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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended: December 31, 2006



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 1-9481



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ARCHON CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Nevada                                                         |  | 88-0304348                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

4336 Losee Road, Suite 5, North Las Vegas, Nevada 89030

(Address of principal executive office and zip code)

(702) 732-9120

(Registrants telephone number, including area code)



(Former name, former address and former fiscal year, if changed since last
report)



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Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No ̈

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes ̈No ̈

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date.

6,235,931as ofFebruary 13, 2007



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##### Table of Contents

ARCHON
CORPORATION

INDEX



|                             |  |        |  |                                                                                       |  |                                                                                                       |  |  
|---------------------------- |  | ------ |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | -
|                             |  |        |  | Page                                                                                 
|PART I FINANCIAL INFORMATION
|                             |  |        | 
|                             |  | Item 1 |  | Unaudited Condensed Consolidated Financial Statements:                                |  |                                                                                                      
|                             |  |        |  |                                                                                      
|                             |  |        |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of December 31, 2006 and September 30, 2006                  |  | 1
|                             |  |        |  |                                                                                      
|                             |  |        |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2006 and 2005 |  | 3
|                             |  |        |  |                                                                                      
|                             |  |        |  |                                                                                       |  | Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended December 31, 2006 |  | 4
|                             |  |        |  |                                                                                      
|                             |  |        |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2006 and 2005 |  | 5
|                             |  |        |  |                                                                                      
|                             |  |        |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                  |  | 6
|                             |  |        | 
|                             |  | Item 2 |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15                                                                                                   
|                             |  |        | 
|                             |  | Item 3 |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22                                                                                                   
|                             |  |        | 
|                             |  | Item 4 |  | Controls and Procedures                                                               |  | 22                                                                                                   
|                            
|PART II OTHER INFORMATION   
|                             |  |        | 
|                             |  | Item 1 |  | Legal Proceedings                                                                     |  | 24                                                                                                   
|                             |  |        | 
|                             |  | Item 2 |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities      |  | 24                                                                                                   
|                             |  |        | 
|                             |  | Item 3 |  | Defaults Upon Senior Securities                                                       |  | 24                                                                                                   
|                             |  |        | 
|                             |  | Item 4 |  | Submission of Matters to a Vote of Security Holders                                   |  | 24                                                                                                   
|                             |  |        | 
|                             |  | Item 5 |  | Other Information                                                                     |  | 24                                                                                                   
|                             |  |        | 
|                             |  | Item 6 |  | Exhibits                                                                              |  | 25                                                                                                   



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|Item 1. | Unaudited Condensed Consolidated Financial Statements
|------- | -----------------------------------------------------

Archon Corporation and Subsidiaries

Condensed Consolidated Balance Sheets



|                                    |  |                  |             |                   |   |            
|----------------------------------- |  | ---------------- | ----------- | ----------------- | - | -----------
|                                    |  | December 31,2006 |             | September 30,2006
|ASSETS                              |  |                  |             |                   |   |            
|Current assets:                     |  |                  |             |                   |   |            
|Cash and cash equivalents           |  | $                | 8,706,525   |                   | $ | 6,187,533  
|Investment in marketable securities |  |                  | 7,826,039   |                   |   | 6,011,225  
|Accounts receivable, net            |  |                  | 130,256     |                   |   | 1,096,333  
|Inventories                         |  |                  | 423,478     |                   |   | 414,033    
|Prepaid expenses and other          |  |                  | 1,088,736   |                   |   | 1,045,654  
|                                    |  |                  |             |                   |   |            
|Total current assets                |  |                  | 18,175,034  |                   |   | 14,754,778 
|                                    |  |                 
|Land held for sale                  |  |                  | 21,504,400  |                   |   | 21,504,400 
|                                    |  |                 
|Property held for investment, net   |  |                  | 126,571,653 |                   |   | 127,364,625
|                                    |  |                 
|Property and equipment, net         |  |                  | 26,038,401  |                   |   | 26,778,164 
|                                    |  |                 
|Other assets                        |  |                  | 7,696,154   |                   |   | 7,648,201  
|                                    |  |                  |             |                   |   |            
|Total assets                        |  | $                | 199,985,642 |                   | $ | 198,050,168
|                                    |  |                  |             |                   |   |            

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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##### Table of Contents

Archon Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (continued)



|                                           |  |                  |             |                   |   |            
|------------------------------------------ |  | ---------------- | ----------- | ----------------- | - | -----------
|                                           |  | December 31,2006 |             | September 30,2006
|LIABILITIES and STOCKHOLDERS EQUITY       |  |                  |             |                   |   |            
|Current liabilities:                       |  |                  |             |                   |   |            
|Accounts payable                           |  | $                | 3,255,642   |                   | $ | 2,770,938  
|Interest payable                           |  |                  | 377,050     |                   |   | 1,310,796  
|Accrued and other liabilities              |  |                  | 3,737,956   |                   |   | 3,524,408  
|Nonrefundable option payment               |  |                  | 6,922,500   |                   |   | 5,750,000  
|Current portion of debt                    |  |                  | 11,343,770  |                   |   | 11,427,277 
|Current portion of non-recourse debt       |  |                  | 2,268,827   |                   |   | 2,195,326  
|                                           |  |                  |             |                   |   |            
|Total current liabilities                  |  |                  | 27,905,745  |                   |   | 26,978,745 
|                                           |  |                 
|Debt  less current portion                |  |                  | 114,252     |                   |   | 223,306    
|                                           |  |                 
|Non-recourse debt  less current portion   |  |                  | 76,222,582  |                   |   | 76,818,600 
|                                           |  |                 
|Deferred income taxes                      |  |                  | 28,096,490  |                   |   | 27,245,317 
|                                           |  |                 
|Other liabilities                          |  |                  | 44,309,205  |                   |   | 45,051,567 
|                                           |  |                 
|Stockholders equity                       |  |                  | 23,337,368  |                   |   | 21,732,633 
|                                           |  |                  |             |                   |   |            
|Total liabilities and stockholders equity |  | $                | 199,985,642 |                   | $ | 198,050,168
|                                           |  |                  |             |                   |   |            

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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##### Table of Contents

