MONARCH CASINO & RESORT INC - Quarter Report: 2021 June (Form 10-Q)

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United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2021

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

For the transition period from       to      .

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Commission File No. 0-22088

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MONARCH CASINO & RESORT, INC.

(Exact name of registrant as specified in its charter)

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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:

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 ◻

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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 ◻

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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.

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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. ◻

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

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,599,516 shares of common stock are outstanding as of August 1, 2021.

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PART I. FINANCIAL INFORMATION

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ITEM 1. FINANCIAL STATEMENTS

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MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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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)

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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 STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares, Unaudited)

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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 STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

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

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MONARCH CASINO & RESORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUARTERLY PERIOD ENDED JUNE 30, 2021

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Basis of Presentation:

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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 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 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.

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

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Interim Financial Statements:

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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 and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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The balance sheet at December 31, 2020 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, 2020.

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Impact of COVID-19:

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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, 2020 the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17, 2020 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 may continue to have, an adverse effect on the Company's results of operations.

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Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. During a part of the second quarter of 2021, we continued to operate under limited government-enforced capacity restrictions. We were consistently adjusting our routine operations 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 adversely affected by the state-mandated gathering limits. We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been inconsistent. At the same time, however, our results of operation for the first half of 2021 benefited from pent-up demand with patrons across the gaming industry, particularly in regional gaming markets.

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The Company has taken steps to mitigate the effects of the COVID-19 pandemic 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 into 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 (consisting of a $200.0 million term loan and a $70.0 million revolving credit facility) 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. In addition, we had strongly encouraged team members to obtain the COVID-19 vaccination to ensure the safety of our team members and guests.

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The Company believes that its anticipated cash flows from operating activities, combined with the $70.0 million available under its Amended Credit Facility (as defined below), will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months.

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Goodwill:

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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.

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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 June 30, 2021, we had goodwill totaling $25.1 million related to the purchase of Monarch Black Hawk, Inc.

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ASC Topic 350 requires that goodwill be tested for impairment between annual tests if an event or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We performed an assessment to determine whether events or circumstances such as those described in ASC 350-20-35-3C existed and we determined that they did not exist during the interim period; therefore, an interim impairment test was not performed.

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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.

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Property and Equipment, net:

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Property and Equipment, net consist of the following (in thousands):

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Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment is depreciated principally on a straight line basis over the estimated useful lives as follows:

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The Company evaluates property and equipment and other long-lived assets for impairment in accordance with the guidance for accounting for the impairment or disposal of long-lived assets. For assets to be disposed of, the Company recognizes the asset to be sold at the lower of carrying value or fair value less costs of disposal. Fair value for assets to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model.

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For assets to be held and used, the Company reviews fixed assets for impairment annually during the fourth quarter of each year or whenever indicators of impairment exist. If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, the impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model or market comparables, when available. For the three and six months periods ended June 30, 2021 and 2020, there were no impairment charges.

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Segment Reporting:

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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 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.

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Inventories:

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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.

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Debt Issuance Costs:

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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”.

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As of June 30, 2021, debt issuance costs, net of amortization, were $2.6 million.

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Capitalized Interest:

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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. No capitalized interest was recognized in the three and six months ending June 30, 2021, as the Monarch Black Hawk expansion project was substantially completed in the fourth quarter of 2020. The Company capitalized $1.4 million and $3.2 million during the three and six months ended June 30, 2020, respectively.

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Revenue Recognition:

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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.

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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.

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As of June 30, 2021, the Company had estimated the obligations related to the players’ club program at $9.9 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet.

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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.

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Credit Losses

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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 into 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.

