cash flows and liquidity.

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We expect the impact of these disruptions, including the extent of their adverse impact on our financial results, will be dictated by the length of time that such disruptions continue. We were allowed to open the Atlantis on June 4, 2020, and Monarch Black Hawk Casino on June 17, 2020. We cannot predict whether there will be a subsequent closing order due to pandemic spikes or other reasons or whether additional or changed conditions upon which these re-openings may occur or continue, nor the effects of any such conditions. Even once travel, social distancing and self-quarantine restrictions are modified or cease to be necessary, demand for our properties may remain weak for a significant length of time and we cannot predict if and when the gaming and non-gaming activities of our properties will return to pre-outbreak levels of volume or pricing. In particular, future demand for properties may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth or reduced business spending for meetings, incentives, conventions and exhibitions resulting from the impact of the COVID-19 pandemic.

Our businesses would also be impacted should the disruptions from the COVID-19 pandemic lead to prolonged changes in consumer behavior and could impact our current construction project at Monarch Casino Black Hawk. There are certain limitations on our ability to mitigate the adverse financial impact of these matters, such as the fixed costs at our properties. The COVID-19 pandemic also makes it more challenging for management to estimate the future performance of our businesses, particularly over the near to medium term. Any of these events may continue to disrupt our ability to staff our business adequately, could continue to generally disrupt our operations or construction projects and, if the global response to contain the COVID-19 pandemic escalates or is unsuccessful, would have a material adverse effect on our business, financial condition, results of operations and cash flows.

If we are required to raise additional capital in the future, our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. If our credit ratings were to be downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt financing would be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that our current debt financings will be enough to fund our obligations, or that they will be available on terms consistent with our expectations. Our current debt service obligations contain a number of restrictive covenants that impose significant operating and financial restrictions on us, and the Fourth Amended Credit Facility contains various financial covenants. We cannot assure you that the impact of the COVID-19 pandemic will not cause us to no longer be able to comply with the financial covenants in the future, nor can we assure you that we would be able to obtain waivers or modifications from our lenders in the event of noncompliance in the future.

The COVID-19 pandemic has had and will continue to have an adverse effect on our results of operations. Given the uncertainty around the extent and timing of the potential future spread or mitigation of the COVID-19 pandemic and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of operations, cash flows or financial condition.

We encourage investors to review the risks and uncertainties relating to our business disclosed under the heading Risk Factors or otherwise in the 2019 Form 10-K, as well as those contained in Part I - Forward-Looking Statements thereof, as revised or supplemented by our Quarterly Reports filed with the SEC since the filing of the 2019 Form 10-K.

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ITEM 6. EXHIBITS

Exhibit No	Description
10.1	Fourth Amended and Restated Credit Agreement, dated as of September 3, 2020, among Monarch Casino & Resort, Inc., Golden Road Motor Inn, Inc. and Monarch Growth Inc., as Borrowers, the Lenders named therein, and Wells Fargo Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender  is incorporated herein by reference to Exhibit 10.13 to the Company’s Form 8-K (SEC File 0-22088) filed on September 4, 2020.
10.2*	Amendment to Fourth Amended and Restated Credit Agreement, dated as of September 29, 2020, among Monarch Casino & Resort, Inc., Golden Road Motor Inn, Inc. and Monarch Growth Inc., as Borrowers, the Lenders named therein, and Wells Fargo Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line.
31.1*	Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema
101.CAL*	Inline XBRL Taxonomy Extension Calculation
101.DEF*	Inline XBRL Taxonomy Extension Definition
101.LAB*	Inline XBRL Taxonomy Extension Labels
101.PRE* 104	Inline XBRL Taxonomy Extension Presentation Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith

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: November 6, 2020	By:	/s/ EDWIN S. KOENIG
	Edwin S. Koenig, Chief Accounting Officer
	(Principal Financial and Accounting Officer and Duly Authorized Officer)

29

EX-10.2

Exhibit 10.2

WELLS FARGO BANK, NATIONAL ASSOCIATION

September 30, 2020

To the Borrowers under the below-described Credit Agreement

c/o Golden Road Motor Inn, Inc.

3800 South Virginia Street

Reno, NV 89502

Attention: John Farahi

Re:Amendment to Credit Agreement

Ladies and Gentlemen:

Reference is made to that certain Fourth Amended and Restated Credit Agreement, dated as of September 3, 2020 (as in effect immediately prior to the effectiveness of this letter agreement, the “Credit Agreement”), by and among: (1) MONARCH CASINO & RESORT, INC., a Nevada corporation, GOLDEN ROAD MOTOR INN, INC., a Nevada corporation, MONARCH GROWTH INC., a Nevada corporation, and MONARCH BLACK HAWK, INC., a Colorado corporation (each, a “Borrower” and, collectively, the “Borrowers”); (2) each of the lenders party thereto; and (3) WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, as L/C Issuer and as Swing Line Lender.  Capitalized terms not defined in this letter agreement are used herein as defined in the Credit Agreement.

Amendment.  

The Borrowers have requested certain amendments to the Credit Agreement as set forth below.

Upon effectiveness of this letter agreement, the Administrative Agent, the Borrowers and the Required Lenders hereby agree that:

(i)The definition of “Financial Covenant Start Date” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“Financial Covenant Start Date” shall mean the earlier of (i) the last day of the fiscal quarter for which the Borrowers have, prior to the last Business Day of the second calendar month following the end of such fiscal quarter, delivered written notice to the Administrative Agent designating the last day of such fiscal quarter as the “Financial Covenant Start Date” and (ii) June 30, 2021.

(ii)Section 5.01(a)(iv) of the Credit Agreement is hereby amended and restated in its entirety as follows:

4125-6681-2711

“(iv)From and after the Financial Covenant Start Date, contemporaneously with the Financial Statements for each fiscal quarter and fiscal year end required by the foregoing clauses (i) and (ii) (or, with respect to the fiscal quarter ending on the Financial Covenant Start Date, no later than the last Business Day of the second calendar month following the end of such fiscal quarter), a compliance certificate of a Responsible Officer of the Borrowers in substantially the form of Exhibit H (a “Compliance Certificate”);”.  

Miscellaneous.  

The provisions of this letter agreement shall be effective upon the date of the Administrative Agent’s receipt of counterparts of this letter agreement executed by the Required Lenders, the Borrowers and the Guarantor.  

The Borrowers hereby confirm that, before and after giving effect to this letter agreement, the representations and warranties contained in Article IV of the Credit Agreement and in the other Loan Documents are true and correct in all material respects and no Default or Event of Default has occurred and is continuing.

Except as specifically modified herein, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed by the Borrowers in all respects.  This letter agreement may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes.  Transmission by facsimile, “pdf” or similar electronic copy of an executed counterpart of this letter agreement shall be deemed to constitute due and sufficient delivery of such counterpart.  This letter agreement shall be governed by, construed and enforced in accordance with, the laws of the State of Nevada without reference to conflicts of law rules.

[This Space Intentionally Left Blank]

2

4125-6681-2711

This letter agreement is a Loan Document as defined in the Credit Agreement, and the expense reimbursement, indemnification, waiver of jury trial, consent to jurisdiction and other provisions of the Credit Agreement generally applicable to Loan Documents are applicable hereto and incorporated herein by this reference and this letter agreement shall be interpreted, construed and enforced as if all such provisions were set forth in full in this letter agreement.