Archon Corporation and Subsidiaries

Condensed Consolidated Statements of Operations



|                                                                         |  |                                |            |   |      |   |            |  
|------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                         |  | Three Months EndedDecember 31, |           
|                                                                         |  | 2006                           |            |   | 2005 |  
|Revenues:                                                                |  |                                |            |   |      |   |            |  
|Casino                                                                   |  | $                              | 6,015,396  |   |      | $ | 5,697,190  |  
|Hotel                                                                    |  |                                | 634,629    |   |      |   | 558,382    |  
|Food and beverage                                                        |  |                                | 1,807,796  |   |      |   | 1,670,253  |  
|Investment properties                                                    |  |                                | 3,100,562  |   |      |   | 3,100,562  |  
|Other                                                                    |  |                                | 1,086,144  |   |      |   | 828,309    |  
|                                                                         |  |                                |            |   |      |   |            |  
|Gross revenues                                                           |  |                                | 12,644,527 |   |      |   | 11,854,696 |  
|Less casino promotional allowances                                       |  |                                | (1,562,242 | ) |      |   | (1,415,203 | )
|                                                                         |  |                                |            |   |      |   |            |  
|Net operating revenues                                                   |  |                                | 11,082,285 |   |      |   | 10,439,493 |  
|                                                                         |  |                                |            |   |      |   |            |  
|Operating expenses:                                                      |  |                                |            |   |      |   |            |  
|Casino                                                                   |  |                                | 3,559,824  |   |      |   | 3,323,463  |  
|Hotel                                                                    |  |                                | 276,641    |   |      |   | 243,950    |  
|Food and beverage                                                        |  |                                | 946,640    |   |      |   | 932,671    |  
|Other                                                                    |  |                                | 477,313    |   |      |   | 394,925    |  
|Selling, general and administrative                                      |  |                                | 965,896    |   |      |   | 883,615    |  
|Corporate expenses                                                       |  |                                | 912,832    |   |      |   | 856,895    |  
|Utilities and property expenses                                          |  |                                | 1,175,455  |   |      |   | 1,128,776  |  
|Depreciation and amortization                                            |  |                                | 1,368,766  |   |      |   | 1,390,205  |  
|Gain on disposal of assets                                               |  |                                | (22,817    | ) |      |   | 0          |  
|                                                                         |  |                                |            |   |      |   |            |  
|Total operating expenses                                                 |  |                                | 9,660,550  |   |      |   | 9,154,500  |  
|                                                                         |  |                                |            |   |      |   |            |  
|Operating income                                                         |  |                                | 1,421,735  |   |      |   | 1,284,993  |  
|Interest expense                                                         |  |                                | (2,143,898 | ) |      |   | (2,229,611 | )
|Interest and other income                                                |  |                                | 102,662    |   |      |   | 129,559    |  
|                                                                         |  |                                |            |   |      |   |            |  
|Loss before income tax expense benefit and discontinued operations       |  |                                | (619,501   | ) |      |   | (815,059   | )
|Federal income tax benefit                                               |  |                                | 225,219    |   |      |   | 285,271    |  
|                                                                         |  |                                |            |   |      |   |            |  
|Loss before discontinued operations                                      |  |                                | (394,282   | ) |      |   | (529,788   | )
|Discontinued operations  gain on sale, net of tax provision of $510,596 |  |                                | 948,250    |   |      |   | 0          |  
|                                                                         |  |                                |            |   |      |   |            |  
|Net income (loss)                                                        |  |                                | 553,968    |   |      |   | (529,788   | )
|Dividends accrued on preferred shares                                    |  |                                | (377,819   | ) |      |   | (377,819   | )
|                                                                         |  |                                |            |   |      |   |            |  
|Net income (loss) applicable to common shares                            |  | $                              | 176,149    |   |      | $ | (907,607   | )
|                                                                         |  |                                |            |   |      |   |            |  
|Average common shares outstanding                                        |  |                                | 6,672,281  |   |      |   | 6,235,931  |  
|                                                                         |  |                                |            |   |      |   |            |  
|Average common and common equivalent shares outstanding                  |  |                                | 7,051,912  |   |      |   | 6,235,931  |  
|                                                                         |  |                                |            |   |      |   |            |  
|Loss from continuing operations per common share:                        |  |                                |            |   |      |   |            |  
|Basic                                                                    |  | $                              | (0.12      | ) |      | $ | (0.15      | )
|                                                                         |  |                                |            |   |      |   |            |  
|Diluted                                                                  |  | $                              | (0.12      | ) |      | $ | (0.15      | )
|                                                                         |  |                                |            |   |      |   |            |  
|Income (loss) per common share:                                          |  |                                |            |   |      |   |            |  
|Basic                                                                    |  | $                              | 0.03       |   |      | $ | (0.15      | )
|                                                                         |  |                                |            |   |      |   |            |  
|Diluted                                                                  |  | $                              | 0.02       |   |      | $ | (0.15      | )
|                                                                         |  |                                |            |   |      |   |            |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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Archon Corporation and Subsidiaries

Consolidated Condensed Statements of Stockholders Equity

For the Three Months Ended December 31,
2006



|                                         |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |           
|---------------------------------------- |  | ----------- | ------ | -------------- | - | ------------------------ |  | ------------------ | ---------- |  | ----------------------------------- | ----------- | ------------- |  | - | --------- |  | - | ------- | - |  | - | ----------
|                                         |  | CommonStock |        | PreferredStock |   | AdditionalPaid-InCapital |  | AccumulatedDeficit |            |  | AccumulatedOtherComprehensiveIncome |             | TreasuryStock |  |   | Total    
|Balances,                                |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |           
|October 1, 2006                          |  | $           | 66,723 |                | $ | 9,445,483                |  | $                  | 61,482,194 |  | $                                   | (51,098,102 | )             |  | $ | 1,924,109 |  | $ | (87,774 | ) |  | $ | 21,732,633
|                                         |  |             |        |                |   |                          | 
|Net income                               |  |             |        |                |   |                          |  |                    |            |  |                                     | 553,968     |               |  |   |           |  |   |         |   |  |   | 553,968   
|                                         |  |             |        |                |   |                          | 
|Unrealized gain on marketable securities |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   | 1,050,767 |  |   |         |   |  |   | 1,050,767 
|                                         |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |           
|Balances,                                |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |           
|December 31, 2006                        |  | $           | 66,723 |                | $ | 9,445,483                |  | $                  | 61,482,194 |  | $                                   | (50,544,134 | )             |  | $ | 2,974,876 |  | $ | (87,774 | ) |  | $ | 23,337,368
|                                         |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |           