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Other Operating items, net:

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Other operating items, net, in general consist of miscellaneous operating charges or proceeds. For the three months ended June 30, 2021, Other operating items, net, was $0.8 million and represents primarily professional services relating to our construction litigation. For the three months ended June 30, 2020, Other operating items, net, was $1.2 million and included: $0.2 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.2 million in professional services relating to our construction litigation; $0.5 million in Colorado legislation lobbying expenses; and $0.3 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations. For the six months ended June 30, 2021, Other operating items, net, was $1.6 million and represents primarily $1.5 million professional services relating to our construction litigation and $0.1 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations. For the six months ended June 30, 2020, Other operating items, net, was $2.5 million and included: $1.0 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $0.3 million in professional services relating to our construction litigation; $0.9 million in Colorado legislation lobbying expenses; and $0.3 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations.

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Impact of Recently Adopted Accounting Standards:

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The Company has evaluated the recently issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies accounting standards and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s Consolidated Financial Statements.

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In addition, 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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NOTE 2. ACCOUNTING FOR LEASES

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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.

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As of June 30, 2021, 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.

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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 June 30, 2021 was 4.33%.

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The weighted-average remaining lease term of the leases presented in the lease liability as of June 30, 2021 was 21.0 years.

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Cash paid related to the operating leases presented in the lease liability for each of the six months ended June 30, 2021 and 2020, was $0.7 million.

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NOTE 3. STOCK-BASED COMPENSATION

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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.

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

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NOTE 4. EARNINGS PER SHARE

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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):

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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 June 30, 2021 and 2020, options for approximately 235 thousand and 1,122 thousand shares, respectively, were excluded from the computation. For the six months ended June 30, 2021 and 2020, options for approximately 199 thousand and 1,085 thousand shares, respectively, were excluded from the computation.

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NOTE 5. RELATED PARTY TRANSACTIONS

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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.

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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 June 30, 2021 and 2020, the Company paid $174 thousand in rent, plus $1 thousand and $0 thousand, respectively, in operating expenses relating to this lease. For each of the six-month periods ended June 30, 2021 and 2020, the Company paid $348 thousand in rent, plus $8 thousand and $7 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of June 30, 2021, recognized in the Consolidated Balance Sheet, was $10.4 million.

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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 each of the three-month periods ended June 30, 2021 and 2020, the Company paid $101 thousand in rent plus $5 thousand and $1 thousand, respectively, in operating expenses relating to this lease. For each of the six-month periods ended June 30, 2021 and 2020, the Company paid $202 thousand in rent, plus $13 thousand and $8 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of June 30, 2021, recognized in the Consolidated Balance Sheet, was $3.8 million.

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The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders and paid $52 thousand and $38 thousand, respectively, for the three-month periods and $94 thousand and $74 thousand, respectively, for the six-month periods ended June 30, 2021 and 2020, for such leases.

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NOTE 6. LONG-TERM DEBT

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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 “Prior Credit Facility”). On April 30, 2021, the Company entered into an amendment to the Fourth Amended Credit Facility (collectively, with all prior amendments, the “Amended Credit Facility”).

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The maturity date of the Amended Credit Facility is September 3, 2023. The Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million. The $270.0 million Amended Credit Facility consists of: $200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”), together with an option to increase the facility by up to an additional $75.0 million Revolving Credit Facility.

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As of June 30, 2021, the Company had an outstanding principal balance of $135.0 million under the Term Loan Facility, from which $17.5 million is expected to have a maturity date in next twelve months. As of June 30, 2021, the Company had no borrowings under the Revolving Credit Facility, therefore all $70.0 million remained available for borrowing.

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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. The estimated amount of the mandatory principal payments due in the next twelve months is $17.5 million.

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Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

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

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In addition to other customary covenants for a facility of this nature, as of June 30, 2021, the Company is required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 4.0:1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.15:1. As of June 30, 2021, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 1.5:1 and 5.2:1.

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As of June 30, 2021, the interest rate under the April 30^, 2021 amendment to the Amended Credit Facility is LIBOR plus a margin ranging from 1.00% to 2.00%, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00% to 1.00%, or the Prime Rate. The applicable margins vary depending on the Company’s leverage ratio. Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.175% to 0.325%, based on our leverage ratio.