Sincerely,

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and a Lender

By:​ ​​ ​​ ​​ ​​ ​​ ​

Name:

Title:

[Signature Page to Letter Agreement – Amendment (September 2020)]

Accepted and agreed to:

MONARCH CASINO & RESORT, INC.,
a Nevada corporation

By: ​ ​​ ​​ ​​ ​​ ​

Name: John Farahi

Title: Secretary

GOLDEN ROAD MOTOR INN, INC.,
a Nevada corporation

By: ​ ​​ ​​ ​​ ​​ ​

Name: John Farahi

Title: Secretary

MONARCH GROWTH INC.,
a Nevada corporation

By: ​ ​​ ​​ ​​ ​​ ​

Name: John Farahi

Title: Director

MONARCH BLACK HAWK, INC.,
a Colorado corporation

By: ​ ​​ ​​ ​​ ​​ ​

Name: John Farahi

Title: Treasurer

[Signature Page to Letter Agreement – Amendment (September 2020)]

BANK OF AMERICA, N.A.,

as a Lender

By: ​ ​​ ​​ ​​ ​​ ​

Name:

Title:

[Signature Page to Letter Agreement – Amendment (September 2020)]

U.S. BANK NATIONAL ASSOCIATION,

as a Lender

By: ​ ​​ ​​ ​​ ​​ ​

Name:

Title:

[Signature Page to Letter Agreement – Amendment (September 2020)]

UMPQUA BANK,

as a Lender

By: ​ ​​ ​​ ​​ ​​ ​

Name:

Title:

[Signature Page to Letter Agreement – Amendment (September 2020)]

COMERICA BANK,

as a Lender

By: ​ ​​ ​​ ​​ ​​ ​

Name:

Title:

[Signature Page to Letter Agreement – Amendment (September 2020)]

The undersigned hereby acknowledges (a) that it expects to realize substantial direct and indirect benefits as a result of this letter agreement and (b) it has received and reviewed the terms and conditions hereof.  The undersigned hereby, to the extent it is a party to any Security Document or the Guaranty, (i) affirms and confirms its guarantee, pledge, grant and other agreements under each such Security Document and the Guaranty and (ii) agrees that, notwithstanding the effectiveness of this Agreement or any other transactions contemplated hereby, each Security Document and the Guaranty and all guarantees, pledges, grants and other agreements thereunder shall continue to be in full force and effect in respect of, and to secure, the Secured Obligations and the Guaranteed Obligations, as applicable.  

INTER-MOUNTAIN CONSTRUCTION, LLC

By: ​ ​

Name:

Title:

[Signature Page to Letter Agreement – Amendment (September 2020)]

EX-31.1

EXHIBIT 31.1

Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted 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.;

2. Based on my knowledge, this 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. 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

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent 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 over financial reporting, to the registrant’s auditors and the audit committee of the 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.

4
Date: November 6, 2020
By:	/s/ John Farahi
John Farahi
Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Edwin S. Koenig, Chief Accounting Officer of Monarch Casino & Resort, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Monarch Casino & Resort, Inc.;

2. Based on my knowledge, this 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. 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

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent 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 over financial reporting, to the registrant’s auditors and the audit committee of the 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: November 6, 2020
By:	/s/ Edwin S. Koenig
Edwin S. Koenig
Principal Financial and Accounting Officer

EX-32.1

EXHIBIT 32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, John Farahi, Chief Executive Officer of Monarch Casino & Resort, Inc. (the “Company”), hereby certify, that, to my knowledge:

1. The Quarterly Report on Form 10-Q for the period ended September 30, 2020 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ JOHN FARAHI

John Farahi

Chief Executive Officer

November 6, 2020

EX-32.2

EXHIBIT 32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Edwin S. Koenig, Chief Accounting Officer of Monarch Casino & Resort, Inc. (the “Company”), hereby certify, that, to my knowledge:

1. The Quarterly Report on Form 10-Q for the period ended September 30, 2020 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ EDWIN S. KOENIG

Edwin S. Koenig

Principal Financial and Accounting Officer

November 6, 2020

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 03, 2020
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2020
Entity File Number	0-22088
Entity Registrant Name	MONARCH CASINO & RESORT, INC
Entity Incorporation, State or Country Code	NV
Entity Tax Identification Number	88-0300760
Entity Address, Address Line One	3800 S. Virginia St.
Entity Address, City or Town	Reno
Entity Address, State or Province	NV
Entity Address, Postal Zip Code	89502
City Area Code	775
Local Phone Number	335-4600
Title of 12(b) Security	Common Stock, $0.01 par value per share
Trading Symbol	MCRI
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		18,263,405
Entity Central Index Key	0000907242
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues
Net revenues	$ 59,869	$ 65,585	$ 126,036	$ 187,086
Operating expenses
Selling, general and administrative	15,856	17,885	41,920	50,843
Depreciation and amortization	3,891	3,686	11,544	10,984
Other operating items, net	2,448	1,115	4,910	1,739
Total operating expenses	46,441	54,062	115,978	155,209
Income from operations	13,428	11,523	10,058	31,877
Income before income taxes	13,428	11,523	10,058	31,877
Provision for income taxes	(2,683)	(2,197)	(1,640)	(6,257)
Net income	$ 10,745	$ 9,326	$ 8,418	$ 25,620
Earnings per share of common stock
Basic	$ 0.59	$ 0.52	$ 0.46	$ 1.42
Diluted	$ 0.57	$ 0.50	$ 0.44	$ 1.37
Weighted average number of common shares and potential common shares outstanding
Basic	18,218	18,056	18,186	17,997
Diluted	18,861	18,709	18,823	18,665
Casino
Revenues
Net revenues	$ 37,292	$ 34,169	$ 74,267	$ 95,981
Operating expenses
Operating expenses	10,566	11,674	22,836	33,831
Food and beverage
Revenues
Net revenues	12,835	18,341	30,491	54,026
Operating expenses
Operating expenses	9,635	14,566	24,954	42,885
Hotel
Revenues
Net revenues	6,613	9,878	14,502	27,192
Operating expenses
Operating expenses	2,796	3,437	6,694	10,014
Other
Revenues
Net revenues	3,129	3,197	6,776	9,887
Operating expenses
Operating expenses	$ 1,249	$ 1,699	$ 3,120	$ 4,913

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 30,526	$ 60,539
Receivables, net	5,283	5,458
Income taxes receivable		185
Inventories	7,348	6,735
Prepaid expenses	7,109	6,238
Total current assets	50,266	79,155
Property and equipment
Land	30,769	30,769
Land improvements	7,856	7,842
Buildings	193,235	193,235
Buildings improvements	32,000	31,986
Furniture and equipment	149,412	152,461
Construction in progress	314,888	285,789
Right of use assets	14,977	15,574
Leasehold improvements	3,848	3,848
Gross property and equipment	746,985	721,504
Less accumulated depreciation and amortization	(226,562)	(220,021)
Net property and equipment	520,423	501,483
Other assets
Goodwill	25,111	25,111
Intangible assets, net	663	1,538
Deferred income taxes	2,683	2,683
Other assets, net		908
Total other assets	28,457	30,240
Total assets	599,146	610,878
Current liabilities
Current portion of long-term debt	10,000	20,000
Accounts payable	11,282	17,037
Construction accounts payable	1,393	7,528
Accrued expenses	34,634	34,109
Income taxes payable	1,454
Short-term lease liability	800	791
Total current liabilities	59,563	79,465
Long-term lease liability	14,189	14,797
Long-term debt, net	171,864	175,415
Total liabilities	245,616	269,677
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued
Common stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 18,260,072 outstanding at September 30, 2020; 18,141,383 outstanding at December 31, 2019	191	191
Additional paid-in capital	37,466	35,215
Treasury stock, 836,228 shares at September 30, 2020; 954,917 shares at December 31, 2019	(11,117)	(12,777)
Retained earnings	326,990	318,572
Total stockholders' equity	353,530	341,201
Total liabilities and stockholders' equity	$ 599,146	$ 610,878

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	19,096,300	19,096,300
Common stock, shares outstanding	18,260,072	18,141,383
Treasury stock, shares	836,228	954,917