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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Archon Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows



|                                                 |  |                                |           |   |      |   |            |  
|------------------------------------------------ |  | ------------------------------ | --------- | - | ---- | - | ---------- | -
|                                                 |  | Three Months EndedDecember 31, |          
|                                                 |  | 2006                           |           |   | 2005 |  
|Cash flows from operating activities:            |  |                                |           |   |      |   |            |  
|Cash and cash equivalents provided by operations |  | $                              | 526,032   |   |      | $ | 955,175    |  
|Changes in assets and liabilities:               |  |                                |           |   |      |   |            |  
|Accounts receivable, net                         |  |                                | 966,077   |   |      |   | 903,192    |  
|Inventories                                      |  |                                | (9,445    | ) |      |   | 12,134     |  
|Prepaid expenses and other                       |  |                                | (43,081   | ) |      |   | (165,438   | )
|Deferred income taxes                            |  |                                | 285,377   |   |      |   | (285,271   | )
|Other assets                                     |  |                                | (132,914  | ) |      |   | 14,971     |  
|Accounts payable                                 |  |                                | 484,704   |   |      |   | 862,828    |  
|Interest payable                                 |  |                                | (933,746  | ) |      |   | (904,357   | )
|Accrued and other liabilities                    |  |                                | 213,548   |   |      |   | (337,640   | )
|Nonrefundable option payment                     |  |                                | 1,172,500 |   |      |   | 0          |  
|Other liabilities                                |  |                                | (742,362  | ) |      |   | (186,316   | )
|                                                 |  |                                |           |   |      |   |            |  
|Net cash provided by operating activities        |  |                                | 1,786,690 |   |      |   | 869,278    |  
|                                                 |  |                                |           |   |      |   |            |  
|Cash flows from investing activities:            |  |                                |           |   |      |   |            |  
|Proceeds from sale of property                   |  |                                | 1,832,500 |   |      |   | 0          |  
|Capital expenditures                             |  |                                | (186,869  | ) |      |   | (31,170    | )
|Marketable securities purchased                  |  |                                | (198,251  | ) |      |   | 0          |  
|Marketable securities sold                       |  |                                | 0         |   |      |   | 890,000    |  
|                                                 |  |                                |           |   |      |   |            |  
|Net cash provided by investing activities        |  |                                | 1,447,380 |   |      |   | 858,830    |  
|                                                 |  |                                |           |   |      |   |            |  
|Cash flows from financing activities:            |  |                                |           |   |      |   |            |  
|Paid on debt and obligation under lease          |  |                                | (715,078  | ) |      |   | (1,367,781 | )
|                                                 |  |                                |           |   |      |   |            |  
|Net cash used in financing activities            |  |                                | (715,078  | ) |      |   | (1,367,781 | )
|                                                 |  |                                |           |   |      |   |            |  
|Increase in cash and cash equivalents            |  |                                | 2,518,992 |   |      |   | 360,327    |  
|Cash and cash equivalents, beginning of period   |  |                                | 6,187,533 |   |      |   | 2,116,708  |  
|                                                 |  |                                |           |   |      |   |            |  
|Cash and cash equivalents, end of period         |  | $                              | 8,706,525 |   |      | $ | 2,477,035  |  
|                                                 |  |                                |           |   |      |   |            |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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##### Table of Contents

ARCHON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information

Archon Corporation (the Company or Archon) is a Nevada corporation. The Companys primary business
operations are conducted through a wholly-owned subsidiary corporation, Pioneer Hotel Inc. (PHI), which operates the Pioneer Hotel & Gambling Hall (the Pioneer) in Laughlin, Nevada. In addition, the Company owns real
estate on Las Vegas Boulevard South (the Strip) in Las Vegas, Nevada, and also owns investment properties in Dorchester, Massachusetts and Gaithersburg, Maryland. In June 2006, the Company announced that it had entered into an option
agreement for the sale of the real estate it owns on the Strip for a total sale price of $450 million, subject to the terms of the agreement. See Notes 4 and 8

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair
presentation of results for the interim periods have been made. The results for the three month period is not necessarily indicative of results to be expected for the full fiscal year. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended September 30, 2006.

Summary of Significant Accounting Policies

Principles of Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of Archon and its wholly-owned subsidiaries. Amounts representing the
Companys investment in less than majority-owned companies in which a significant equity ownership interest is held are accounted for by the equity method. All material intercompany accounts and transactions have been eliminated in
consolidation.

Earnings Per Share. The Company presents its per share results in accordance with Statement of
Accounting Standards (SFAS) No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires the presentation of basic net loss per share and diluted net loss per share. Basic per share amounts are computed
by dividing net loss by average shares outstanding during the period, while diluted per share amounts reflect the impact of additional dilution for all potentially dilutive securities, such as stock options. Dilutive stock options of approximately
400,000 were included in diluted calculations during the quarter ended December 31, 2006. Dilutive stock options of approximately 800,000 were not included in diluted calculations during the quarter ended December 31, 2005, as the Company
incurred a net loss during that period and the effect would be antidilutive.

Accounting for Stock-Based Compensation.
On October 1, 2005, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment, (FAS 123R). Prior to October 1,
2005, it accounted for share-based payments under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees(APB 25), and related Interpretations, as permitted by FASB
Statement No. 123, Accounting for Stock-Based Compensation (FAS 123). In accordance with APB 25 no compensation cost was required to be recognized for options granted that had an exercise price equal to the market value of
the underlying common stock on the date of grant.



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The Company adopted FAS 123R using the modified-prospective-transition method. Under that transition
method, compensation cost recognized in future interim and annual reporting periods includes: (1) compensation cost for all share-based payments granted prior to, but not yet vested as of October 1, 2005, based on the grant-date fair value
estimated in accordance with the original provisions of FAS 123, and (2) compensation cost for all share-based payments granted subsequent to October 1, 2005, based on the grant-date fair value estimated in accordance with the provisions
of FAS 123R. The results for the prior periods have not been restated.

There was no impact on net income for the first quarter of 2007 as
no share-based payments were unvested as of October 1, 2005 and no share-based payments have been granted subsequent to October 1, 2005. The Company has not recognized, and does not expect to recognize in the near future, any tax benefit
related to the exercise of vested options as a result of net operating loss carryforwards.

As of December 31, 2006, the Company has
the following share-based compensation plans:

Key Employee Stock Option Plan: The Companys Key Employee Stock Option Plan (the
Stock Option Plan) provided for the grant of up to 1.2 million shares of its common stock to key employees. The Stock Option Plan provided for both incentive stock options and non-qualified stock options. Stock option grants had
generally vested over a three-year period from the employees hire date. The Stock Option Plan ceased granting options as of September 30, 2003, when the plan had expired. In July 2005, the Stock Option Plan was reinstated for an
additional 10-year period. During the quarter ended December 31, 2006, there were no stock options granted under the Stock Option Plan. As of December 31, 2006, there were approximately 804,860 options outstanding and exercisable under the
Stock Option Plan. During the quarter ended December 31, 2006, no options were exercised.

1995 Non-Employee Director Stock Option
Plan: In December 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (the Non-Employee Director Plan) that provided for the grant of up to 100,000 shares of its common stock to the directors. Under the
Non-Employee Director Plan, directors were automatically granted an option to purchase 12,500 shares of the common stock at an exercise price equal to the market value of such shares on the date of such election to the board. Stock option grants
vested immediately. The Non-Employee Director Plan ceased granting options on March 21, 2002. As of December 31, 2006, there were 25,000 options outstanding and exercisable under this plan. During the quarter ended December 31, 2006,
no options were exercised.