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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.

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The Company may prepay borrowings under the 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. During the first six months of 2021, the Company made a $42.5 million optional prepayment on its Term Loan Facility in addition to a $5.0 million mandatory payment.

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As of June 30, 2021, $114.9 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $135.0 million outstanding loan amount under the Amended Credit Facility, net of $2.6 million unamortized debt issuance costs and $17.5 million mandatory principal payment that are due in next twelve months and are presented as “Current portion of long-term debt” in the Current liabilities section of the Company’s consolidated balance sheets.

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The Company believes that the expected cash flows from operating activities and the $70.0 million available under its Amended Credit Facility as of June 30, 2021 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 June 30, 2021; however, the Company is surrounded by uncertainty about COVID-19 future developments, 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 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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NOTE 7. TAXES

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For the six months ended June 30, 2021 and 2020, the Company’s effective tax rate was 18.2% and 30.9%, respectively. The effective tax rate for the six months ended June 30, 2021 was a result of the excess tax benefit on stock option exercises. The high effective tax benefit rate for the six months ended June 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 due to the COVID-19 pandemic resulted in a net loss for the three- and six-months ended June 30, 2020.

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As of June 30, 2021, $25.1 million “Income taxes receivable” in the Company’s consolidated balance sheet represents the expected federal and state tax refund for 2020 tax year.

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

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No uncertain tax positions were recorded as of June 30, 2021 and 2020. No change in uncertain tax positions is anticipated over the next twelve months.

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NOTE 8. STOCK REPURCHASE PLAN

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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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NOTE 9. LEGAL MATTERS

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On August 30, 2019, PCL Construction Services, Inc. (“PCL”) filed a complaint in District Court, City and County of Denver, Colorado (the “Denver Action”), against the Company and its Colorado subsidiaries, in connection with certain disputes regarding construction of the Company’s expansion of Monarch 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 and its Colorado subsidiaries filed an 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.

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The trial date for this matter has been scheduled for March 21, 2022. 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.

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In connection with the expansion of the Monarch Black Hawk, as described above, PCL and certain subcontractors have provided purported notice of liens filed against the real property on which the Monarch Black Hawk is situated (the “Monarch Black Hawk Property”), for sums allegedly owed for construction of the expansion.  Some of the subcontractors have recorded such liens in the property records of Gilpin County, Colorado. 

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On March 26, 2021, PCL filed a mechanics’ lien foreclosure action in District Court, County of Gilpin, Colorado (the “Gilpin Action”), against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for the Monarch Black Hawk Property.  The complaint essentially mirrors the claims and allegations made by PCL in the Denver Action, as described above.  The new lawsuit includes an additional claim, however, for foreclosure of PCL’s purported mechanics’ lien against the Monarch Black Hawk Property.  PCL also joined additional parties who may claim a purported lien against the Monarch Black Hawk Property, as defendants.  Effective May 10, 2021, PCL filed its second amended complaint, joining more such parties as defendants. Many of the Company’s co-defendants have filed cross claims against Monarch for foreclosure of mechanics’ liens and related claims, including unjust enrichment.

Because the Gilpin Action mirrors the claims and allegations in the Denver Action, the Company and its Colorado subsidiaries filed a motion to consolidate both actions into one action in the County of Gilpin. The Colorado Panel on Consolidated Multidistrict Litigation held a hearing on the motion on June 11, 2021, and thereafter denied the motion.  Accordingly, the parties are proceeding with both actions simultaneously. The Company and its Colorado subsidiaries filed an answer and counterclaims in the Gilpin Action on July 15, 2021.  Various subcontractors have also filed cross claims against certain other defendants, and counterclaims against PCL. Monarch has also filed answers to all cross claims due to date, denying the claimants’ rights to relief. Monarch anticipates filing further answers to additional cross claims, also denying the claimants’ rights to relief. A trial date for the Gilpin Action has not been set.  The Company and its Colorado subsidiaries intend to defend against PCL’s claims, including any crossclaims filed by certain subcontractors, will seek to expunge or reduce the liens, and will vigorously prosecute its counterclaims.