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Total
Balance at Dec. 31, 2018	$ 191	$ 30,111	$ 286,756	$ (15,876)	$ 301,182
Balance (in shares) at Dec. 31, 2018	17,919,021
Increase (Decrease) in Stockholders' Equity
Net exercise of stock options		241		804	1,045
Net exercise of stock options (in shares)	57,670
Stock-based compensation expense		915			915
Net income (loss)			7,015		7,015
Balance at Mar. 31, 2019	$ 191	31,267	293,771	(15,072)	310,157
Balance (in shares) at Mar. 31, 2019	17,976,691
Balance at Dec. 31, 2018	$ 191	30,111	286,756	(15,876)	301,182
Balance (in shares) at Dec. 31, 2018	17,919,021
Increase (Decrease) in Stockholders' Equity
Net income (loss)					25,620
Balance at Sep. 30, 2019	$ 191	33,728	312,376	(13,602)	332,693
Balance (in shares) at Sep. 30, 2019	18,082,135
Balance at Mar. 31, 2019	$ 191	31,267	293,771	(15,072)	310,157
Balance (in shares) at Mar. 31, 2019	17,976,691
Increase (Decrease) in Stockholders' Equity
Net exercise of stock options		141		545	686
Net exercise of stock options (in shares)	39,043
Stock-based compensation expense		1,003			1,003
Net income (loss)			9,279		9,279
Balance at Jun. 30, 2019	$ 191	32,411	303,050	(14,527)	321,125
Balance (in shares) at Jun. 30, 2019	18,015,734
Increase (Decrease) in Stockholders' Equity
Net exercise of stock options		290		925	1,215
Net exercise of stock options (in shares)	66,401
Stock-based compensation expense		1,027			1,027
Net income (loss)			9,326		9,326
Balance at Sep. 30, 2019	$ 191	33,728	312,376	(13,602)	332,693
Balance (in shares) at Sep. 30, 2019	18,082,135
Balance at Dec. 31, 2019	$ 191	35,215	318,572	(12,777)	$ 341,201
Balance (in shares) at Dec. 31, 2019	18,141,383				18,141,383
Increase (Decrease) in Stockholders' Equity
Net exercise of stock options		(428)		428
Net exercise of stock options (in shares)	30,545
Stock-based compensation expense		873			$ 873
Net income (loss)			2,020		2,020
Balance at Mar. 31, 2020	$ 191	35,660	320,592	(12,349)	344,094
Balance (in shares) at Mar. 31, 2020	18,171,928
Balance at Dec. 31, 2019	$ 191	35,215	318,572	(12,777)	$ 341,201
Balance (in shares) at Dec. 31, 2019	18,141,383				18,141,383
Increase (Decrease) in Stockholders' Equity
Net income (loss)					$ 8,418
Balance at Sep. 30, 2020	$ 191	37,466	326,990	(11,117)	$ 353,530
Balance (in shares) at Sep. 30, 2020	18,260,072				18,260,072
Balance at Mar. 31, 2020	$ 191	35,660	320,592	(12,349)	$ 344,094
Balance (in shares) at Mar. 31, 2020	18,171,928
Increase (Decrease) in Stockholders' Equity
Net exercise of stock options		(552)		246	(306)
Net exercise of stock options (in shares)	17,634
Stock-based compensation expense		981			981
Net income (loss)			(4,347)		(4,347)
Balance at Jun. 30, 2020	$ 191	36,089	316,245	(12,103)	340,422
Balance (in shares) at Jun. 30, 2020	18,189,562
Increase (Decrease) in Stockholders' Equity
Net exercise of stock options		402		986	1,388
Net exercise of stock options (in shares)	70,510
Stock-based compensation expense		897			897
Capital contribution		78			78
Net income (loss)			10,745		10,745
Balance at Sep. 30, 2020	$ 191	$ 37,466	$ 326,990	$ (11,117)	$ 353,530
Balance (in shares) at Sep. 30, 2020	18,260,072				18,260,072

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net income	$ 8,418	$ 25,620
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,544	10,984
Amortization of deferred loan costs	466	403
Stock-based compensation	2,751	5,892
Provision for bad debts	75	44
Loss on disposition of assets	5
Write off of unamortized debt issuance costs	95
Changes in operating assets and liabilities:
Receivables	100	(67)
Income taxes	1,639	4,415
Inventories	(613)	(848)
Prepaid expenses	37	(80)
Right of use asset, net	(2)	10
Accounts payable	(5,755)	(33)
Accrued expenses	525	1,629
Net cash provided by operating activities	19,285	47,969
Cash flows from investing activities:
Proceeds from sale of assets	25
Change in construction payable	(6,135)	(4,348)
Acquisition of property and equipment	(30,237)	(106,345)
Net cash used in investing activities	(36,347)	(110,693)
Cash flows from financing activities:
Proceeds from exercise of stock options	1,161
Principal payments on long-term debt	(20,000)
Loan issuance cost	(2,862)
Long-term debt borrowings	8,750	61,350
Net cash (used in) provided by financing activities	(12,951)	61,350
Change in cash and cash equivalents	(30,013)	(1,374)
Cash and cash equivalents at beginning of period	60,539	30,462
Cash and cash equivalents at end of period	30,526	29,088
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$ 1,842
Conversion of long term deposit to short term deposit	$ 908

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

Monarch Casino & Resort, Inc. was incorporated in 1993. Unless otherwise indicated, “Monarch,” “us,” “we,” and the “Company” refer to Monarch Casino & Resort, Inc. and its subsidiaries. Monarch owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk, a casino in Black Hawk, Colorado (the “Monarch Casino Black Hawk”). In addition, Monarch owns separate parcels of land located next to the Atlantis and a parcel of land with an industrial warehouse located between Denver, Colorado and Monarch Casino Black Hawk. Monarch also owns Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to licensure requirements for extended hours of liquor operation in Black Hawk, Colorado.

The accompanying unaudited consolidated financial statements include the accounts of Monarch and its subsidiaries (the “Consolidated Financial Statements”). Intercompany balances and transactions are eliminated.

Interim Financial Statements:

The Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the management of the Company, all adjustments considered necessary for a fair presentation are included. Operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

Impact of COVID-19:

In March 2020, a global pandemic was declared due to an outbreak of a new strain of coronavirus (“COVID-19”). In an effort to contain the virus, on March 16^th the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17^th the state of Nevada mandated the temporary closure of all casinos including Atlantis Casino Resort Spa in Reno. The COVID-19 outbreak has had, and will continue to have, an adverse effect on the Company's results of operations.

Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. The poker room and buffet at Atlantis resumed operations at the beginning of August. The table games at our Colorado property resumed operation on September 11, 2020. The buffet at our Colorado property is temporarily being operated as a table-service restaurant. Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors. The convention business at Atlantis was affected by the state-mandated gathering limits, which at this time are 50 persons or 50% of fire code capacity, whichever is less. We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been lower than prior to the state-mandated closures, and are expected to remain lower for the near future.

The Company has taken steps to mitigate the effects of the economic downturn and uncertainty by reducing the operating expenses taking advantage of federal and state government programs that support companies affected by the COVID-19 pandemic and their employees, and entering in an amended and restated credit agreement with its lender, which extended the maturity date of the Company’s credit facility to September 3, 2023 and increased the aggregated principal amount of the facility from $241.3 million to $270.0 million with an option to increase the facility by up to an additional $75.0 million revolving line of credit. See NOTE 6. LONG-TERM DEBT.

The Company believes that the $4.0 million of cash in our interest-bearing money market fund and the $70.0 million available under our Amended Credit Facility as of September 30, 2020, as well as the anticipated operating cash flow, will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months. Given the Company's liquidity position at September 30, 2020, management believes the Company has sufficient liquidity to fund operations and satisfy its obligations for the next twelve months.

Goodwill:

The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC Topic 350”). ASC Topic 350 gives companies the option to perform a qualitative assessment that may allow them to skip the quantitative test as appropriate. The Company tests its goodwill for impairment annually during the fourth quarter of each year, or whenever events or circumstances make it more likely than not that impairment may have occurred. Impairment testing for goodwill is performed at the reporting unit level, and each of the Company’s casino properties is considered to be a reporting unit.

Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations in April 2012. As of September 30, 2020, we had goodwill totaling $25.1 million related to the purchase of Monarch Casino Black Hawk, Inc.

Due to the COVID-19 pandemic related government orders to suspend operations at our properties and the continued adverse effect of the pandemic on our business, after reopening of our properties, we performed a qualitative assessment for the quarters ended March 31, 2020 and June 30, 2020 to determine if the Company’s goodwill was impaired. The impairment testing, resulted in the recognition of no impairment loss. Based upon the financial performance of the company during the third quarter, management determined that there was no continued indicator of impairment. The evaluations used to assess the Company’s goodwill for impairment incorporate inherent uncertainties that are difficult to predict in the current economic environment. When evaluating for impairment, we make numerous highly subjective and judgmental estimates and assumptions, all of which are subject to a variety of risks and uncertainties, and many of which are based on significant unobservable inputs. The most significant assumptions and inputs used in evaluating for impairment are projected short-term and long-term operating results and cash flows, projected capital expenditures, estimated long-term growth rates and the weighted-average cost of capital of market participants, adjusted for the risk profile of the assets being evaluated. The timing and trajectory of the expected post-pandemic economic recovery is unknown, and accordingly, estimates and assumptions are likely to change as more information becomes available.

