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)
|
1175
W. Moana Lane, Suite 200, Reno, Nevada 89509
|
|
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
|
Common
stock, $0.01 par value
|
19,059,302
shares
|
|
Class
|
Outstanding
at August 8, 2006
|
Page
Number
|
|||
Part
I.
|
Financial
Information
|
||
Item
1.
|
-
Financial Statements
|
||
-
Condensed
Consolidated Statements of Income for the three and six months ended
June
30, 2006 and 2005 (unaudited)
|
4
|
||
-
Condensed Consolidated Balance Sheets at June 30, 2006 (unaudited)
and
December
31, 2005
|
5
|
||
-
Condensed Consolidated Statements of Cash Flows for the six months
ended
June 30,
2006 and 2005 (unaudited)
|
6
|
||
-
Notes to the Condensed Consolidated Financial Statements
(unaudited)
|
7
|
||
Item
2.
|
-
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
Item
3.
|
-
Quantitative and Qualitative Disclosures About Market Risk
|
23
|
|
Item
4.
|
-
Controls and Procedures
|
23
|
|
Part
II.
|
Other
Information
|
||
Item
1.
|
-
Legal Proceedings
|
24
|
|
Item
1A.
|
-
Risk Factors
|
25
|
|
Item
4.
|
-
Submission of Matters to a Vote of Security Holders
|
27
|
|
Item
5.
|
-
Other Information
|
27
|
|
Item
6.
|
-
Exhibits
|
27
|
|
Signatures
|
28
|
||
Exhibit
Index
|
29
|
||
Exhibit
31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002
|
30
|
||
Exhibit
31.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002
|
31
|
||
Exhibit
32.1 Certification of John Farahi pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002
|
32
|
||
Exhibit
32.2 Certification of Ronald Rowan pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002
|
33
|
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
||||||||||||
2006
(unaudited)
|
2005
(unaudited)
|
2006
(unaudited)
|
2005
(unaudited)
|
||||||||||
Revenues
|
|||||||||||||
Casino
|
$
|
25,780,512
|
$
|
24,023,224
|
$
|
49,904,559
|
$
|
44,925,132
|
|||||
Food and beverage
|
10,135,342
|
9,404,978
|
19,880,159
|
18,431,314
|
|||||||||
Hotel
|
6,445,709
|
5,783,330
|
12,479,644
|
11,371,482
|
|||||||||
Other
|
1,340,524
|
1,140,419
|
2,431,100
|
2,188,756
|
|||||||||
Gross revenues
|
43,702,087
|
40,351,951
|
84,695,462
|
76,916,684
|
|||||||||
Less promotional allowances
|
(6,043,336
|
)
|
(5,369,564
|
)
|
(11,431,050
|
)
|
(10,371,595
|
)
|
|||||
Net revenues
|
37,658,751
|
34,982,387
|
73,264,412
|
66,545,089
|
|||||||||
Operating
expenses
|
|||||||||||||
Casino
|
8,479,719
|
7,952,246
|
16,491,881
|
15,487,093
|
|||||||||
Food and beverage
|
4,700,015
|
4,730,595
|
9,490,786
|
9,167,960
|
|||||||||
Hotel
|
2,002,146
|
1,810,963
|
4,105,869
|
3,838,836
|
|||||||||
Other
|
417,830
|
323,418
|
732,284
|
645,064
|
|||||||||
Selling, general and administrative
|
12,561,359
|
9,772,874
|
23,402,845
|
18,582,167
|
|||||||||
Gaming development expense
|
29,067
|
56,310
|
72,832
|
260,708
|
|||||||||
Depreciation and amortization
|
2,144,481
