<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______.
Commission File No. 0-22088
MONARCH CASINO & RESORT, INC.
(Exact name of registrant as specified in its charter)
-------------------------
NEVADA 88-0300760
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1175 W. MOANA LANE, SUITE 200
RENO, NEVADA 89509
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (702) 825-3355
-------------------------
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES _X_ NO ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES ___ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 8, 1996, there
were 9,536,275 shares of Monarch Casino & Resort, Inc. $0.01 par value common
stock outstanding.<PAGE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues
Casino...................................... $ 7,440,622 $ 6,688,759
Food and beverage........................... 4,295,335 4,106,596
Hotel....................................... 2,512,226 2,431,629
Other....................................... 432,153 426,054
------------ ------------
Gross revenues........................... 14,680,336 13,653,038
Less promotional allowances................. (1,837,289) (1,645,526)
------------ ------------
Net revenues............................. 12,843,047 12,007,512
------------ ------------
Operating expenses
Casino...................................... 3,392,590 2,981,402
Food and beverage........................... 2,371,636 2,449,564
Hotel....................................... 932,856 1,009,352
Other....................................... 91,699 66,978
Selling, general and administrative......... 3,534,571 2,877,964
Depreciation and amortization............... 1,062,291 952,381
Gaming development costs.................... 33,906 16,705
------------ ------------
Total.................................... 11,419,549 10,354,346
------------ ------------
Income from operations................... 1,423,498 1,653,166
------------ ------------
Other income (expense)
Interest expense............................ (923,480) (1,040,442)
Minority interests in net loss of
consolidated subsidiaries.................. 6,781 -
------------ ------------
Total (916,699) (1,040,442)
------------ ------------
Income before income taxes............... 506,799 612,724
Income tax expense............................ 177,381 204,000
------------ ------------
Net Income............................... $ 329,418 $ 408,724
============ ============
Net income per share..................... $ 0.03 $ 0.04
============ ============
Weighted average common
shares outstanding...................... 9,536,275 9,536,275
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
<PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash........................................ $ 3,428,112 $ 3,644,363
Receivables, net............................ 506,140 503,283
Inventories................................. 301,062 315,556
Prepaid expenses............................ 1,294,008 1,214,846
Deferred income taxes....................... 837,000 837,000
------------ ------------
Total current assets..................... 6,366,322 6,515,048
------------ ------------
Property and equipment
Land........................................ 10,359,792 10,359,792
Buildings................................... 38,237,712 37,748,526
Furniture and equipment..................... 21,028,091 20,511,243
Improvements................................ 4,783,489 4,780,000
------------ ------------
74,409,084 73,399,561
Less accumulated
depreciation and amortization.............. (12,788,517) (11,726,226)
------------ ------------
Net property and equipment............... 61,620,567 61,673,335
------------ ------------
Other assets.................................. 1,045,958 1,080,360
------------ ------------
$ 69,032,847 $ 69,268,743
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........ $ 4,675,689 $ 3,993,447
Accounts payable............................ 2,738,278 3,581,469
Accrued expenses............................ 2,932,715 2,396,262
------------ ------------
Total current liabilities................ 10,346,682 9,971,178
Long-term debt, less current maturities....... 38,164,576 39,069,071
Deferred income taxes......................... 1,557,458 1,587,000
Minority interests............................ 199,675 206,456
Commitments and contingencies................. - -
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000
shares authorized; none issued............. - -
Common stock, $.01 par value, 30,000,000
shares authorized; 9,536,275 shares
issued and outstanding..................... 95,363 95,363
Additional paid-in capital.................. 17,008,779 17,008,779
Retained earnings........................... 1,660,314 1,330,896
------------ ------------
Total stockholders' equity............... 18,764,456 18,435,038
------------ ------------
$ 69,032,847 $69,268,743
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.<PAGE>
<PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 329,418 $ 408,724
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 1,062,291 952,381
Increase in receivables, net.............. (2,857) (42,112)
Decrease in inventories................... 14,494 10,933
Increase in prepaid expenses.............. (79,162) (81,263)
(Increase) decrease in other assets....... 34,402 (172,451)
Decrease in due to related parties........ - (308,287)
Increase (decrease) in accounts payable... (843,191) 1,220,199
Increase in accrued expenses.............. 536,452 62,840
Increase (decrease) in deferred
income tax liability..................... (29,542) 137,000
Decrease in minority interests............ (6,781) -
------------ ------------
Net cash provided by
operating activities.................... 1,015,524 2,187,964
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment....... (661,789) (219,204)
------------ ------------
Net cash used in investing activities.... (661,789) (219,204)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt........ (569,986) (1,520,357)
------------ ------------
Net cash used in financing activities.... (569,986) (1,520,357)
------------ ------------
Net increase (decrease) in cash.......... (216,251) 448,403
Cash at beginning of period................... 3,644,363 2,324,081
------------ ------------
Cash at end of period......................... $ 3,428,112 $ 2,772,484
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest...................... $ 975,706 $ 1,198,181
Cash paid for income taxes.................. 29,542 -
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts..... 347,734 65,582
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.<PAGE>
<PAGE>
MONARCH CASINO & RESORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization and Basis of Presentation
Monarch Casino & Resort, Inc. ("Monarch") was incorporated in 1993.