The Company believes that it has made reasonable estimates and judgments in performing its analysis in light of the risks and uncertainties surrounding the COVID-19 pandemic. However, if the excess of fair value over the carrying amount declines by a significant amount in the future as a result of changes in actual and projected operating results or other internal or external economic factors, the Company could be required to recognize goodwill impairment charges in future periods.

Segment Reporting:

The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Casino Black Hawk, meet the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment.

Inventories:

Inventories, consisting primarily of food, beverages, and retail merchandise, are stated at the lower of cost and net realizable value. Cost is determined by the weighted average and specific identification methods. Net realizable value is defined by the Financial Accounting Standards Board (“FASB”) as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Debt Issuance Costs:

Costs incurred in connection with the issuance of long-term debt are amortized to interest expense over the term of the related debt agreement utilizing the effective interest rate method. Unamortized amounts of debt issuance costs are recorded as a reduction of the outstanding debt and included in “Long-term debt, net”.

On September 3, 2020, the Company refinanced its credit facility. The unamortized costs related to the existing credit facility as of August 31, 2020 was $476 thousand. As the credit facility is a loan syndication with separate debt instruments existing between the debtor and the individual creditors participating in the syndication, in accordance to ASC 470-50, the Company expensed $95 thousand, representing a portion of unamortized debt issuance cost, allocated to the lenders that left the syndication and deferred the rest of the unamortized debt issuance cost of the existing credit facility, together with the issuance costs of the new facility.

As of September 30, 2020, debt issuance costs, net of amortization, were $3.1 million.

Capitalized Interest:

The Company capitalizes interest costs associated with debt incurred in connection with major construction projects. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project at the Company’s average borrowing cost. Interest capitalization is ceased when the project is substantially complete. The Company capitalized $1.8 million and $5.0 million during the three and nine months ended September 30, 2020, respectively.

Revenue Recognition:

The majority of the Company’s revenue is recognized when products are delivered or services are performed. For certain revenue transactions (when a patron uses a club loyalty card), in accordance with accounting standard update No. 2014-09 (“ASC 606”), a portion of the revenue is deferred until the points earned by the patron are redeemed or expire.

Casino revenue: Casino revenues represent the net win from gaming activity, which is the difference between the amounts won and lost, which represents the transaction price. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. Funds deposited by customers in advance and outstanding chips and slot tickets in the customers’ possession are recognized as a liability until such amounts are redeemed or used in gaming play by the customer. Additionally, net win is reduced by the performance obligations for the players’ club program, progressive jackpots and any pre-arranged marker discounts. Progressive jackpot provisions are recognized in two components: 1) as wagers are made for the share of players’ wagers that are contributed to the progressive jackpot award, and 2) as jackpots are won for the portion of the progressive jackpot award contributed by the Company. Cash discounts and other cash incentives to guests related to gaming play are recorded as a reduction to gaming revenue.

Players’ Club Program: The Company operates a players’ club program under which as players perform gaming activities they earn and accumulate points, which may be redeemed for a variety of goods and services. Given the significance of the players’ club program and the ability for members to bank such points based on their past play, the Company has determined that players’ club program points granted in conjunction with gaming activity constitute a material right and, as such, represent a performance obligation associated with the gaming contracts. At the time points are earned, the Company recognizes deferred revenue at the standalone selling prices (“SSP”) of the goods and services that the points are expected to be redeemed for, with a corresponding decrease in gaming revenue. The points estimated SSP is computed as the cash redemption value of the points expected to be redeemed, which is determined through an analysis of all redemption activity over the preceding twelve-month period.

As of September 30, 2020, the Company had estimated the obligations related to the players’ club program at $10.4 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet.

Food and Beverage, Hotel and Other (retail) Revenues: Food and Beverage, Hotel and Other Revenues in general are recognized when products are delivered or services are performed. The Company recognizes revenue related to the products and services associated with the players points’ redemptions at the time products are delivered or services are performed, with corresponding reduction in the deferred revenue, at SSP. Other complimentaries in conjunction with the gaming and other business are also valued at SSP. Hotel revenue is presented net of non-third-party rebates and commissions. The cost of providing these complimentary goods and services are included as expenses within their respective categories.

Other Revenues: Other revenues (excluding retail) primarily consist of commissions received on ATM transactions and cash advances, which are recorded on a net basis as the Company represents the agent in its relationship with the third-party service providers, and commissions and fees received in connection with pari-mutuel wagering, which are also recorded on a net basis.

Sales and other taxes: Sales taxes and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. In addition, tips and other gratuities, excluding service charges, collected from customers on behalf of the Company’s employees are also accounted for on a net basis and are not included in revenues or operating expenses.

Other Operating items, net:

Other operating items, net, in general consist of miscellaneous operating charges or proceeds. For the three months ended September 30, 2020, Other operating items, net, was $2.4 million and included: $0.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.5 million in professional service fees relating to our construction litigation; $0.5 million in Colorado legislation lobbying expenses; $0.4 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations; and $0.1 million in unamortized debt issuance cost write off. For the nine months ended September 30, 2020, Other operating items, net, was $4.9 million and included: $1.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.8 million in professional service fees relating to our construction litigation; $1.4 million in Colorado legislation lobbying expenses; $0.7 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations; and $0.1 million in unamortized debt issuance cost write off. For the three and nine months ended September 30, 2019, Other operating items, net, was $1.1 million and $1.7 million, representing: $0.9 million and $1.5 million pre-opening expenses relating to the Monarch Black Hawk Expansion project, respectively; and $0.2 million in professional service fees relating to our construction litigation for each of the periods.

Impact of Recently Adopted Accounting Standards:

Financial Instruments - Credit Losses: In June 2016, the FASB issued amended accounting guidance for the measurement of credit losses on financial instruments. The Accounting Standards Update (“ASU”) 2016-13 significantly changes the way entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amended accounting guidance replaces the incurred loss impairment model with a forward-looking expected loss model, and is applicable to most financial assets, including trade receivables other than those arising from operating leases. In the first quarter of 2020, the Company adopted ASU 2016-13. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

The Company extends short-term credit to its gaming customers. Such credit is non-interest bearing and is due on demand. In addition, the Company also has receivables due from hotel guests and convention groups and events, which are primarily secured with a credit card. An allowance for doubtful accounts is set up for all Company receivables based upon the Company’s historical collection and write-off experience and taking in consideration the current economic conditions and management’s expectations of future economic conditions. The allowance is applied even when the risk of credit loss is remote. When a situation warrants, the Company may create a specific identification reserve for a high collection risk receivables. The Company writes off its uncollectible receivables once all efforts have been made to collect such receivables. The book value of receivables approximates fair value due to the short-term nature of the receivables.

Cloud Computing Arrangement Implementation Costs: In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The Company adopted the guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

Goodwill impairment: In January 2017, the FASB issued ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The Company adopted the guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, the Company has not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements.

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ACCOUNTING FOR LEASES

9 Months Ended

Sep. 30, 2020

ACCOUNTING FOR LEASES

ACCOUNTING FOR LEASES

NOTE 2. ACCOUNTING FOR LEASES

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of the lease payments over the lease term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into its determination of lease payments when appropriate. As permitted by ASC 842, the Company elected not to separate non-lease components from their related lease components.

As of September 30, 2020, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (as defined and discussed in NOTE 5. RELATED PARTY TRANSACTIONS), as well as certain billboard leases.

Upon adoption of the new lease standard, incremental borrowing rates used for existing leases were established using the rates in effect as of the lease inception or modification date. The weighted-average incremental borrowing rate of the leases presented in the lease liability as of September 30, 2020 was 4.33%.

The weighted-average remaining lease term of the leases presented in the lease liability as of September 30, 2020 was 21.3 years.

Cash paid related to the operating leases presented in the lease liability for each of the nine months ended September 30, 2020 and 2019, was $1.1 million.

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2020

STOCK-BASED COMPENSATION.

STOCK-BASED COMPENSATION

NOTE 3. STOCK-BASED COMPENSATION

In accordance with ASU No. 2016-09, the Company records any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Income in the reporting periods in which vesting occurs. As a result, the Company’s income tax expense and associated effective tax rate are impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards.