|
2,099,912
|
4,291,239
|
4,138,112
|
|||||||||
Total operating expenses
|
30,334,617
|
26,746,318
|
58,587,736
|
52,119,940
|
|||||||||
Income from operations
|
7,324,134
|
8,236,069
|
14,676,676
|
14,425,149
|
|||||||||
Other
expense
|
|||||||||||||
Interest expense
|
-
|
(283,963
|
)
|
(59,444
|
)
|
(589,337
|
)
|
||||||
Income before income taxes
|
7,324,134
|
7,952,106
|
14,617,232
|
13,835,812
|
|||||||||
Provision for income taxes
|
2,501,902
|
2,758,000
|
5,026,902
|
4,788,000
|
|||||||||
Net income
|
$
|
4,822,232
|
$
|
5,194,106
|
$
|
9,590,330
|
$
|
9,047,812
|
|||||
Earnings
per share of common stock
|
|||||||||||||
Net income
|
|||||||||||||
Basic
|
$
|
0.25
|
$
|
0.28
|
$
|
0.51
|
$
|
0.48
|
|||||
Diluted
|
$
|
0.25
|
$
|
0.27
|
$
|
0.50
|
$
|
0.47
|
|||||
Weighted
average number of common shares
and potential common shares outstanding
|
|||||||||||||
Basic
|
18,950,687
|
18,834,974
|
18,918,321
|
18,825,947
|
|||||||||
Diluted
|
19,282,501
|
19,099,112
|
19,268,889
|
19,072,009
|
June
30, 2006
(unaudited)
|
December
31, 2005
|
||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
|
$
|
18,086,552
|
$
|
12,886,494
|
|||
Receivables, net
|
3,334,252
|
3,559,602
|
|||||
Federal income tax refund receivable
|
266,252
|
286,760
|
|||||
Inventories
|
1,467,337
|
1,456,453
|
|||||
Prepaid expense
|
2,620,561
|
2,401,619
|
|||||
Deferred income taxes
|
1,721,883
|
1,326,224
|
|||||
Total current assets
|
27,496,837
|
21,917,152
|
|||||
Property
and equipment
|
|||||||
Land
|
10,339,530
|
10,339,530
|
|||||
Land improvements
|
3,166,107
|
3,166,107
|
|||||
Buildings
|
78,955,538
|
78,955,538
|
|||||
Building improvements
|
10,398,814
|
10,398,814
|
|||||
Furniture and equipment
|
70,285,434
|
67,393,755
|
|||||
Leasehold improvement
|
1,346,965
|
1,346,965
|
|||||
174,492,388
|
171,600,709
|
||||||
Less accumulated depreciation and amortization
|
(80,228,943
|
)
|
(76,117,346
|
)
|
|||
Net property and equipment
|
94,263,445
|
95,483,363
|
|||||
Other assets, net
|
269,524
|
269,524
|
|||||
Total assets
|
$
|
122,029,806
|
$
|
117,670,039
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities
|
|||||||
Accounts payable
|
$
|
5,354,980
|
$
|
7,335,630
|
|||
Accrued expenses
|
9,082,770
|
8,722,221
|
|||||
Total current liabilities
|
14,437,750
|
16,057,851
|
|||||
Long-term debt, less current maturities
|
-
|
8,100,000
|
|||||
Deferred income taxes
|
5,568,196
|
5,953,193
|
|||||
Commitments and contingencies
|
|||||||
Stockholders’ equity
|
|||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
none issued
|
-
|
-
|
|||||
Common stock, $0.01 par value, 30,000,000 shares authorized;
19,072,550 shares issued; 19,052,636 outstanding
at 6/30/2006, 18,879,310 outstanding at
12/31/2005
|
190,726
|
190,726
|
|||||
Additional paid-in capital
|
22,121,537
|
17,882,827
|
|||||
Treasury stock, 19,914 shares at 6/30/2006; 193,240