Golden Road Motor Inn, Inc., dba Atlantis Casino Resort ("Golden Road")
operates a hotel and casino in Reno, Nevada in facilities which were leased,
prior to August 6, 1993, from Farahi Investment Company ("FIC") and Galaxy
Enterprises, Inc. ("Galaxy"), entities owned by the principal stockholders of
Monarch. Unless stated otherwise, the "Company" refers collectively to
Monarch, its wholly owned subsidiary Golden Road, and majority owned
subsidiaries, Dunes-Marina Resort and Casino, Inc. ("Monarch-Marina"), formed
in December 1993, and Sea World Processors, Inc. ("Sea World") purchased in
February 1994. In a reorganization immediately prior to Monarch's sale of
common stock pursuant to a public offering in August 1993, certain assets and
liabilities of Galaxy were distributed to its stockholders, Galaxy was merged
into Golden Road, FIC transferred the leased facilities and certain other real
estate and debt to Golden Road, and the Golden Road stockholders exchanged all
of their Golden Road shares for shares in Monarch common stock.
The consolidated financial statements include the accounts of Monarch,
Golden Road, Monarch-Marina and Sea World and give retroactive effect to the
merger of Galaxy, the transfer of assets and debt from FIC, and the
elimination of intercompany balances and transactions in a manner similar to a
pooling of interests. Accordingly, the assets acquired and related debt
assumed in the reorganization are included at the historical amounts recorded
by Galaxy and FIC at the times the assets were acquired and the debt was
incurred by those entities, with the net amount of assets contributed or
liabilities assumed related to each year presented as an adjustment to
stockholder equity accounts. The operations related to the transferred assets
and liabilities are included for all periods presented, with the intercompany
lease transactions eliminated. The number of shares and earnings per share
for all periods presented reflect the capital structure of Monarch.
In preparing these financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the year. Actual results could
differ from those estimates.
NOTE 2. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements for the three month
periods ended March 31, 1996 and March 31, 1995 are unaudited. In the opinion
of management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the Company's financial position and
results of operations for such periods, have been included. The accompanying
unaudited consolidated financial statements should be read in conjunction with
the Company's audited financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 1995. The results for the three-
month period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996, or for any
other period. <PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that may be
considered forward-looking, such as statements relating to anticipated
expenses, capital spending and financing sources. Such forward-looking
information involves important risks and uncertainties that could
significantly affect anticipated results in the future and, accordingly, such
results may differ from those expressed in any forward-looking statements made
herein. These risks and uncertainties include, but are not limited to, those
relating to dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), outcome of
litigation, domestic or global economic conditions and changes in federal or
state tax laws or the administration of such laws.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month
Periods Ended March 31, 1996 and 1995
Net revenues for the three months ended March 31, 1996 totaled $12.8
million, up 7.0% from $12.0 million for the three months ended March 31, 1995
reflecting growth in all revenue categories, especially casino revenues.
Operating expenses for the three month periods ended March 31, 1996 and 1995
totaled $11.4 million and $10.4 million, respectively, resulting in operating
expense margins (operating expenses as a percentage of net revenues) of 88.9%
for the three months ended March 31, 1996 and 86.2% for the three months ended
March 31, 1995. Income from operations for the three months ended March 31,
1996 totaled $1.4 million, down from income from operations of $1.7 million
for the three months ended March 31, 1995. The Company's results during the
three month period ended March 31, 1996 were negatively impacted by costs
totaling approximately $100 thousand related to the name change of the
Company's Reno hotel casino. The Company terminated its franchise agreement
with Choice Hotels International, Inc. ("Choice") as of April 28, 1996, and
its Reno hotel casino officially became the Atlantis Casino Resort (the
"Atlantis") on April 29, 1996. The Company's results during the 1996 first
quarter were also impacted by substantially higher marketing costs compared to
the same period in 1995, which were attributable in part to activities
undertaken in conjunction with the name change and to heightened competition
in the Reno market, and by higher labor costs, due primarily to heightened
competition in the Reno market for quality employees.