The Company recognized $1.5 million and $0.3 million in construction litigation expense relating to these lawsuits for the six months ended June 30, 2021 and 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

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

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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words 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, as well as statements containing phrases such as “in our view,” or “we cannot assure you,” “although no assurance can be given,” Examples of forward-looking statements include, among others, statements we make regarding: (i) the impact of the COVID-19 pandemic, including recent spikes in cases, 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 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.

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Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

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Any forward-looking statement made by us in this Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. 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.

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OVERVIEW

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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 (the “Monarch 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 Black Hawk.

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We earn revenues, operating income and cash flow from Atlantis and Monarch Black Hawk, primarily through our casino, food and beverage operations, and hotel operations. We focus on delivering exceptional service and value to our guests. Our hands-on management style focuses on customer services and cost efficiencies.

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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 and invest in technology. Reno remains a very healthy local-oriented market. The tight employment environment and wage pressure remain key challenges. We expect this to be a recurring trend for the market and Atlantis in the years ahead but we remain confident that our operating strategies will allow Atlantis to grow revenue as our market share continues to expand. 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 Black Hawk: Since the acquisition of Monarch 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 Black Hawk property. In November 2016, we opened for guest use a new nine-story parking structure with approximately 1,350 spaces and additional valet parking, with total property capacity of approximately 1,500 spaces. In the fourth quarter of 2020 we began a phased opening of our hotel tower and expanded casino floor. Construction at the property is currently underway to convert part of the legacy building into a specialty restaurant, sportsbook lounge and bar, and additional casino space, which will complete the transformation of the property into a full-scale casino resort. This last stage of the project is expected to open by the end of 2021. Through its superior product and service, the property is designed to attract and retain the highest tier guests in the market.

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KEY PERFORMANCE INDICATORS

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

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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.

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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.

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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.

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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.

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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

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Impact of the COVID-19 Pandemic

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Monarch operating results for the three and six months ended June 30, 2020 and 2021 were impacted by the COVID-19 pandemic.

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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 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 partially reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. Therefore, all financial results period comparisons set forth below should be read with the 2020 partial period closures in mind.

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Our financial results for the three and six months ended June 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. Following the reopening of our operations and through the three- and six-months periods ended June 30, 2021, we continued to operate under government-imposed capacity restrictions on our operations and various COVID-19 safety protocols. We were continually adjusting our operations to the restrictions in occupancy and social distancing requirements, which included reduced seating at table games and in all restaurants, and a decreased number of active slot machines on the casino floors. The convention business at Atlantis was adversely affected by the state-mandated gathering limits. We have experienced hotel stay and convention booking cancellations, and since the reopening, guest visitation and hotel and convention bookings have been inconsistent. At the same time, however, our results of operation for the second quarter of 2021 benefited from pent-up demand with patrons across the gaming industry, particularly in regional gaming markets and the federal government’s recurring stimulus.

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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.

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A new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread globally. In July 2021, due to reports of increased COVID-19 cases apparently driven by the new Delta variant, Nevada state government officials have reintroduced mask mandates for all persons in certain public indoor locations, including casino resorts such as the Atlantis. Colorado officials may do the same. These new developments, and any increased restrictions on operations, may adversely impact our results of operations.

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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 and the dynamic nature of the circumstances, including the duration and severity of the disease, the possibility of the outbreak levels seen to return, the long-term impact on demand following the reopening of our casinos, and other actions or restrictions that may be taken by governmental authorities, the impact thereof to the general U.S economy and to our customers. We will continue to evaluate the nature and extent of the impact to our business, results of operations, and financial condition.