shares at 12/31/2005, at cost
|
(73,052
|
)
|
(708,877
|
)
|
|||
Retained earnings
|
79,784,649
|
70,194,319
|
|||||
Total stockholders’ equity
|
102,023,860
|
87,558,995
|
|||||
Total liabilities and stockholders’ equity
|
$
|
122,029,806
|
$
|
117,670,039
|
Six
Months Ended
June
30,
|
|||||||
2006
(unaudited)
|
2005
(unaudited)
|
||||||
Cash
flows from operating activities:
|
|||||||
Net income
|
$
|
9,590,330
|
$
|
9,047,812
|
|||
Adjustments to reconcile net income to net
cash provided by operating activities
|
|||||||
Depreciation and amortization
|
4,291,239
|
4,138,112
|
|||||
Amortization of deferred loan costs
|
-
|
45,749
|
|||||
Share-based compensation
|
2,260,100
|
-
|
|||||
Provision for bad debt
|
541,602
|
25,487
|
|||||
Loss (gain) on disposal of assets
|
40,896
|
(22,600
|
)
|
||||
Deferred income taxes
|
(780,660
|
)
|
(338,999
|
)
|
|||
Changes in assets and liabilities
|
|||||||
Receivables, net
|
(295,743
|
)
|
568,198
|
||||
Inventories
|
(10,883
|
)
|
41,049
|
||||
Prepaid expenses
|
(218,942
|
)
|
(250,868
|
)
|
|||
Accounts payable
|
(1,980,650
|
)
|
1,624,776
|
||||
Accrued expenses and federal income taxes
payable
|
360,553
|
107,285
|
|||||
Net cash provided by operating activities
|
13,797,842
|
14,986,001
|
|||||
Cash
flows from investing activities:
|
|||||||
Proceeds from sale of assets
|
16,705
|
22,600
|
|||||
Acquisition of property and equipment
|
(3,128,923
|
)
|
(4,146,015
|
)
|
|||
Net cash used in investing activities
|
(3,112,218
|
)
|
(4,123,415
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds from exercise of stock options
|
2,027,381
|
280,541
|
|||||
Tax benefit of stock option exercise
|
587,053
|
-
|
|||||
Principal payments on long-term debt
|
(8,100,000
|
)
|
(12,500,000
|
)
|
|||
Net cash used in financing activities
|
(5,485,566
|
)
|
(12,219,459
|
)
|
|||
Net increase (decrease) in cash
|
5,200,058
|
(1,356,873
|
)
|
||||
Cash at beginning of period
|
12,886,494
|
11,814,778
|
|||||
Cash at end of period
|
$
|
18,086,552
|
$
|
10,457,905
|
Supplemental
disclosure of cash flow information
|
|||||||
Cash paid for interest
|
$
|
66,659
|
$
|
645,166
|
|||
Cash paid for income taxes
|
$
|
5,200,000
|
$
|
4,100,000
|
Land
improvements
|
|
15-40
years
|
Buildings
|
|
30-40
years
|
Building
improvements
|
|
15-40
years
|
Furniture
|
|
5-10
years
|
Equipment
|
|
5-20
years
|
Weighted
Average
|
|||||||||||||
Options
|
Shares
|
Exercise
Price
|
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||
Outstanding
at beginning of period
|
1,117,558
|
$
|
13.25
|
-
|
-
|
||||||||
Granted
|
136,630
|
26.63
|
-
|
-
|
|||||||||
Exercised
|
(173,326
|
)
|
11.73
|
-
|
-
|
||||||||
Forfeited
|
(110,000
|
)
|
12.44
|
-
|
-
|
||||||||
Expired
|
0
|
-
|
-
|
-
|
|||||||||
Outstanding
at end of period
|
970,862
|
$
|
15.50
|
8.7
yrs.
|
$
|
12,250,256
|
|||||||
Exercisable
at end of period
|
156,556
|
$
|
12.16
|
8.1
yrs.