Casino revenues increased 11.2% in the 1996 first quarter compared to the
1995 first quarter, with gains in both slot win and table game win
contributing to the increase. Slot and video poker machines ("slot machines")
contributed approximately 74% of casino revenue in the 1996 first quarter,
compared to 76% in the 1995 first quarter. Slot win increased approximately
9.1% in the 1996 first quarter compared to the 1995 first quarter due to a
1.4% increase in the average number of slot machines on the Atlantis' gaming
floor, combined with a 6.4% increase in the average daily win per slot
machine. Table game win increased approximately 21.3% in the 1996 first
quarter compared to the 1995 first quarter due to a 3.4% increase in table
game drop combined with a substantial improvement in table game hold. Casino
operating expenses amounted to 45.6% of casino revenues in the 1996 first
quarter, compared to 44.6% in the 1995 first quarter.<PAGE>
<PAGE>
Food and beverage revenues rose 4.6% in the 1996 first quarter compared
to the 1995 first quarter, due primarily to increased visitation to Atlantis'
restaurants. Food and beverage operating expenses during the 1996 first
quarter amounted to 55.2% of food and beverage revenues, compared to 59.7% in
the 1995 first quarter, with the improvement due primarily to lower food
costs.
Hotel revenues in the 1996 first quarter increased 3.3% over the 1995
first quarter, reflecting a 5.4% increase in the average daily room rate which
was offset by a decline in the average occupancy rate. The Atlantis' average
daily room rate in the 1996 first quarter was $51.33, compared to $48.68 in
the 1995 first quarter. During the 1996 first quarter, the Atlantis had an
average occupancy rate of 88.9%, compared to 92.8% in the 1995 first quarter.
Management believes that a large, long-duration bowling tournament held at the
National Bowling Stadium in downtown Reno positively impacted its average
hotel occupancy and average daily room rate during the 1995 first quarter.
The National Bowling Stadium did not host any tournaments similar in scale or
duration during the 1996 first quarter. The Company also believes that the
Atlantis' average occupancy rate was negatively impacted during the 1996 first
quarter by additional Reno area competition. The Company estimates that there
were approximately 2,400 more hotel rooms in operation in the Reno market at
the end of the 1996 first quarter than at the end of the 1995 first quarter,
representing an increase of approximately 19% in the number of hotel rooms
available in the Reno/Sparks area.
Hotel operating expenses in the 1996 first quarter equaled 37.1% of hotel
revenues, down from 41.5% in the 1995 first quarter, with the decrease due to
improvements in operating efficiency. Included in hotel operating expenses
are fees paid to Choice of $126 thousand and $120 thousand in the first
quarters of 1996 and 1995, respectively, under the Company's licensing
agreement (the "Choice Agreement") with Choice which was terminated by the
Company as of April 28, 1996.
Selling, general and administrative expenses amounted to 27.5% of net
revenues in the first quarter of 1996, compared to 24.0% in the first quarter
of 1995. Included in the 1996 first quarter are approximately $100 thousand
in name change costs. The Company expects to incur additional costs related
to the name change of the Atlantis in 1996, the majority of which are expected
to be incurred in the second quarter. The Company's 1996 first quarter
results were also impacted by substantially higher marketing costs compared to
the same period in 1995, which were attributable in part to activities
undertaken in conjunction with the name change and to heightened competition
in the Reno market.
Depreciation and amortization expenses totaled $1.1 million in the 1996
first quarter, compared to $952 thousand in the 1995 first quarter, primarily
reflecting additional personal property put into use during 1995.
Interest expense for the 1996 first quarter totaled $923 thousand,
compared to $1.0 million in the first quarter of 1995, reflecting lower
average outstanding debt and lower average interest rates during the 1996
first quarter.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1996 net cash provided by operating
activities totaled $1.0 million. For the 1996 first quarter, net cash used in
investing activities totaled $662 thousand, which consisted entirely of <PAGE>
<PAGE>
acquisitions of property and equipment at the Atlantis, and net cash used in
financing activities totaled $570 thousand, with funds used to reduce the
Company's debt. As a result, at March 31, 1996 the Company had cash of $3.4
million, compared to $3.6 million at December 31, 1995.
The Company believes that it is important to maintain the Atlantis as a
first class resort facility in order to compete successfully and increase its
customer base in the face of competitive pressures, and intends to expend
funds on maintenance, refurbishment and renovation sufficient to maintain the
Atlantis as such. In the 1996 first quarter, the Company renovated
substantially all 148 motor lodge rooms at the Atlantis at a total cost of
approximately $700 thousand. As of March 31, 1996, the Company had
approximately $3.9 million available under its bank loan for purposes
specified in the loan agreement, including capital expenditures at the
Atlantis.