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Monarch Casino Resort Spa Black Hawk expansion

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Our financial results for the three and six months ended June 30, 2021 benefited from the phased opening of operations at our newly transformed Monarch Black Hawk, which opening started in the fourth quarter of 2020. Monarch Black Hawk operations continue to ramp up. The new hotel, including a spa and pool on the top floor, are fully opened. On May 14, 2021, we opened our new poker room. With the opening of our expanded casino floor, we had increased the slot machines by approximately 190 and table games by 10, compared to the pre-COVID active gaming devices at Monarch Black Hawk.

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Comparison of Operating Results for the Three-Month Periods Ended June 30, 2021 and 2020

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For the three months ended June 30, 2021, our net income totaled $18.1 million, or $0.93 per diluted share, compared to net loss of $4.3 million, or $0.24 loss per diluted share for the same period in 2020, reflecting a 517.5% and 487.5% increase in net income (loss) and diluted earnings (losses) per share, respectively. Net revenues in the three months ended June 30, 2021, totaled $97.7 million, an increase of $82.6 million, or 544.8%, compared to the three months ended June 30, 2020. Income from operations for the three months ended June 30, 2021, totaled $23.8 million compared to loss from operations 5.5 million for the same period in 2020.

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Casino revenue increased 482.0% in the second quarter of 2021 compared to the second quarter of 2020. The increase in casino revenue was driven by the increase is gaming devices with the opening of our expanded casino in Black Hawk, a full quarter of operations at the Company’s properties in Reno and Black Hawk (the prior year quarter was partially impacted by pandemic-related shutdowns) and higher guest spend per visit. Casino operating expense as a percentage of casino revenue increased to 31.7% for the three months ended June 30, 2021 compared to 26.8% for the three months ended June 30, 2020, as a result of an increase in promotional expenses.

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Food and beverage revenue for the second quarter of 2021 increased 664.5% compared to the second quarter of 2020 due to a 745.7% increase in food and beverage covers, offset by a decrease in food and beverage revenue per cover of 9.6%. The decrease in food and beverage revenue per cover is primarily a result of buffet at Atlantis being closed during the entire second quarter of 2021. Food and beverage operating expense as a percentage of food and beverage revenue decreased in the second quarter of 2021 to 79.2% compared to 96.6% for the same quarter in 2020 primarily as a result of our effort to align menu prices with increased commodity prices and labor cost.

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Hotel revenue increased 847.9% in the second quarter of 2021 compared to the same quarter of 2020 as a result of increase in available rooms by 1,000 per day on average, primarily as a result of the opening of the hotel in Monarch Black Hawk, as well as the closure of hotel operation most of the time during the second quarter of 2020. Hotel occupancy was 80.1% during the current year period compared to 61.3% during the second quarter of 2020. The ADR increased by $39.61 ($140.65 in the second quarter of 2021and $101.04 in the second quarter of 2020). REVPAR, was $122.91 and $66.65 for the three months ended June 30, 2021 and 2020, respectively. Hotel operating expense as a percentage of hotel revenue decreased to 38.6% in the second quarter of 2021 compared to 61.8% for the comparable prior year period primarily as a result of the increase in ADR and the ramp-up in hotel operation at Monarch Black Hawk, despite higher housekeeping expenses related to labor shortage and wage pressure and COVID-19 safety protocols, which had a negative effect on the hotel margins.

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Other revenue increased 351.4% in the second quarter of 2021 compared to the same prior year period.

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SG&A expense increased to $20.6 million in the second quarter of 2021 from $8.9 million in the second quarter of 2020 driven primarily by the impact of pandemic-related closures in the prior-year period as well as an increase in payroll expenses to support the expanded Monarch Black Hawk operation. As a percentage of net revenue, SG&A expense decreased to 21.1% in the second quarter of 2021 compared to 58.5% in the same period in 2020.

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Depreciation and amortization expense increased to $9.4 million for the three months ended June 30, 2021 compared to $3.8 million for the same prior year period, due to new assets placed into service with the opening of our hotel tower and expanded casino at Monarch Black Hawk.