Reported stock-based compensation expense was classified as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Casino	$	46	$	51	$	102	$	152
Food and beverage		45		52		114		150
Hotel		33		28		88		71
Selling, general and administrative		773		896		2,447		2,572
Total stock-based compensation, before taxes		897		1,027		2,751		2,945
Tax benefit		(189)		(216)		(578)		(618)
Total stock-based compensation, net of tax	$	708	$	811	$	2,173	$	2,327

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2020

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 4. 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. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

	Three months ended September 30,
	2020			2019
		Per Share			Per Share
	Shares	Amount		Shares	Amount
Basic	18,218	$	0.59	18,056	$	0.52
Effect of dilutive stock options	643		(0.02)	653		(0.02)
Diluted	18,861	$	0.57	18,709	$	0.50

	Nine months ended September 30,
	2020			2019
		Per Share			Per Share
	Shares	Amount		Shares	Amount
Basic	18,186	$	0.46	17,997	$	1.42
Effect of dilutive stock options	637		(0.02)	668		(0.05)
Diluted	18,823	$	0.44	18,665	$	1.37

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. For the three months ended September 30, 2020 and 2019, options for approximately 1,062 thousand and 847 thousand shares, respectively, were excluded from the computation. For the nine months ended September 30, 2020 and 2019, options for approximately 1,077 thousand and 795 thousand shares, respectively, were excluded from the computation.

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2020

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 5. RELATED PARTY TRANSACTIONS

The shopping center adjacent to the Atlantis (the “Shopping Center”) is owned by Biggest Little Investments, L.P. (“BLI”). John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of the Company, and Ben Farahi have significant holdings (the “Farahi Family Stockholders”) in Monarch and each also beneficially owns limited partnership interests in BLI. Maxum LLC is the sole general partner of BLI, and Ben Farahi is the sole managing member of Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational control over BLI or the Shopping Center. Until May 2006, Ben Farahi held the positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company.

On August 28, 2015, Monarch, through its subsidiary Golden Road Motor Inn, Inc., entered into a 20-year lease agreement with BLI for a portion of the Shopping Center, consisting of an approximate 46,000 square-foot commercial building on approximately 4.2 acres of land adjacent to the Atlantis (the “Parking Lot Lease”). This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, comprised of a commercial building and surrounding land adjacent to the Atlantis. The primary purpose of the Parking Lot Lease is to provide additional, convenient, Atlantis surface parking. The Company demolished the building and converted the land into approximately 300 additional surface parking spaces for the Atlantis. The minimum annual rent under the Parking Lot Lease is $695 thousand commencing on November 17, 2015. The minimum annual rent is subject to a cost of living adjustment increase on each five-year anniversary. In addition, the Company is responsible for the payment of property taxes, utilities and maintenance expenses related to the Leased Property. The Company has an option to renew the Parking Lot Lease for an additional ten-year term. If the Company elects not to exercise its renewal option, the Company will be obligated to pay BLI $1.6 million. For each of the three-month periods ended September 30, 2020 and 2019, the Company paid $174 thousand in rent, plus $13 and $6 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2020 and 2019, the Company paid $522 thousand in rent, plus $20 thousand and $19 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2020, recognized in the Consolidated Balance Sheet, was $10.6 million.

In addition, the Atlantis shares a driveway with the Shopping Center and leases approximately 37,400 square feet from BLI (the “Driveway Lease”) for an initial lease term of 15 years, which commenced on September 30, 2004, at an original annual rent of $300 thousand plus common area expenses. The annual rent is subject to a cost of living adjustment increase on each five-year anniversary of the Driveway Lease. Effective August 28, 2015, in connection with the Company entering into the Parking Lot Lease, the Driveway Lease was amended to: (i) make the Company solely responsible for the operation and maintenance costs of the shared driveway (including the fountains thereon); (ii) eliminate the Company’s obligation to reimburse the Shopping Center for its proportionate share of common area expenses; and (iii) exercise the three successive five-year renewal terms beyond the initial 15-year term in the existing Driveway Lease agreement. At the end of the renewal terms, the Company has the option to purchase the leased driveway section of the Shopping Center. For the three-month periods ended September 30, 2020 and 2019, the Company paid $101 thousand and $94 thousand in rent, respectively, plus $8 thousand and $7 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2020 and 2019, the Company paid $303 thousand and $282 thousand in rent, respectively, plus $17 thousand and $20 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2020, recognized in the Consolidated Balance Sheet, was $4.0 million.

The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders and paid $27 thousand and $48 thousand for the three-month periods ended September 30, 2020 and 2019 respectively, for such leases, and paid $101 thousand and $117 thousand, respectively, for the nine-month periods ended September 30, 2020 and 2019, for such leases.

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LONG-TERM DEBT

9 Months Ended

Sep. 30, 2020

LONG-TERM DEBT

LONG-TERM DEBT

NOTE 6. LONG-TERM DEBT

On September 3, 2020, the Company entered into the Fourth Amended and Restated Credit Agreement with Wells Fargo Bank, N.A., as administrative agent and certain banks (the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility amends and restates the Company’s $250.0 million credit facility, dated as of July 20, 2016 (the “Amended Credit Facility”). On September 29, 2020, the Company and its lender executed an Amendment to the Fourth Amended Credit Facility, which amends the definition of “Financial Covenant Start Date”.

The Fourth Amended Credit Facility extends the maturity date of the Amended Credit Facility from July 20, 2021 to September 3, 2023. In addition, the Fourth Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million. The $270.0 million Fourth Amended Credit Facility consists of: $200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”).

The Company is required to make quarterly principal payments under the Term Loan Facility on each Term Loan Installment Date, commencing on December 31, 2020, in an amount equal to (x) the percentage set forth opposite the applicable period during which such Term Loan Installment Date occurs (i.e., 1.25% for the period from December 31, 2020 to September 30, 2021, and 2.50% for the period from December 31, 2021 and thereafter) multiplied by (y) $200.0 million. Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Fourth Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio. The estimated amount of the mandatory principal payments due in the next twelve months is $10.0 million.

As of September 30, 2020, the Company had an outstanding principal balance of $185.0 million under the Term Loan Facility, from which $10 million is expected to have a maturity date in next twelve months. As of September 30, 2020, the Company had no borrowings under the Revolving Credit Facility, therefore all $70.0 million remained available for borrowing.

Borrowings are secured by liens on substantially all of the Company’s real and personal property.

In addition to other customary covenants for a facility of this nature, as of September 30, 2020, the Company is required to maintain a Total Leverage Ratio (as defined in the Fourth Amended Credit Facility) of no more than 4.75:1 and Fixed Charge Coverage Ratio (as defined in the Fourth Amended Credit Facility) of at least 1.15:1. As of September 30, 2020, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.2:1 and 9.1:1.

The Fourth Amended Credit Facility added a new definition, “Operational Liquidity”, to the Amended Credit Facility. Operational Liquidity as defined is, as of any date of determination, the amount by which (a) (i) the Unused Revolving Commitment as of such date, plus (ii) cash (including cage cash) as of such date exceeds (b) (i) $24,000,000 minus (ii) any retainage costs with respect to the expansion project and any settlement or judgment under the PCL Litigation paid in cash; provided that from and after the expansion project completion date, the receipt of a final certificate of occupancy (or its local equivalent) for the expansion project and the final resolution or disposition of the PCL Litigation, the amount in this clause (b) shall be deemed to be zero. The Borrowers shall not permit Operational Liquidity to be less than $25,000,000 at any time. In addition, any borrowing under the Amended Credit Facility, greater than $51,000,000 shall be used solely to pay retainage costs with respect to the Expansion Project and any settlement or judgment under the PCL Litigation. As of September 30, 2020, the Company’s Operational Liquidity were $76.5 million.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate. The applicable margins vary depending on Company’s leverage ratio. Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.35% to 0.575%, based on our leverage ratio.

On the terms and subject to some conditions, the Company may, at any time before the Maturity Date, request an increase of Revolving Credit Facility, provided that each such increase is equal to $15.0 million or an integral multiple of $1.0 million in excess and, after giving effect to the requested increase, the aggregate amount of the increases in the total revolving loan commitment shall not exceed $75.0 million.

The Company may prepay borrowings under the Fourth Amended Credit Facility revolving loan without penalty (subject to certain conditions and certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period). Once reduced or cancelled, the Revolving Credit Facility may not be increased or reinstated without the prior written consent of all lenders.