Subsidiary Stock Option Plans: SFHI, Sahara Las Vegas Corp (SLVC) and PHI (collectively, the
Subsidiaries), have adopted subsidiary stock option plans (the Subsidiary Plans). The Subsidiary Plans provide for the grant of options by each of the Subsidiaries with respect to an aggregate of up to 10% of the outstanding
shares of such Subsidiarys Common Stock to employees, non-employee directors, consultants or affiliates of the Company or the Subsidiaries. The purpose of the Subsidiary Plans is to enable the Subsidiaries and the Company to attract, retain
and motivate their employees, non-employee directors, consultants and affiliates by providing for or increasing the proprietary interest of such persons in the Subsidiaries. As of December 31, 2006, no options had been granted under any of the
Subsidiary Plans.



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The following table summarizes stock option activity during the first quarter of fiscal 2007 under all
plans:



|                                           |  |                       |  |                                            |      |                                          |         |                                    |   |       
|------------------------------------------ |  | --------------------- |  | ------------------------------------------ | ---- | ---------------------------------------- | ------- | ---------------------------------- | - | ------
|                                           |  | NumberofShares(000s) |  | Weighted- Average Exercise Price Per Share |      | Weighted-AverageRemainingContractualTerm |         | Aggregate Intrinsic Value ($000s)
|Options outstanding at September 30, 2006: |  | 830                   |  | $                                          | 8.12 |                                          | 3.6 yrs |                                    | $ | 20,560
|Granted                                    |  | 0                     |  |                                            | N/A  |                                          | N/A     |                                    |   | N/A   
|Exercised                                  |  | 0                     |  |                                            | N/A  |                                          | N/A     |                                    |   | N/A   
|Canceled                                   |  | 0                     |  |                                            | N/A  |                                          | N/A     |                                    |   | N/A   
|                                           |  |                       |  |                                           
|Options outstanding at December 31, 2006   |  | 830                   |  | $                                          | 8.12 |                                          | 3.6 yrs |                                    | $ | 24,792
|                                           |  |                       |  |                                           
|Exercisable at December 31, 2006           |  | 830                   |  | $                                          | 8.12 |                                          | 3.6 yrs |                                    | $ | 24,792

As of December 31, 2006, there was no unrecognized compensation cost related to unvested
stock options. There were no options exercised in the first quarter of fiscal 2007.The fair value of options vested in the first quarter of fiscal 2007 is not applicable as no options vested for the first time during this quarter. There were
no unvested shares at December 31, 2006.

The fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on both the implied volatility and historical volatility on the stock.

For options granted prior to October 1, 2005, and valued in accordance with FAS 123, the expected volatility used to estimate the fair value of the
options was based solely on the historical volatility of the stock; the Company used the graded vested method for expense attribution.

For
options granted after October 1, 2005, and valued in accordance with FAS 123R, the Company will use the straight-line method for expense attribution, and it will estimate forfeitures and only recognize expense for those shares expected to vest.

The Black-Scholes-Merton option valuation model requires the input of highly subjective assumptions, including the expected life of
the stock-based award and stock price volatility. The Company did not calculate the fair value of stock options granted during the three months ended December 31, 2006 and 2005 as no stock options were granted during these periods.

Estimates and Assumptions. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by the Company include those related to customer incentives, bad debts, inventories, investments, estimated useful lives
for depreciable and amortizable assets, valuation reserves and estimated cash flows in assessing the recoverability of long-lived assets, estimated liabilities for slot club bonus point programs, income taxes, contingencies and litigation. Actual
results may differ from estimates.



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Recently Issued Accounting Standards.

EITF 04-5. In June 2005, the EITF reached a consensus on recently issued EITF No. 04- 5, Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, which addresses when a general partner, or general partners as a group, control and should therefore, consolidate a limited
partnership. Under EITF No. 04-5, a sole general partner is presumed to control a limited partnership when certain conditions are met. The Company has determined that it will not be required to consolidate the accounts of Santa Fe Mining Corp
(SFMC).

2. Comprehensive Income (Loss)

Comprehensive income (loss) is the total of net income (loss) and all other non-stockholder changes in stockholders equity. Comprehensive income (loss) for the three months ended December 31, 2006 and 2005
is as follows (in thousands):



|                                                              |  |                                |       |      |   |      |  
|------------------------------------------------------------- |  | ------------------------------ | ----- | ---- | - | ---- | -
|                                                              |  | Three Months EndedDecember 31, |      
|                                                              |  | 2006                           |       | 2005 |  
|Net income (loss)                                             |  | $                              | 554   |      | $ | (530 | )
|Unrealized gain on marketable securities, net of income taxes |  |                                | 1,051 |      |   | 99   |  
|                                                              |  |                                |       |      |   |      |  
|Comprehensive income (loss)                                   |  | $                              | 1,605 |      | $ | (431 | )
|                                                              |  |                                |       |      |   |      |  

3. Other Assets

Included in Other assets at December 31, 2006 and September 30, 2006 are unamortized loan issue costs, which were incurred during the acquisition of certain rental property and certain debt, and deferred
rents of approximately $4.5 million and $4.6 million, respectively. The unamortized loan issue costs are being amortized on the straight-line basis over the loan period, which closely approximates the effective interest method, and the deferred
rents are being amortized on the straight-line basis over the lease period.

Additionally, Other assets at December 31, 2006 and
September 30, 2006 include $100,000 of commercial and residential mortgage loans, representing loans originally funded by J & J Mortgage to unaffiliated third parties as well as loans made directly to J & J Mortgage under a master loan
agreement. The loans purchased by the Company were purchased for the principal amount, plus accrued interest, if any. The advances to J & J Mortgage under the master loan agreement bear interest at the prime rate plus 2%. J & J Mortgage is
owned by LICO, which in turn is wholly-owned by Paul W. Lowden, the President, Chief Executive Officer and majority stockholder of the Company. John W. Delaney, a director of the Company, is the president of J & J Mortgage.

Other assets also include amounts for the cash surrender value of life insurance of approximately $800,000 on December 31, 2006 and
September 30, 2006 and investments in unconsolidated entities of approximately $1.9 million and $1.8 million on December 31, 2006 and September 30, 2006, respectively. One of the unconsolidated entities is a 50% owned LLC which has
the following financial profile at and for the three months ended December 31, 2006: current and total assets of approximately $200,000 and $1.0 million, respectively; current and total liabilities of approximately $100,000 and $200,000,
respectively; total equity of approximately $800,000; revenues of approximately $500,000 and pretax income of approximately $100,000. As of and for the three months ended December 31, 2005: current and total assets of approximately $300,000 and
$1.2 million, respectively; current and total liabilities of approximately $100,000 and $400,000, respectively; total equity of approximately $800,000; revenues of approximately $500,000 and pretax income of approximately $100,000.