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During the second quarter of 2021, we recognized $0.8 million in professional services relating to our construction litigation. During the second quarter of 2020, we recognized $0.5 million Colorado legislation lobbying expenses, $0.3 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations, $0.2 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 services relating to our construction litigation. These expenses are included in Other operating items, net in the Consolidated Statement of Operations.

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During the second quarter of 2021 we expensed $0.9 million of interest and amortized $0.4 million in deferred loan costs. In the second quarter of 2020, we capitalized all $1.4 million of interest, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion ongoing at that time project. See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

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Comparison of Operating Results for the Six-Month Periods Ended June 30, 2021 and 2020

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For the six months ended June 30, 2021, we had a net income of $26.3 million, or $1.36 per diluted share, compared to net loss of $2.3 million, or $0.13 loss per diluted share for the same period in 2020, reflecting a 1230.3% and 1146.2% increase in net income (loss) and diluted earnings (losses) per share, respectively. Net revenues in the six months ended June 30, 2021, totaled $172.7 million, an increase of 161.0%, compared to the six months ended June 30, 2020. Income from operations for the six months ended June 30, 2021 totaled $35.0 million compared to $3.4 million loss from operations for the same period in 2020.

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Casino revenue increased 182.9% in the first six months of 2021 compared to the first six months of 2020 and was driven by an increase in gaming devices with the opening of the expanded casino in Monarch Black Hawk and an increase in guest spend per visit at both properties. Additionally, in 2020, our operations were suspended in mid-March 2020 through beginning/mid-June 2020 due to COVID-19 pandemic. Casino operating expense as a percentage of casino revenue decreased to 30.5% for the six months ended June 30, 2021 compared to 33.2% for the six months ended June 30, 2020 primarily as a result of strong casino performance after the reopening of our properties and targeted cost cutting measures.

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Food and beverage revenue for the first six months of 2021 increased 117.0% compared to the 2020 same period due to a 89.1% increase in food and beverage covers combined with a 14.8% increase in food and beverage revenue per cover. Food and beverage operating expense as a percentage of food and beverage revenue decreased in the first six months of 2021 to 82.5% from 86.8% for the same period in 2020 primarily as a result of our effort to align menu prices with increased commodity prices and labor cost, as well as the decline of food and beverage revenue in 2020 due to the COVID-19 pandemic and the subsequent shutdown of our operations for approximately three months.

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Hotel revenue increased 186.3% in the first six months of 2021 compared to the first six months of 2020 primarily due to increase in available rooms with the opening of the new hotel at Monarch Black Hawk, as well as the pandemic related hotel shutdown for approximately three months in 2020. Hotel occupancy for the first six months of 2021 was 75.9% compared to 71.8% during the period the hotel at Atlantis was open in the first six months of 2020. ADR increased by $7.20, from $120.73 in the first six months of 2020 to $127.93 in the first six months of 2021. REVPAR was $105.92 for the first six months of 2021 and $91.85 for the period the hotel was open in the first six months of 2020. Hotel operating expense as a percentage of hotel revenue decreased to 42.7% in the first six months of 2021 compared to 49.4% for the comparable prior year period primarily as a result of the higher ADR.

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Other revenue increased 97.0% in the first six months of 2021 compared to the same prior year period.

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SG&A expense increased to $40.5 million in the first six months of 2021 from $26.1 million in the first six months of 2020 primarily due to the COVID-19 shutdown and the related cost mitigation measures taken by management in 2020, as well as the increase in payroll expenses in 2021 to support the expanded Monarch Black Hawk operation. As a percentage of net revenue, SG&A expense decreased to 23.5% in the first six months of 2021 compared to 39.4% in the same period in 2020.

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Depreciation and amortization expense increased to $18.9 million for the six months ended June 30, 2021 compared to $7.7 million for the same prior year period, due to new assets placed into service with the opening of our hotel tower and expanded casino at Monarch Black Hawk.