|
$
|
2,456,176
|
Three
Months Ended
June
30,
|
|||||||
2006
|
2005
|
||||||
Option
Valuation Assumptions
|
|||||||
Expected volatility
|
40.1%
|
45.6%
|
|||||
Expected dividends
|
0.0%
|
0.0%
|
|||||
Expected life (in years)
|
|||||||
Directors’ Plan
|
2.5
|
6.2
|
|||||
Executive Plan
|
8.4
|
N/A
|
|||||
Employee Plan
|
3.4
|
5.0
|
|||||
Weighted average risk free rate
|
4.8%
|
|
3.9%
|
|
|||
Weighted
average grant date fair value per share
of options granted
|
$
|
13.18
|
$
|
9.24
|
|||
Total
intrinsic value of options exercised
|
$
|
2,579,890
|
$
|
1,022,880
|
|||
Cash
received for all stock option exercises
|
$
|
2,027,381
|
$
|
280,541
|
|||
Tax
benefit realized for tax return deductions
|
$
|
499,668
|
$
|
244,680
|
Three
Months Ended
June
30, 2006
|
Six
Months Ended
June
30, 2006
|
||||||
Casino
|
$
|
11,207
|
$
|
29,778
|
|||
Food
& beverage
|
12,858
|
33,025
|
|||||
Hotel
|
12,462
|
29,692
|
|||||
Selling,
general & administrative
|
1,675,208
|
2,167,605
|
|||||
Total
stock-based compensation, before
taxes
|
$
|
1,711,735
|
$
|
2,260,101
|
|||
Tax
benefit
|
(599,107
|
)
|
(791,035
|
)
|
|||
Total
stock-based compensation, net
of tax
|
$
|
1,112,628
|
$
|
1,469,066
|
Three
Months Ended
June
30, 2005
|
Six
Months Ended
June
30, 2005
|
||||||
Net
income, as reported
|
$
|
5,194,106
|
$
|
9,047,812
|
|||
Pro
forma share-based compensation, net of tax
|
(257,213
|
)
|
(508,538
|
)
|
|||
Pro
forma net income
|
$
|
4,936,893
|
$
|
8,539,274
|
|||
Basic
earnings per share,
|
|||||||
As reported:
|
$
|
0.28
|
$
|
0.48
|
|||
Pro forma:
|
$
|
0.26
|
$
|
0.45
|
|||
Diluted
earnings per share,
|
|||||||
As reported:
|
$
|
0.27
|
$
|
0.47
|
|||
Pro forma:
|
$
|
0.26
|
$
|
0.45
|
Three
Months Ended June 30,
|
|||||||||||||
2006
|
2005
|
||||||||||||
|
Shares
|
Per
Share Amount
|
Shares
|
Per
Share Amount
|
|||||||||
Basic
|
18,951
|
$
|
0.25
|
18,835
|
$
|
0.28
|
|||||||
Effect
of Dilutive Stock Options
|
332
|
-
|
264
|
(0.01
|
)
|
||||||||
Diluted
|
19,283
|
$
|
0.25
|
19,099
|
$
|
0.27
|
Six
Months Ended June 30,
|
|||||||||||||
2006
|
2005
|
||||||||||||
Shares
|
Per
Share Amount
|
Shares
|
Per
Share Amount
|
||||||||||
Basic
|
18,918
|
$
|
0.51
|
18,826
|
$
|
0.48
|
|||||||
Effect
of Dilutive Stock Options
|
351
|
(0.01
|
)
|
246
|
(0.01
|
)
|
|||||||
Diluted
|
19,269
|
$
|
0.50
|
19,072
|
$
|
0.47
|
(in
millions, except per share and margin amounts)
|
Three
Months Ended
June
30,
|
Percentage
Increase (Decrease)
|
||||||||
2006
|
2005
|
Second
Quarter
’06
vs. ‘05
|
||||||||
Casino
revenues
|
$
|
25.8
|
$
|
24.0
|
7.3
|
%
|
||||
Food
and beverage revenues
|
10.1
|
9.4
|
7.8
|
%
|
||||||
Hotel
revenues
|
6.4
|
5.8
|
11.5
|
%
|
||||||
Other
revenues
|
1.3
|
1.1
|
17.6
|
%
|
||||||
Net
revenues
|
37.7
|
35.0
|
7.7
|
%
|
||||||
Income
from operations
|
7.3
|
8.2
|
(11.1
|
)%
|
||||||
Net
income
|
$
|
4.8
|
$
|
5.2
|
(7.2
|
)%
|
||||
Earnings
per share - Diluted
|
$
|
0.25
|
$
|
0.27
|
(7.4
|
)%
|
||||
Operating
margin
|
19.5
|
%
|
23.5
|
%
|
(4.0)
pts.