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4. Nonrefundable Option Payment

Included in Nonrefundable option payment at September 30, 2006, were a nonrefundable payment of $5.0 million and a nonrefundable extension fee of $750,000 received from a third party which has an option to
acquire the Companys Strip property. At December 31, 2006, the Company received an additional nonrefundable extension fee of approximately $1.2 million in December 2006 which is included in Nonrefundable option payment. See Note 8

5. Related Parties

The Company has
entered into a Patent Rights and Royalty Agreement with David Lowden, brother of Paul W. Lowden, with respect to certain gaming technology for which David Lowden has been issued a patent. The Company has agreed to pay certain royalty payments with
respect to the technology incorporated into gaming devices placed in operation, as well as costs related to maintain the patent. David Lowden has granted the Company an exclusive five-year license expiring in January 2007 in the United States with
respect to the technology, which will be automatically renewed for additional two-year terms unless Archon terminates the agreement within thirty days prior to the renewal or the agreement is otherwise earlier terminated in accordance with its
terms. The Company also has an understanding with David Lowden that it will pay for the costs of commercial development of the technology. Through December 31, 2006, the Company had expensed approximately $400,000 for commercial development of
the technology. No costs have been expensed in the three months ended December 31, 2006.

See Note 3 for information regarding
transactions between the Company and J & J Mortgage.

6. Debt

The Company has a loan payable to a bank which, under the original terms, had a balloon payment of $10.0 million due on December 15, 2006. In January 2007, the lender modified the loan to extend the maturity date
to January 15, 2008, at which time a balloon payment of $9.5 million is due. Monthly principal and interest payments on the loan were reduced from $120,000 to $98,000. All other loan terms remained the same. The Company paid $76,000 in fees to
modify the loan.

Under this loan, the Company has a financial covenant that requires the Company to maintain a minimum ratio of earnings
before interest, taxes, depreciation and amortization, net of investment properties, compared to current portions of long-term debt, excluding investment properties. At December 31, 2006, the Company was not in compliance with this covenant
and, as such, was technically in default under the debt agreement. Management believes it is not the intention of the lender to declare a default relative to this covenant. Management believes the Company has sufficient assets to meet any unforeseen
demands on current operations or significant debt obligations.

7. Federal Income Tax

The Company recorded federal income tax expense of approximately $300,000 and federal income tax benefit of approximately $300,000, based on statutory
rates, for the quarters ended December 31, 2006 and 2005, respectively.

The Company has recorded deferred tax assets related to net
operating assets, as the Company is able to offset its assets with its deferred tax liabilities. Realization of the net deferred tax assets is dependent on the Companys ability to generate profits from operations or from the sale of long-lived
assets, which would reverse the temporary differences that established the deferred tax liabilities. There can be no assurance that the Company will generate profits from operations or sell those assets or will generate profits from sales if they
were to occur in the



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future. In the event the Company does generate profits from sales of long-lived assets in the future, the valuation allowance would need to be recorded and
would impact the Companys future results of operations.

8. Sale of Option for Strip Land

On June 24, 2006, SLVC, a Nevada corporation and subsidiary of Archon Corporation entered into an Option
Agreement (the Agreement) between SLVC and LVTI LLC, a Delaware limited liability company (LVTI). Pursuant to the Agreement, SLVC granted to LVTI an option (the Option) to purchase an approximately 27 acre parcel
of real property located on Las Vegas Boulevard South (the Property) or, alternatively, SLVCs membership interest in a limited liability company (LVT LLC) that may be formed and into which the Property would be
contributed. The purchase price to be paid by LVTI for purchase of the Property or the membership interest in LVT LLC is $450 million. LVTI paid an initial deposit of $5.0 million on June 27, 2006. The Agreement also provided for a second
deposit of $40.0 million due on or before September 22, 2006, and additional monthly payments of approximately $2.2 million in each month commencing on the 13th calendar month following the date the second deposit is paid until the closing of
the exercise of the Option. The 30-day due diligence period ended and LVTI did not terminate the Agreement. Upon exercise of the Option, the initial deposit and the second deposit will be credited against the total purchase price. The Agreement
provides for certain adjustments to the purchase price if certain easements are entered into with respect to the Property prior to the closing. The Option may be exercised by LVTI at any time between the last day of the 12thcalendar month and the last day of the 18thcalendar month following the date on which the second deposit is paid; provided that the option term may be extended by up to 30 days if SLVC does not give written notice to LVTI of
the option term expiration as required by the Agreement. The first and second deposits and any additional monthly payments paid to SLVC prior to termination of the Agreement will be retained by SLVC upon a termination of the Agreement without
exercise of the option, except under certain circumstances specified in the Agreement.

Pursuant to the First Amendment of the Agreement,
LVTI elected to pay to the Company $750,000 to extend the date on which the second deposit of $40.0 million was due from September 22, 2006 to December 31, 2006. Pursuant to the Second Amendment, LVTI elected to pay to the Company
$1,172,500 to extend the date on which the second deposit of $40.0 million was due from December 31, 2006 to March 31, 2007 (the Second Extension Payment). The Second Extension Payment, is non-refundable and will not be applied
against the purchase price under the Agreement. See Note 4

The obligations of SLVC and LVTI to consummate the transactions contemplated by
the Agreement are subject to the satisfaction or waiver of customary closing conditions.

The Company has guaranteed the obligations of
SLVC under the Agreement.

The holders of more than 75% of the Companys outstanding shares of common stock, including Paul W. Lowden,
President and Chief Executive Officer of the Company and holder of more than 74% of the outstanding common stock, have approved the Agreement and the transactions contemplated thereby. No other stockholder approval is required in connection with the
transaction.

9. Preferred Stock

The
Companys preferred stock provides that dividends accrue on a semi-annual basis, to the extent not declared. Prior to fiscal 1997, the Company satisfied the semiannual dividend payments on its preferred stock through the issuance of
paid-in-kind dividends. The Company has not declared the semiannual preferred stock dividends since October 1, 1996. As originally drafted, the Certificate of Designation of the Exchangeable Redeemable Preferred Stock (Certificate
of Designation) provides in part that:



|                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The holders of record of shares of Exchangeable Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available
therefore,



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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|cumulative cash dividends at a rate per annum per share (the Dividend Rate) initially set at 8% of (i) $2.14 plus (ii) accrued but unpaid dividends as to which a
Dividend Payment Date has occurred. Dividends shall accrue from the date of issuance and be payable semi-annually in arrears on the 31stday of March and the 30thday of September in each year (or if such day is a non-business
day, on the next business day), commencing on March 31, 1994 (each of such dates a Dividend Payment Date); provided, however, that on any or all of the first six Dividend Payment Dates, the Company may, at its option, pay dividends
on the Exchangeable Preferred Stock in the form of additional shares of Exchangeable Preferred Stock at the rate per annum of 0.08 shares of additional Exchangeable Preferred Stock for every share of Exchangeable Preferred Stock entitled to receive
a dividend. If all Exchangeable Preferred Stock has not been redeemed prior to the tenth Dividend Payment Date, the Dividend Rate will increase on the tenth Dividend Payment Date to the rate per annum per share of 11% and will thereafter increase by
an additional 0.50% per annum per share on each Dividend Payment Date until either the Dividend Rate reaches a rate per annum per share of 16% or the Exchangeable Preferred Stock is redeemed or exchanged by the Company. In no circumstances will
the Dividend Rate exceed 16% per annum per share.