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During the first six months of 2021, we recognized $1.5 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company and $0.1 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations. During the first six months of 2020, we recognized $1.0 million in pre-opening expense related to the opening of the new hotel and expanded casino in Black Hawk, $0.3 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company, $0.9 million in Colorado legislation lobbying expenses and $0.3 in million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations. Those expenses are included in Other operating items, net in the Consolidated Statement of Operations.

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During the first six months of 2021, we expensed $2.7 million of interest and amortized $0.2 million in deferred loan costs. During the first six months of 2020, we capitalized all interest of $3.2 million, 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.

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CAPITAL SPENDING AND DEVELOPMENT

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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 six-month periods ended June 30, 2021 and 2020 totaled $11.9 million and $22.6 million, respectively. During the six-month period ended June 30, 2021 our capital expenditures related primarily to: the conversion of part of the legacy Monarch Black Hawk building into a specialty restaurant, sportsbook lounge and bar, and additional casino space; complete renovation of the high-end suites on the top floors of the hotel tower at Atlantis; and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk. During the six-month period ended June 30, 2020, our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Black Hawk and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk. Capital expenditures during the first six month in 2021 were funded from operating cash flows. Capital expenditures during the first six month in 2020 were funded from borrowings from the Amended Credit Facility.

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Monarch Black Hawk Expansion

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In the fourth quarter of 2013, we began work to convert the Monarch 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 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.

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In November 2016, the new nine-story parking structure, offering approximately 1,350 parking spaces, was completed and became available for use by Monarch 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.

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On February 8, 2017, we broke ground on the hotel tower and casino expansion.

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In the fourth quarter of 2020, we began the phased opening of our new hotel tower and casino expansion, which increased the casino space and added a 23-story hotel tower with 516 guest rooms and suites, banquet and meeting room space, a retail store, a concierge lounge, an upscale spa and pool facility located on the top floor of the tower, three new restaurants, and additional bars and lounges. In the second quarter of 2021, we opened our new poker room. We are currently working on converting the existing buffet and the adjacent casino area of the legacy facility into a new specialty restaurant, sportsbook lounge and bar, and additional casino space. We expect this work to be completed by the end of 2021.

We are confident that the quality of our expanded product and exceptional guest service will meet the demand of the high-end segment of the market and will derive accelerated market share and revenue growth.

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We expect to finance the remaining Monarch Black Hawk Expansion costs through a combination of operating cash flows, available cash and borrowings under the Amended Credit Facility, if necessary. 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 construction litigation, we may be required to fund certain costs of correcting construction defects and deficiencies until, and if, recovered from the general contractor.

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LIQUIDITY AND CAPITAL RESOURCES

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Our principal sources of liquidity have been cash provided by operations, and available cash, and, for capital expansion projects, borrowings available under our Amended Credit Facility.

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For the six months ended June 30, 2021, net cash provided by operating activities totaled $55.2 million, compared to net cash used in operating activities of $10.0 million in the same prior year period. This increase was primarily a result of increases in net income (loss), primarily due to the pandemic-related closures in the prior year, and depreciation expense, as the hotel tower and expanded casino in Monarch Black Hawk were placed in service in the fourth quarter of 2020, combined with a decrease in working capital.

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Net cash used in investing activities totaled $11.9 million and $22.6 million during the six months ended June 30, 2021 and 2020, respectively. Net cash used in investing activities during the first six months of 2021 consisted primarily of cash used for the transformation of part of the Monarch Black Hawk legacy facility, complete renovation of the high-end suites on the top floors of the hotel tower at Atlantis and for acquisition of gaming and other equipment at both properties. Net cash used in investing activities during the first six months of 2020 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Black Hawk and for acquisition of gaming and other equipment at both properties.

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Net cash used for financing activities in the first six months of 2021 totaled $43.3 million and consisted of $47.5 million principal payments to the credit facility offset by $4.2 million proceeds from the stock options exercise. Net cash provided by financing activities in the first six months of 2020 totaled $10.4 million and consisted of $11.0 million borrowings under the credit facility offset by $0.6 million payroll taxes payment related to net exercise of stock options.