See Part II, Item I, "Legal Proceedings" for a discussion of litigation
commenced by Choice on April 10, 1996. For a more detailed discussion of the
company's liquidity and capital resources, see the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, Item 7.<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Choice Hotels International, Inc. v. Golden Road Motor Inn, Inc., Case
No. PJM 96-1091, instituted April 10, 1996, in the United States District
Court for the District of Maryland. Choice is seeking a declaratory judgment
regarding the Choice Agreement under which the Company, until April 28, 1996,
operated its Reno hotel casino as a Clarion(TM) hotel. Specifically Choice
seeks a declaratory judgment as to (i) the effectiveness of a proposed 1993
modification to the Choice Agreement, (ii) the term of the Choice Agreement,
(iii) the expansion fee provided under the Choice Agreement, and (iv) the date
on which the Choice Agreement was terminable. Management intends to defend
vigorously this action and believes that the Company was entitled to terminate
the Choice Agreement as of April 28, 1996.
William H. Ahern v. Caesars World, Inc., et al., Case No. 94-532-Civ-Orl-
22, instituted on May 10, 1994 (the "Ahern Complaint") and William Poulos v.
Caesars World, Inc., et al., Case No. 94-478-Civ-Orl-22, instituted on April
26, 1994 (the "Poulos Complaint") (collectively, the Ahern Complaint and the
Poulos Complaint are referred to as the "Complaints"). Two individuals, each
purportedly representing a class, filed Complaints in the United States
District Court, Middle District of Florida, against various manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company. The Complaints allege that the defendants have engaged
in a course of conduct intended to induce persons to play such games based on
a false belief concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win on a given play. The
Complaints allege violations of the Racketeer Influenced and Corrupt
Organizations Act, as well as claims of common law fraud, unjust enrichment
and negligent misrepresentation, and seek damages in excess of $1 billion
without any substantiation of that amount. The Complaints were consolidated
and transferred to the United States District Court for the District of Nevada
(the "Nevada District Court"). The Company filed a motion to dismiss the
action based on jurisdiction, abstention and related doctrines. Various other
defendants filed similar motions and motions to dismiss based on defects in
the pleadings. The Nevada District Court entered an order granting the
motions to dismiss based on defects in the pleadings, and denying as moot all
other pending motions, including those of the Company. The Nevada District
Court granted the plaintiffs until May 31, 1996 within which to file an
amended complaint that complies with the applicable pleading requirements.
Failure to file an amended complaint will result in the dismissal of the
Complaints. Although the Company did not join in the motions based on defects
in the pleadings, the Company believes, based on the scope of the order, that
it is entitled to rely upon the conditional dismissal. Management does not
know whether the plaintiffs intend to file amended complaints, but believes
that they will do so. Management continues to believe that the substantive
allegations in the Complaints are without merit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None<PAGE>
<PAGE>
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)
<TABLE>
<S> <C>
Date: May 13, 1996 By: /s/ BEN FARAHI
------------------------------------
Ben Farahi, Co-Chairman of the Board,
Secretary, Treasurer and Chief
Financial Officer(Principal Financial
Officer and Duly Authorized Officer)
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit No. Description Page No.
- - ----------- ----------- --------
EX-27 Financial Data Schedule
/TABLE
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1996 AND
DECEMBER 31, 1995 AND THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 3,428,112 3,644,363
<SECURITIES> 0 0
<RECEIVABLES> 506,140 666,005
<ALLOWANCES> 0 162,722
<INVENTORY> 301,062 315,556
<CURRENT-ASSETS> 6,366,322 6,515,048
<PP&E> 74,409,084 73,399,561
<DEPRECIATION> 12,788,517 11,726,226
<TOTAL-ASSETS> 69,032,847 69,268,743
<CURRENT-LIABILITIES> 10,346,682 9,971,178
<BONDS> 38,164,576 39,069,071
0 0
0 0
<COMMON> 95,363 95,363
<OTHER-SE> 18,669,093 18,339,675
<TOTAL-LIABILITY-AND-EQUITY> 69,032,847 69,268,743
<SALES> 0 0
<TOTAL-REVENUES> 12,843,047 53,398,752
<CGS> 0 0
<TOTAL-COSTS> 6,788,781 28,266,751
<OTHER-EXPENSES> 1,062,291 4,478,925
<LOSS-PROVISION> 0 235,205
<INTEREST-EXPENSE> 923,480 4,087,093
<INCOME-PRETAX> 506,799 2,323,123
<INCOME-TAX> 177,381 758,900
<INCOME-CONTINUING> 329,418 1,564,223
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 329,418 1,564,223
<EPS-PRIMARY> 0.03 0.16
<EPS-DILUTED> 0.03 0.16
</TABLE>