In October 2003, the dividend rate increased to 16.0%. As of December 31,2006, the aggregate
liquidation preference of the preferred stock was approximately $21.7 million, or $4.93 per share.

Pursuant to the Certificate of
Designation, dividends are payable only when, as and if declared by the Board of Directors and the liquidation preference is payable only upon a liquidation, dissolution or winding up of the Company. Because dividends in an amount equal to dividend
payments for one dividend period have accrued and remain unpaid for at least two years, the preferred stockholders, voting as a separate class, are entitled to elect two directors. As such, two of the Companys six directors have been elected
by the preferred shareholders.

During the quarter ended June 30, 2006, a holder of the Companys preferred stock advised the
Company that the holder had concluded that the Companys calculation of the dividends on the preferred stock would accumulate at a compounded rate and is therefore erroneous, and that as a result the aggregate liquidation preference of the
preferred stock is significantly greater than that calculated by the Company. Based upon the Companys review to date of the relevant documents, the Company does not agree with the holders position.

The holder of the preferred stock filed a complaint in November 2006. The Complaint alleges, amongst other things, that the Company has failed to
properly apply the cumulative cash dividend and liquidation preferences related to certain exchangeable preferred stock issued by the Company approximately 13 years ago. The Complaint further alleges that previous disclosure by the Company with
regard to the same exchangeable preferred stock is not in accord with the manner of computation the plaintiffs believe is proper and required. The Company plans to vigorously defend this Complaint and has both procedural and substantive defenses and
may have rights against other persons or parties related to the purported claim.

In this suit, two holders of the Companys
Exchangeable Refundable Preferred Stock (the Preferred Stock) have alleged that the Company, beginning in February 2006, had made false and misleading statements concerning the calculation of accrued but unpaid dividends and the
Liquidation Preference for the Preferred Stock. The complaint seeks damages for violations of Section 10(b) of the Securities Exchange Act of 1934, common-law fraudulent misrepresentation, breach of contract and Connecticuts Unfair Trade
Practices Act. The complaint seeks unspecified compensatory damages and the equitable relief of an accounting.

The Company filed a motion
to dismiss the complaint in its entirety on December 19, 2006. On February 7, 2007, the plaintiffs filed a motion for leave to amend the complaint. The Court granted the motion to amend.

10. Discontinued Operations

In October 2006, the Company sold real estate with a net book value of
$400,000 for $1.8 million. A gain of $900,000, net of taxes of $500,000, on the sale was recorded as discontinued operations. The operating results from this property are insignificant and are not recorded as discontinued operations.



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11. Supplemental Statement of Cash Flows Information

Supplemental statement of cash flows information for the three months ended December 31, 2006 and 2005 is presented below:



|                                             |  |                        |       |      |   |      
|-------------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                             |  | 2006                   |       | 2005
|                                             |  | (amounts in thousands)
|Operating activities:                        |  |                        |       |      |   |      
|Cash paid during the period for interest     |  | $                      | 2,996 |      | $ | 3,012
|                                             |  |                        |       |      |   |      
|Cash paid during the period for income taxes |  | $                      | 0     |      | $ | 0    
|                                             |  |                        |       |      |   |      
|Investing and financing activities:          |  |                        |       |      |   |      
|Unrealized gain on marketable securities     |  | $                      | 1,051 |      | $ | 99   
|                                             |  |                        |       |      |   |      

12. Segment Information

The Companys operations are in the hotel/casino industry and investment properties. The Companys hotel/casino operations are conducted at the Pioneer in Laughlin, Nevada. The Company owns investment
properties in Dorchester, Massachusetts and Gaithersburg, Maryland. Other and Eliminations below includes financial information for the Companys corporate operations, adjusted to reflect eliminations upon consolidation.

Set forth below is the unaudited financial information for the segments in which the Company operates for the three months ended
December 31, 2006 and 2005.



|                                 |  |                                 |         |   |      |   |         |  
|-------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                 |  | Three Months Ended December 31, |        
|                                 |  | 2006                            |         |   | 2005 |  
|                                 |  | (dollars in thousands)          |        
|Pioneer Hotel:                   |  |                                 |         |   |      |   |         |  
|Net operating revenues           |  | $                               | 7,431   |   |      | $ | 6,937   |  
|                                 |  |                                 |         |   |      |   |         |  
|Operating income                 |  | $                               | (543    | ) |      | $ | (542    | )
|                                 |  |                                 |         |   |      |   |         |  
|Depreciation and amortization    |  | $                               | 549     |   |      | $ | 562     |  
|                                 |  |                                 |         |   |      |   |         |  
|Interest expense                 |  | $                               | 335     |   |      | $ | 356     |  
|                                 |  |                                 |         |   |      |   |         |  
|Interest and other income        |  | $                               | 2       |   |      | $ | 3       |  
|                                 |  |                                 |         |   |      |   |         |  
|Loss before income taxes         |  | $                               | (876    | ) |      | $ | (895    | )
|                                 |  |                                 |         |   |      |   |         |  
|Capital expenditures / transfers |  | $                               | 23      |   |      | $ | 31      |  
|                                 |  |                                 |         |   |      |   |         |  
|Identifiable assets(1)           |  | $                               | 29,489  |   |      | $ | 30,921  |  
|                                 |  |                                 |         |   |      |   |         |  
|Investment Properties:           |  |                                 |         |   |      |   |         |  
|Net operating revenues           |  | $                               | 3,101   |   |      | $ | 3,101   |  
|                                 |  |                                 |         |   |      |   |         |  
|Operating income                 |  | $                               | 2,308   |   |      | $ | 2,308   |  
|                                 |  |                                 |         |   |      |   |         |  
|Depreciation and amortization    |  | $                               | 793     |   |      | $ | 793     |  
|                                 |  |                                 |         |   |      |   |         |  
|Interest expense                 |  | $                               | 1,855   |   |      | $ | 1,890   |  
|                                 |  |                                 |         |   |      |   |         |  
|Interest and other income        |  | $                               | 1       |   |      | $ | 1       |  
|                                 |  |                                 |         |   |      |   |         |  
|Income before income taxes       |  | $                               | 453     |   |      | $ | 419     |  
|                                 |  |                                 |         |   |      |   |         |  
|Capital expenditures / transfers |  | $                               | 0       |   |      | $ | 0       |  
|                                 |  |                                 |         |   |      |   |         |  
|Identifiable assets(1)           |  | $                               | 131,154 |   |      | $ | 134,388 |  
|                                 |  |                                 |         |   |      |   |         |  
|Other and Eliminations:          |  |                                 |         |   |      |   |         |  