The Company believes that the $4.0 million cash in its interest-bearing money market fund and the $70.0 million available under its Amended Credit Facility as of September 30, 2020 will be sufficient to support its current operations, meet its debt obligations and fulfill its capital expenditure plans for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2020; however, the Company is surrounded by uncertainty about COVID-19 and the reopening of its operations, as well as financial, economic, competitive, regulatory, and other factors, many of which are beyond its control. If the Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed the Company’s borrowing capacity under the Fourth Amended Credit Facility, it could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

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TAXES

9 Months Ended

Sep. 30, 2020

TAXES

TAXES

NOTE 7. TAXES

For the nine months ended September 30, 2020 and 2019, the Company’s effective tax rate was 16.3% and 19.6%, respectively. The low effective tax rate for the nine months ended September 30, 2020 was a result of the high weight of excess tax benefit on stock option exercises on the provision for income taxes, as the suspension of the operations in mid-March for about three months and continued negative effect of the COVID-19 pandemic resulted in reduced income before income tax for the nine-month period ended September 30, 2020.

Deferred tax assets were evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies.

No uncertain tax positions were recorded as of September 30, 2020 and 2019. No change in uncertain tax positions is anticipated over the next twelve months.

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STOCK REPURCHASE PLAN

9 Months Ended

Sep. 30, 2020

STOCK REPURCHASE PLAN

STOCK REPURCHASE PLAN

NOTE 8. STOCK REPURCHASE PLAN

On October 22, 2014, the board of directors of Monarch authorized a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the board of directors authorized a program to repurchase up to 3,000,000 shares of the Company’s common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other factors. The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and the plan may be suspended at any time at the Company’s discretion, and it will continue until exhausted. The actual timing, number and value of shares repurchased under the repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market economic conditions and applicable legal requirements. The Company has made no purchases under the Repurchase Plan.

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LEGAL MATTERS

9 Months Ended

Sep. 30, 2020

LEGAL MATTERS

LEGAL MATTERS

NOTE 9. LEGAL MATTERS

On August 30, 2019, PCL Construction Services, Inc. (“PCL”) filed a complaint in District Court, City and County of Denver, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for Monarch Casino Black Hawk. The complaint alleges, among other things, the defendants breached the construction contract with PCL and certain implied warranties. On December 5, 2019, the Company filed its answer and counterclaim, which alleges, among other items, that PCL breached the construction contract, duties of good faith and fair dealing, and implied and express warranties, made fraudulent or negligent misrepresentations on which the Company and its Colorado subsidiaries relied, and included claims for monetary damages as well as equitable and declaratory relief.

The court has set a trial date for May 17, 2021. Discovery in the action is ongoing, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

The Company recognized $0.5 million and $0.8 million in construction litigation expense relating to this lawsuit for the three and nine months ended September 30, 2020, respectively, which are included in Other operating items, net on the Consolidated Statements of Operations.

From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. Management believes that the amount of any reasonably possible or probable loss for such other known matters would not have a material adverse impact on our financial conditions, cash flows or results of operations; however, the outcome of these actions is inherently difficult to predict.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation:

Monarch Casino & Resort, Inc. was incorporated in 1993. Unless otherwise indicated, “Monarch,” “us,” “we,” and the “Company” refer to Monarch Casino & Resort, Inc. and its subsidiaries. Monarch owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk, a casino in Black Hawk, Colorado (the “Monarch Casino Black Hawk”). In addition, Monarch owns separate parcels of land located next to the Atlantis and a parcel of land with an industrial warehouse located between Denver, Colorado and Monarch Casino Black Hawk. Monarch also owns Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to licensure requirements for extended hours of liquor operation in Black Hawk, Colorado.

The accompanying unaudited consolidated financial statements include the accounts of Monarch and its subsidiaries (the “Consolidated Financial Statements”). Intercompany balances and transactions are eliminated.

Interim Financial Statements

Interim Financial Statements:

The Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the management of the Company, all adjustments considered necessary for a fair presentation are included. Operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

Impact of COVID-19

Impact of COVID-19:

In March 2020, a global pandemic was declared due to an outbreak of a new strain of coronavirus (“COVID-19”). In an effort to contain the virus, on March 16^th the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17^th the state of Nevada mandated the temporary closure of all casinos including Atlantis Casino Resort Spa in Reno. The COVID-19 outbreak has had, and will continue to have, an adverse effect on the Company's results of operations.

Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. The poker room and buffet at Atlantis resumed operations at the beginning of August. The table games at our Colorado property resumed operation on September 11, 2020. The buffet at our Colorado property is temporarily being operated as a table-service restaurant. Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors. The convention business at Atlantis was affected by the state-mandated gathering limits, which at this time are 50 persons or 50% of fire code capacity, whichever is less. We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been lower than prior to the state-mandated closures, and are expected to remain lower for the near future.

The Company has taken steps to mitigate the effects of the economic downturn and uncertainty by reducing the operating expenses taking advantage of federal and state government programs that support companies affected by the COVID-19 pandemic and their employees, and entering in an amended and restated credit agreement with its lender, which extended the maturity date of the Company’s credit facility to September 3, 2023 and increased the aggregated principal amount of the facility from $241.3 million to $270.0 million with an option to increase the facility by up to an additional $75.0 million revolving line of credit. See NOTE 6. LONG-TERM DEBT.

The Company believes that the $4.0 million of cash in our interest-bearing money market fund and the $70.0 million available under our Amended Credit Facility as of September 30, 2020, as well as the anticipated operating cash flow, will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months. Given the Company's liquidity position at September 30, 2020, management believes the Company has sufficient liquidity to fund operations and satisfy its obligations for the next twelve months.

Goodwill

Goodwill:

The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC Topic 350”). ASC Topic 350 gives companies the option to perform a qualitative assessment that may allow them to skip the quantitative test as appropriate. The Company tests its goodwill for impairment annually during the fourth quarter of each year, or whenever events or circumstances make it more likely than not that impairment may have occurred. Impairment testing for goodwill is performed at the reporting unit level, and each of the Company’s casino properties is considered to be a reporting unit.

Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations in April 2012. As of September 30, 2020, we had goodwill totaling $25.1 million related to the purchase of Monarch Casino Black Hawk, Inc.

Due to the COVID-19 pandemic related government orders to suspend operations at our properties and the continued adverse effect of the pandemic on our business, after reopening of our properties, we performed a qualitative assessment for the quarters ended March 31, 2020 and June 30, 2020 to determine if the Company’s goodwill was impaired. The impairment testing, resulted in the recognition of no impairment loss. Based upon the financial performance of the company during the third quarter, management determined that there was no continued indicator of impairment. The evaluations used to assess the Company’s goodwill for impairment incorporate inherent uncertainties that are difficult to predict in the current economic environment. When evaluating for impairment, we make numerous highly subjective and judgmental estimates and assumptions, all of which are subject to a variety of risks and uncertainties, and many of which are based on significant unobservable inputs. The most significant assumptions and inputs used in evaluating for impairment are projected short-term and long-term operating results and cash flows, projected capital expenditures, estimated long-term growth rates and the weighted-average cost of capital of market participants, adjusted for the risk profile of the assets being evaluated. The timing and trajectory of the expected post-pandemic economic recovery is unknown, and accordingly, estimates and assumptions are likely to change as more information becomes available.

The Company believes that it has made reasonable estimates and judgments in performing its analysis in light of the risks and uncertainties surrounding the COVID-19 pandemic. However, if the excess of fair value over the carrying amount declines by a significant amount in the future as a result of changes in actual and projected operating results or other internal or external economic factors, the Company could be required to recognize goodwill impairment charges in future periods.

Segment Reporting

Segment Reporting:

The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Casino Black Hawk, meet the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment.

Inventories

Inventories:

Inventories, consisting primarily of food, beverages, and retail merchandise, are stated at the lower of cost and net realizable value. Cost is determined by the weighted average and specific identification methods. Net realizable value is defined by the Financial Accounting Standards Board (“FASB”) as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Debt Issuance Costs

Debt Issuance Costs:

Costs incurred in connection with the issuance of long-term debt are amortized to interest expense over the term of the related debt agreement utilizing the effective interest rate method. Unamortized amounts of debt issuance costs are recorded as a reduction of the outstanding debt and included in “Long-term debt, net”.

On September 3, 2020, the Company refinanced its credit facility. The unamortized costs related to the existing credit facility as of August 31, 2020 was $476 thousand. As the credit facility is a loan syndication with separate debt instruments existing between the debtor and the individual creditors participating in the syndication, in accordance to ASC 470-50, the Company expensed $95 thousand, representing a portion of unamortized debt issuance cost, allocated to the lenders that left the syndication and deferred the rest of the unamortized debt issuance cost of the existing credit facility, together with the issuance costs of the new facility.