|
(in
millions, except per share and margin amounts)
|
Six
Months Ended
June
30,
|
Percentage
Increase (Decrease)
|
||||||||
2006
|
|
|
2005
|
First
Six Months
’06
vs. ‘05
|
||||||
Casino
revenues
|
$
|
49.9
|
$
|
44.9
|
11.1
|
%
|
||||
Food
and beverage revenues
|
19.9
|
18.4
|
7.9
|
%
|
||||||
Hotel
revenues
|
12.5
|
11.4
|
9.8
|
%
|
||||||
Other
revenues
|
2.4
|
2.2
|
11.1
|
%
|
||||||
Net
revenues
|
73.3
|
66.5
|
10.1
|
%
|
||||||
Income
from operations
|
14.7
|
14.4
|
1.7
|
%
|
||||||
Net
income
|
$
|
9.6
|
$
|
9.0
|
6.0
|
%
|
||||
Earnings
per share - Diluted
|
$
|
0.50
|
$
|
0.47
|
6.4
|
%
|
||||
Operating
margin
|
20.0
|
%
|
21.7
|
%
|
(1.7)
pts.
|
· |
Increases
in all our revenue centers, including 7.3% in our casino, 7.8% in
our food
and beverage, 11.5% in our hotel and 17.6% in our other revenue centers,
led to an increase of 8.3% in our gross revenues. This increase,
partially
offset by a 12.6% increase in promotional allowances, led to a net
7.7%
increase in our net revenues.
|
· |
We
incurred a charge of approximately $1.2 million from the acceleration
of
stock options awarded to our former Co-Chairman, Chief Financial
Officer,
Secretary and Treasurer who resigned all his positions with Monarch
during
the second quarter of 2006. This charge, combined with recurring
stock
option expense per the requirements of SFAS 123R of approximately
$495,000
contributed to an increase of 28.5% in selling, general and administrative
expenses (“SG&A”).
|
· |
The
increases in SG&A contributed to decreases in operating income, net
income and earnings per share during the
quarter.
|
· |
We
did not incur any interest expense during the second quarter as a
result
of having paid off our bank debt balance earlier in 2006. We incurred
approximately $284,000 in interest expense during the second quarter
of
2005.
|
Payments
Due by Period
|
||||||||||||||||
Contractual
Cash Obligations
|
Total
|
Less
Than 1 Year
|
1
to 3 Years
|
4
to 5 Years
|
More
Than 5 Years
|
|||||||||||
Long-Term
Debt
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Operating
Leases (1)
|
4,902,000
|
370,000
|
740,000
|
740,000
|
3,052,000
|
|||||||||||
Purchase
Obligations (2)
|
1,946,000
|
1,946,000
|
-
|
-
|
-
|
|||||||||||
Total
Contractual Cash Obligations
|
$
|
6,848,000
|
$
|
2,316,000
|
$
|
740,000
|
$
|
740,000
|
$
|
3,052,000
|
Director
|
Votes
Received
|
Votes
Withheld
|
|||||
John
Farahi
|
13,273,673
|
3,766,048
|
|||||
Craig
F. Sullivan
|
14,327,298
|
2,695,860
|
|||||
Charles
W. Scharer
|
14,344,025
|
2,695,864
|
|
Exhibit Number | Description | Page Number |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 30 |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 31 |
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 32 |
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 33 |