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|                                  |  |                                |         |   |      |   |         |  
|--------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                  |  | Three Months EndedDecember 31, |        
|                                  |  | 2006                           |         |   | 2005 |  
|                                  |  | (dollars in thousands)         |        
|Net operating revenues            |  | $                              | 550     |   |      | $ | 401     |  
|                                  |  |                                |         |   |      |   |         |  
|Operating income                  |  | $                              | 1,116   |   |      | $ | (481    | )
|                                  |  |                                |         |   |      |   |         |  
|Depreciation and amortization     |  | $                              | 27      |   |      | $ | 35      |  
|                                  |  |                                |         |   |      |   |         |  
|Interest expense                  |  | $                              | (46     | ) |      | $ | (16     | )
|                                  |  |                                |         |   |      |   |         |  
|Interest and other income         |  | $                              | 100     |   |      | $ | 126     |  
|                                  |  |                                |         |   |      |   |         |  
|Income (loss) before income taxes |  | $                              | 1,262   |   |      | $ | (339    | )
|                                  |  |                                |         |   |      |   |         |  
|Capital expenditures / transfers  |  | $                              | 164     |   |      | $ | 0       |  
|                                  |  |                                |         |   |      |   |         |  
|Identifiable assets(1)            |  | $                              | 39,343  |   |      | $ | 31,732  |  
|                                  |  |                                |         |   |      |   |         |  
|Total:                            |  |                                |         |   |      |   |         |  
|Net operating revenues            |  | $                              | 11,082  |   |      | $ | 10,439  |  
|                                  |  |                                |         |   |      |   |         |  
|Operating income                  |  | $                              | 2,881   |   |      | $ | 1,285   |  
|                                  |  |                                |         |   |      |   |         |  
|Depreciation and amortization     |  | $                              | 1,369   |   |      | $ | 1,390   |  
|                                  |  |                                |         |   |      |   |         |  
|Interest expense                  |  | $                              | 2,144   |   |      | $ | 2,230   |  
|                                  |  |                                |         |   |      |   |         |  
|Interest and other income         |  | $                              | 103     |   |      | $ | 130     |  
|                                  |  |                                |         |   |      |   |         |  
|Income (loss) before income taxes |  | $                              | 839     |   |      | $ | (815    | )
|                                  |  |                                |         |   |      |   |         |  
|Capital expenditures / transfers  |  | $                              | 187     |   |      | $ | 31      |  
|                                  |  |                                |         |   |      |   |         |  
|Identifiable assets(1)            |  | $                              | 199,986 |   |      | $ | 197,041 |  
|                                  |  |                                |         |   |      |   |         |  

|(1) | Identifiable assets represent total assets less elimination for intercompany items
|--- | ----------------------------------------------------------------------------------



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ARCHON CORPORATION



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

This discussion is intended to further the readers understanding of the consolidated financial condition and results of operations of Archon
Corporation (the Company or Archon). It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and the Companys annual report on Form 10-K for the year ended
September 30, 2006. These historical financial statements may not be indicative of the Companys future performance.

General

Overview of Business Operations and Trends

The Company, historically, has owned, managed and operated hotel/casino properties through a number of acquisitions or developments, and it has subsequently divested certain of these properties. Presently, the Company
operates the Pioneer Hotel & Gambling Hall (the Pioneer) in Laughlin, Nevada. The Company also owns property on Las Vegas Boulevard (the Strip) in Las Vegas, Nevada that may be sold pursuant to an Option Agreement
entered into in fiscal 2006 whereby the Optionee has the right to purchase the property from the Company for $450 million.

The Pioneer has
experienced a flattening and, to a certain extent, a decline of its revenues over the last few years after experiencing strong revenue and profit growth in the early 1990s. Management believes the growth of casino properties on Native American
lands in such locations as California and Arizona within the last several years caused revenue declines and caused the Company to focus on market definition and development in Laughlin to maintain profitability. Management believes Laughlin has now
become a mature market with marginal growth forecasted for the next few years based on its current plans.

The Company also owns investment
properties on the East Coast but these investment properties do not contribute significant profitability or net cash flow to the Company.

Management believes the recent revenue and expense trends the Pioneer may not change significantly over the next few years.

Investment
Properties:

During fiscal year 2001, the Company acquired certain investment properties as part of a Section 1031 exchange.
The investment properties are located in Gaithersburg, MD and Dorchester, MA. The Company acquired the properties and nonrecourse debt associated with the properties which are subject to long-term leases. Tenants remit payments to banks according to
the terms of the leases and notes. The payments are used to liquidate the nonrecourse debt obligations. Rental income is recorded by the Company on a straight-line basis and totals approximately $12.4 million annually and will remain at this level
until approximately 2020. The buildings are also being depreciated on a straight-line basis and the depreciation expense is approximately $3.2 million annually and will remain at this level until approximately 2020 or until the assets are sold,
otherwise disposed of or become impaired. Interest expense is also recorded based on the outstanding nonrecourse debt remaining to be paid based on unamortized loan issue costs and remaining debt amortization timetables. At any time during the life
of the leases and debt amortization, the fair market values of the properties may be different than its book values. Interest



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is presently being expensed at approximately $7.4 million annually and will decrease in relation to debt principal reductions through 2020.

Critical Accounting Policies and Estimates

Managements Discussion and Analysis of Financial Condition and Results of Operations discusses Archons unaudited, condensed consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to customer
incentives, bad debts, inventories, investments, estimated useful lives for depreciable and amortizable assets, valuation reserves and estimated cash flows in assessing the recoverability of long-lived assets, estimated liabilities for slot club
bonus point programs, income taxes, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its
consolidated financial statements:

Allowance for Doubtful Accounts. The Company allows for an estimated amount of
receivables that may not be collected. The Company estimates its allowance for doubtful accounts using a specific formula applied to aged receivables as well as a specific review of large balances. Historical experience is considered, as are
customer relationships, in determining specific reserves.

Long-Lived Assets. The Company has a significant investment in
long-lived property and equipment. It estimates that the undiscounted future cash flows expected to result from the use of these assets exceeds the current carrying value of these assets. Any adverse change in the estimate of these undiscounted
future cash flows could necessitate an impairment charge that would adversely affect operating results. The Company estimates useful lives for its assets based on historical experience, estimates of assets commercial lives, and the likelihood
of technological obsolescence. Should the actual useful life of a class of assets differ from the estimated useful life, the Company would record an impairment charge. The Company reviews useful lives and obsolescence and assesses commercial
viability of these assets periodically.