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Amended Credit Facility

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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 “Prior Credit Facility”). On April 30, 2021, the Company entered into an amendment to the Fourth Amended Credit Facility (defined above and hereafter, inclusive of all amendments, as the “Amended Credit Facility”).

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The maturity date of The Amended Credit Facility is September 3, 2023. The Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million. The $270.0 million Amended Credit Facility consists of: $200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”), together with an option to increase the facility by up to an additional $75.0 million Revolving Credit Facility.

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As of June 30, 2021, we had an outstanding principal balance of $135.0 million under the Term Loan Facility, from which $17.5 million is expected to have a maturity date in next twelve months and we had no borrowings under the Revolving Credit Facility, therefore all $70.0 million remained available for borrowing.

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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. The estimated amount of the mandatory principal payments due in the next twelve months is $17.5 million.

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Commencing with the delivery of the compliance certificate for fiscal year 2021, we may be required to prepay borrowings under the Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

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Borrowings are secured by liens on substantially all of our real and personal property.

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In addition to other customary covenants for a facility of this nature, as of June 30, 2021, the Company is required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 4.0:1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.15:1. As of June 30, 2021, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 1.5:1 and 5.2:1.

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As of June 30, 2021, the interest rate under the April 30^, 2021 amendment to the Amended Credit Facility is LIBOR plus a margin ranging from 1.00% to 2.00%, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00% to 1.00%, or the Prime Rate. The applicable margins vary depending on the Company’s leverage ratio. Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.175% to 0.325%, based on our leverage ratio.

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On the terms and subject to some conditions, we 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.

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We may prepay borrowings under the 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. During the first six months of 2021, we made a $42.5 million optional prepayment on its Term Loan Facility in addition to a $5.0 million mandatory payment.

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As of June 30, 2021, $114.9 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $135.0 million outstanding loan amount under the Amended Credit Facility, net of $2.6 million unamortized debt issuance costs and $17.5 million mandatory principal payment that are due in next twelve months and are presented as “Current portion of long-term debt” in the Current liabilities section of the Company’s consolidated balance sheets.

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We believe that our anticipated operating cash flow and the $70.0 million available under our Amended Credit Facility as of June 30, 2021 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended June 30, 2021 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.

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For a discussion regarding our material commitments for capital expenditures, see the CAPITAL SPENDING AND DEVELOPMENT section above.

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CRITICAL ACCOUNTING POLICIES

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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 2020 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 2020 Form 10-K filed with the SEC on March 12, 2021.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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.

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As of June 30, 2021, we had $135.0 million of outstanding balance under our Amended Credit Facility. A hypothetical 1% increase in the interest rate on the balance outstanding under the Amended Credit Facility at June 30, 2021 would result in a change in our annual interest cost of approximately $1.4 million. See “Liquidity and Capital Resources” for further discussion of our Amended Credit Facility and capital structure.

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

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We do not have any cash or cash equivalents as of June 30, 2021 that are subject to market risk.

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ITEM 4. CONTROLS AND PROCEDURES

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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 June 30, 2021, 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.

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PART II — OTHER INFORMATION

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ITEM 1. LEGAL PROCEEDINGS

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The information set forth in Note 9 "Legal Matters” to our consolidated financial statements in Part I, Item 1 of this Form 10-Q is incorporated by reference herein.

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ITEM 1A. RISK FACTORS

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There have been no material changes to the risk factors we previously disclosed in Item 1A of our 2020 Form 10-K.

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We encourage investors to review the risks and uncertainties relating to our business disclosed under the heading Risk Factors or otherwise in the 2020 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 2020 Form 10-K.

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ITEM 5: OTHER INFORMATION

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ITEM 6. EXHIBITS

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* Filed herewith.

** Furnished herewith

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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.

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