As of September 30, 2020, debt issuance costs, net of amortization, were $3.1 million.

Capitalized Interest

Capitalized Interest:

The Company capitalizes interest costs associated with debt incurred in connection with major construction projects. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project at the Company’s average borrowing cost. Interest capitalization is ceased when the project is substantially complete. The Company capitalized $1.8 million and $5.0 million during the three and nine months ended September 30, 2020, respectively.

Revenues Recognition

Revenue Recognition:

The majority of the Company’s revenue is recognized when products are delivered or services are performed. For certain revenue transactions (when a patron uses a club loyalty card), in accordance with accounting standard update No. 2014-09 (“ASC 606”), a portion of the revenue is deferred until the points earned by the patron are redeemed or expire.

Casino revenue: Casino revenues represent the net win from gaming activity, which is the difference between the amounts won and lost, which represents the transaction price. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. Funds deposited by customers in advance and outstanding chips and slot tickets in the customers’ possession are recognized as a liability until such amounts are redeemed or used in gaming play by the customer. Additionally, net win is reduced by the performance obligations for the players’ club program, progressive jackpots and any pre-arranged marker discounts. Progressive jackpot provisions are recognized in two components: 1) as wagers are made for the share of players’ wagers that are contributed to the progressive jackpot award, and 2) as jackpots are won for the portion of the progressive jackpot award contributed by the Company. Cash discounts and other cash incentives to guests related to gaming play are recorded as a reduction to gaming revenue.

Players’ Club Program: The Company operates a players’ club program under which as players perform gaming activities they earn and accumulate points, which may be redeemed for a variety of goods and services. Given the significance of the players’ club program and the ability for members to bank such points based on their past play, the Company has determined that players’ club program points granted in conjunction with gaming activity constitute a material right and, as such, represent a performance obligation associated with the gaming contracts. At the time points are earned, the Company recognizes deferred revenue at the standalone selling prices (“SSP”) of the goods and services that the points are expected to be redeemed for, with a corresponding decrease in gaming revenue. The points estimated SSP is computed as the cash redemption value of the points expected to be redeemed, which is determined through an analysis of all redemption activity over the preceding twelve-month period.

As of September 30, 2020, the Company had estimated the obligations related to the players’ club program at $10.4 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet.

Food and Beverage, Hotel and Other (retail) Revenues: Food and Beverage, Hotel and Other Revenues in general are recognized when products are delivered or services are performed. The Company recognizes revenue related to the products and services associated with the players points’ redemptions at the time products are delivered or services are performed, with corresponding reduction in the deferred revenue, at SSP. Other complimentaries in conjunction with the gaming and other business are also valued at SSP. Hotel revenue is presented net of non-third-party rebates and commissions. The cost of providing these complimentary goods and services are included as expenses within their respective categories.

Other Revenues: Other revenues (excluding retail) primarily consist of commissions received on ATM transactions and cash advances, which are recorded on a net basis as the Company represents the agent in its relationship with the third-party service providers, and commissions and fees received in connection with pari-mutuel wagering, which are also recorded on a net basis.

Sales and other taxes: Sales taxes and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. In addition, tips and other gratuities, excluding service charges, collected from customers on behalf of the Company’s employees are also accounted for on a net basis and are not included in revenues or operating expenses.

Other Operating items, net

Other Operating items, net:

Other operating items, net, in general consist of miscellaneous operating charges or proceeds. For the three months ended September 30, 2020, Other operating items, net, was $2.4 million and included: $0.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.5 million in professional service fees relating to our construction litigation; $0.5 million in Colorado legislation lobbying expenses; $0.4 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations; and $0.1 million in unamortized debt issuance cost write off. For the nine months ended September 30, 2020, Other operating items, net, was $4.9 million and included: $1.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.8 million in professional service fees relating to our construction litigation; $1.4 million in Colorado legislation lobbying expenses; $0.7 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations; and $0.1 million in unamortized debt issuance cost write off. For the three and nine months ended September 30, 2019, Other operating items, net, was $1.1 million and $1.7 million, representing: $0.9 million and $1.5 million pre-opening expenses relating to the Monarch Black Hawk Expansion project, respectively; and $0.2 million in professional service fees relating to our construction litigation for each of the periods.

Impact of Recently Adopted Accounting Standards

Impact of Recently Adopted Accounting Standards:

Financial Instruments - Credit Losses: In June 2016, the FASB issued amended accounting guidance for the measurement of credit losses on financial instruments. The Accounting Standards Update (“ASU”) 2016-13 significantly changes the way entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amended accounting guidance replaces the incurred loss impairment model with a forward-looking expected loss model, and is applicable to most financial assets, including trade receivables other than those arising from operating leases. In the first quarter of 2020, the Company adopted ASU 2016-13. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

The Company extends short-term credit to its gaming customers. Such credit is non-interest bearing and is due on demand. In addition, the Company also has receivables due from hotel guests and convention groups and events, which are primarily secured with a credit card. An allowance for doubtful accounts is set up for all Company receivables based upon the Company’s historical collection and write-off experience and taking in consideration the current economic conditions and management’s expectations of future economic conditions. The allowance is applied even when the risk of credit loss is remote. When a situation warrants, the Company may create a specific identification reserve for a high collection risk receivables. The Company writes off its uncollectible receivables once all efforts have been made to collect such receivables. The book value of receivables approximates fair value due to the short-term nature of the receivables.

Cloud Computing Arrangement Implementation Costs: In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The Company adopted the guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

Goodwill impairment: In January 2017, the FASB issued ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The Company adopted the guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, the Company has not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements.

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2020

STOCK-BASED COMPENSATION.

Schedule of stock-based compensation expense

Reported stock-based compensation expense was classified as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Casino	$	46	$	51	$	102	$	152
Food and beverage		45		52		114		150
Hotel		33		28		88		71
Selling, general and administrative		773		896		2,447		2,572
Total stock-based compensation, before taxes		897		1,027		2,751		2,945
Tax benefit		(189)		(216)		(578)		(618)
Total stock-based compensation, net of tax	$	708	$	811	$	2,173	$	2,327

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2020

EARNINGS PER SHARE

Schedule of reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

	Three months ended September 30,
	2020			2019
		Per Share			Per Share
	Shares	Amount		Shares	Amount
Basic	18,218	$	0.59	18,056	$	0.52
Effect of dilutive stock options	643		(0.02)	653		(0.02)
Diluted	18,861	$	0.57	18,709	$	0.50

	Nine months ended September 30,
	2020			2019
		Per Share			Per Share
	Shares	Amount		Shares	Amount
Basic	18,186	$	0.46	17,997	$	1.42
Effect of dilutive stock options	637		(0.02)	668		(0.05)
Diluted	18,823	$	0.44	18,665	$	1.37

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Impact of COVID-19 (Details) - USD ($) $ in Millions	Sep. 30, 2020	Sep. 03, 2020	Sep. 02, 2020
Money Market Funds
Cash	$ 4.0
Fourth Amended Credit Facility
Remaining available borrowings	$ 70.0
Line of Credit Facility, Maximum Borrowing Capacity		$ 270.0
Fourth Amended Credit Facility | COVID-19
Line of Credit Facility, Maximum Borrowing Capacity		270.0	$ 241.3
Line of Credit Facility, Additional Borrowing Capacity		$ 75.0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Goodwill (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Goodwill from business combinations
Goodwill	$ 25,111	$ 25,111

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Segment Reporting (Details)	9 Months Ended
	Sep. 30, 2020 segment
Segment Reporting
Number of operating segments	2
Number of reportable segments	1

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Debt Issuance Costs and Capitalized Interest (Details) - USD ($) $ in Thousands		3 Months Ended	9 Months Ended
	Sep. 03, 2020	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019
Debt Issuance Costs
Debt issuance costs, net of amortization		$ 3,100	$ 3,100
Amortization of Financing Costs			466	$ 403
Capitalized Interest
Capitalized interest		$ 1,800	$ 5,000
Revolving credit facility
Debt Issuance Costs
Unamortized debt issuance cost	$ 476
Amortization of Financing Costs	$ 95

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Players Club Program (Details) $ in Millions	9 Months Ended
	Sep. 30, 2020 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Analysis of redemption activity, preceding period	12 months
Obligations related to the players' club program	$ 10.4

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Other Operating items, net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Other operating items, net	$ 2,448	$ 1,115	$ 4,910	$ 1,739
Pre-opening expenses relating to the Monarch Black Hawk Expansion project	900	900	1,900	1,500
Professional service fees relating to our construction litigation	500	$ 200	800	$ 200
Colorado legislation lobbing expenses	500		1,400
Expenses due to the COVID-19 pandemic	400		700
Write off of Deferred Debt Issuance Cost	$ 100		$ 95

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Allowance for Doubtful Accounts (Details)	Mar. 31, 2020
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
adopted Accounting Standards Update ("ASU") 2016-13	true

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ACCOUNTING FOR LEASES - Narrative (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
ACCOUNTING FOR LEASES
Lease, Practical Expedient, Lessor Single Lease Component [true false]	True
Weighted-average incremental borrowing rate of operating leases	4.33%
weighted-average remaining lease term	21 years 3 months 18 days
Cash paid related to operating leases	$ 1.1	$ 1.1

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STOCK-BASED COMPENSATION - Reported Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Stock-based compensation expense
Total stock-based compensation, before taxes	$ 897	$ 1,027	$ 2,751	$ 2,945
Tax benefit	(189)	(216)	(578)	(618)
Total stock-based compensation, net of tax	708	811	2,173	2,327
Casino
Stock-based compensation expense
Total stock-based compensation, before taxes	46	51	102	152
Food and beverage
Stock-based compensation expense
Total stock-based compensation, before taxes	45	52	114	150
Hotel
Stock-based compensation expense
Total stock-based compensation, before taxes	33	28	88	71
Selling, general and administrative
Stock-based compensation expense
Total stock-based compensation, before taxes	$ 773	$ 896	$ 2,447	$ 2,572

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EARNINGS PER SHARE - (Details) - $ / shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Shares
Basic (in shares)	18,218	18,056	18,186	17,997
Effect of dilutive stock options (in shares)	643	653	637	668
Diluted (in shares)	18,861	18,709	18,823	18,665
Per Share Amount
Basic (in dollars per share)	$ 0.59	$ 0.52	$ 0.46	$ 1.42
Effect of dilutive stock options (in dollars per share)	(0.02)	(0.02)	(0.02)	(0.05)
Diluted (in dollars per share)	$ 0.57	$ 0.50	$ 0.44	$ 1.37

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EARNINGS PER SHARE - Anti-dilutive Options (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Stock options
Options not included in the computation of diluted earnings per share:
Excluded from the computation of diluted earnings per share (in shares)	1,062	847	1,077	795

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RELATED PARTY TRANSACTIONS (Details) $ in Thousands				3 Months Ended		9 Months Ended
	Nov. 17, 2015 USD ($)	Aug. 28, 2015 a ft² item	Sep. 30, 2004 USD ($)	Sep. 30, 2020 USD ($) ft²	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) ft²	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
RELATED PARTY TRANSACTIONS
Right of use asset				$ 14,977		$ 14,977		$ 15,574
Biggest Little Investments, L.P. (BLI) | Parking Lot Lease
RELATED PARTY TRANSACTIONS
Rent paid				174	$ 174	522	$ 522
Operating expenses related to lease				13	6	20	19
Right of use asset				10,600		10,600
Operating lease liability				$ 10,600		$ 10,600
Biggest Little Investments, L.P. (BLI) | Driveway Lease
RELATED PARTY TRANSACTIONS
Lease term			15 years
Area of property | ft²				37,400		37,400
Minimum annual rent			$ 300
Anniversary years subject to cost of living adjustment rent increases			5 years
Number of terms for which the lease can be renewed | item		3
Lease renewal option additional term		5 years
Rent paid				$ 101	94	$ 303	282
Operating expenses related to lease				8	7	17	20
Right of use asset				4,000		4,000
Operating lease liability				4,000		4,000
Affiliates | Billboard advertising, storage space and parking lot space
RELATED PARTY TRANSACTIONS
Rent paid				$ 27	$ 48	$ 101	$ 117
Golden Road | Parking Lot Lease | Buildings
RELATED PARTY TRANSACTIONS
Area of land | a		4.2
Golden Road | Parking Lot Lease | Land
RELATED PARTY TRANSACTIONS
Number of parking spaces | item		300
Golden Road | Biggest Little Investments, L.P. (BLI) | Parking Lot Lease
RELATED PARTY TRANSACTIONS
Lease term		20 years
Minimum annual rent	$ 695
Anniversary years subject to cost of living adjustment rent increases	5 years
Lease renewal option additional term				10 years		10 years
Lessee, Operating Lease, Existence of Option to Extend [true false]						true
Amount due to related party if lease is not renewed				$ 1,600		$ 1,600
Golden Road | Biggest Little Investments, L.P. (BLI) | Parking Lot Lease | Buildings
RELATED PARTY TRANSACTIONS
Area of property | ft²		46,000
Area of land | a		4.2

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LONG-TERM DEBT (Details)		9 Months Ended
	Sep. 03, 2020 USD ($)	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Long-term debt
Long-term debt, net		$ 171,864,000	$ 175,415,000
Money Market Funds
Long-term debt
Cash		$ 4,000,000.0
Minimum
Long-term debt
Commitment fees		0.35%
Maximum
Long-term debt
Commitment fees		0.575%
Revolving credit facility
Long-term debt
Maximum borrowing capacity	$ 250,000,000.0	$ 75,000,000.0
Remaining available borrowings		70,000,000.0
Amount drawn under the facility		$ 0
Total leverage ratio		2.2
Fixed charge coverage ratio		9.1
Revolving credit facility | Minimum
Long-term debt
Fixed charge coverage ratio		1.15
Additional borrowing capacity		$ 15,000,000.0
Integral multiple additional borrowing capacity		$ 1,000,000.0
Revolving credit facility | Minimum | LIBOR
Long-term debt
Interest rate (as a percent)		1.75%
Revolving credit facility | Minimum | Base Rate
Long-term debt
Interest rate (as a percent)		0.75%
Revolving credit facility | Maximum
Long-term debt
Total leverage ratio		4.75
Revolving credit facility | Maximum | LIBOR
Long-term debt
Interest rate (as a percent)		3.25%
Revolving credit facility | Maximum | Base Rate
Long-term debt
Interest rate (as a percent)		2.25%
Fourth Amended Credit Facility
Long-term debt
Maximum borrowing capacity	270,000,000.0
Threshold amount for operational liquidity		$ 24,000,000
Retainage cost after project completion, threshold		0
Minimum operational liquidity to be maintained		25,000,000
Borrowings Use Limitation Retainage Cost Payment For Expansion Project Minimum Amount		51,000,000
Operational liquidity		76,500,000
Remaining available borrowings		70,000,000.0
Fourth Amended Credit Facility | COVID-19 Pandemic
Long-term debt
Maximum borrowing capacity		70,000,000.0
Term Loan Facility
Long-term debt
Maximum borrowing capacity	200,000,000
Quarterly principal payment	200,000,000.0
Amount outstanding		185,000,000.0
Expected to have a maturity date in next twelve months		$ 10,000,000
Mandatory principal payment due in next twelve months	$ 10,000,000.0
Term Loan Facility | Period From December 31, 2020 To September 30, 2021
Long-term debt
Interest rate	1.25%
Term Loan Facility | Period From December 31, 2021 And Thereafter
Long-term debt
Interest rate	2.50%
New Revolving Credit Facility
Long-term debt
Maximum borrowing capacity	$ 70,000,000

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TAXES (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
TAXES
Effective tax rate (as a percent)	16.30%	19.60%
Liability for uncertain tax positions recorded	$ 0.0	$ 0.0
Change in uncertain tax positions, increase	0.0
Change in uncertain tax positions, decrease	$ 12.0

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STOCK REPURCHASE PLAN (Details) - Repurchase Plan - shares	9 Months Ended
	Sep. 30, 2020	Oct. 22, 2014
Stock repurchase plan
Shares authorized for repurchase under program		3,000,000
Stock repurchases made	0

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LEGAL MATTERS (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Legal matters
Professional service fees relating to our construction litigation	$ 0.5	$ 0.2	$ 0.8	$ 0.2
PCL Construction Services, Inc.
Legal matters
Professional service fees relating to our construction litigation	$ 0.5		$ 0.8