Income Taxes. The Company has recorded deferred tax assets related to net operating
assets as the Company is able to offset its assets with its deferred tax liabilities. Realization of the net deferred tax assets is dependent on the Companys ability to generate profits from operations or from the sale of long-lived assets
that would reverse the temporary differences that established the deferred tax liabilities. There can be no assurance that the Company will generate profits from operations or sell those assets or will generate profits from sales if they were to
occur in the future. In the event the Company does generate profits from sales of long-lived assets in the future a valuation allowance would need to be recorded and would impact the Companys future results of operations.



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Results of Operations  Three Months Ended December 31, 2006 and 2005

General

During the quarter ended December 31,
2006, the Companys net operating revenues increased approximately $600,000 and operating expenses increased approximately $500,000, resulting in an increase in operating income of approximately $100,000 from the quarter ended December 31,
2005. The improvement in operating results was primarily due to $200,000 received as reimbursement of amounts previously expended on behalf of an affiliated company. The operating results at the Pioneer and the investment properties were unchanged.

Consolidated

Net Operating
Revenues.Consolidated net operating revenues for the quarter ended December 31, 2006 were $11.1 million, approximately a $600,000, or 6%, increase from $10.4 million for the quarter ended December 31, 2005. Income
from the investment properties was $3.1 million in each of the quarters ended December 31, 2006 and 2005. Revenues at the Pioneer of $7.4 million for the quarter ended December 31, 2006 increased $500,000 or 7%, from $6.9 million for the
quarter ended December 31, 2005.

Operating Expenses. Total operating expenses increased $500,000, or 6%, to
$9.7 million for the quarter ended December 31, 2006 from $9.2 million for the quarter ended December 31, 2005. Total operating expenses as a percentage of net revenue decreased to 87% for the 2006 quarter from 88% for the 2005
quarter. Operating expenses at the Pioneer of $8.0 million for the quarter ended December 31, 2006 increased $500,000 or 7%, from $7.5 million for the quarter ended December 31, 2005.

Operating Income. Consolidated operating income for the quarter ended December 31, 2006 was $1.4 million, an increase of
$100,000, or 11%, from $1.3 million for the quarter ended December 31, 2005. This increase was due to the aforementioned changes in net operating revenues and operating expenses. Operating income of $2.3 million for each of the three-month
periods ended December 31, 2006 and 2005 is attributable to the investment properties. Operating income was unchanged at the Pioneer.

Interest Expense. Consolidated interest expense for the quarter ended December 31, 2006 was $2.1 million, a $100,000 or 4%, decrease compared to $2.2 million for the quarter ended December 31, 2005.

Interest and Other Income. Consolidated interest and other income was $100,000 for each of the quarters ended
December 31, 2006 and 2005.

Loss Before Income Tax and Discontinued Operations. Consolidated loss before income tax and
discontinued operations for the quarter ended December 31, 2006 was $600,000, a $200,000 improvement compared to $800,000 for the quarter ended December 31, 2005.

Discontinued Operations. In October 2006, the Company sold real estate with a net book value of $400,000 for $1.8 million. A gain of
$900,000, net of taxes of $500,000, on the sale was recorded as discontinued operations.

Federal Income Tax. The Company
recorded a federal income tax provision of $300,000 for the quarter ended December 31, 2006 comprised of a $200,000 benefit on continuing operations and a $500,000 provision on discontinued operations. The Company recorded a federal income tax
benefit of $300,000 for the quarter ended December 31, 2005, based on federal statutory rates.

Preferred Share
Dividends. Undeclared preferred share dividends are not recorded in the stockholders equity section of the balance sheet as the Company may elect at its sole discretion whether to redeem its preferred stock. However, dividends of
approximately $400,000 for each of the three-month periods ended December 31,



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##### Table of Contents

2006 and 2005 accrued on the preferred stock for purposes of calculating net income (loss) applicable to common shares.

Net Income (Loss). Consolidated net income attributable to common shares was $200,000, or $0.03 per common share, for the quarter
ended December 31, 2006 compared to consolidated net loss of $900,000, or $0.15 per common share, for the quarter ended December 31, 2005.

Pioneer

Net Operating Revenues. Net operating revenues at the Pioneer were $7.4 million for the quarter ended
December 31, 2006, an increase of $500,000, or 7%, compared to $6.9 million in the quarter ended December 31, 2005. The improvement was due to increased customer volume.

Casino revenues for the three months ended December 31, 2006 were $6.0 million, an increase of $300,000, or 6%, compared to $5.7 million in the
three months ended December 31, 2005. Slot and video poker revenues were approximately $5.5 million, an increase of $200,000, or 4%, compared to approximately $5.2 million. Other gaming revenues, including table games, increased $100,000
or 22%, to $600,000 from $500,000. Casino promotional allowances were approximately $1.6 million compared to $1.4 million, an increase of approximately $100,000 or 10%.

Hotel revenues were relatively unchanged at approximately $600,000 for the three months ended December 31, 2006 and 2005. An increase in hotel occupancy was partially offset by a decrease in the average room
rate. Competitive pressures in the Laughlin market in the 2006 period caused the decline in average room rate. Food and beverage revenues increased $100,000, or 8%, to $1.8 million from $1.7 million. Other revenues increased $100,000, or 26%,
to $500,000 from $400,000.

Operating Expenses. Operating expenses were $8.0 million for the quarter ended December 31,
2006, an increase of $500,000, or 7%, from $7.5 million in the quarter ended December 31, 2005. Operating expenses as a percentage of net revenue decreased to 107% in the current quarter from 108% in the prior year quarter.

Casino expenses were $3.6 million, an increase of approximately $200,000, or 7%, from $3.3 million, primarily due to increased casino promotional
allowances. Casino expenses as a percentage of casino revenues increased to 59% from 58%.

Hotel expenses were relatively unchanged at
$300,000 in the 2006 quarter compared to $200,000 in the 2005 quarter. Food and beverage expenses were unchanged at $900,000, due to a slight decrease in the cost of sales. Food and beverage expenses as a percentage of food and beverage revenues
decreased to 52% from 56%. Other expenses were $500,000, an increase of $100,000 or 21%, from $400,000, due to the increase in other income. Other expenses as a percentage of other revenues decreased to 88% from 91%.

Selling, general and administrative expenses were $1.2 million, an increase of $100,000, or 6%, compared to $1.1 million. Selling, general and
administrative expenses as a percentage of revenues were 16% in both quarters. Utilities and property expenses were $1.0 million, an increase of $100,000, or 9%, from $900,000, due to increased rent expense. Pioneers selling, general and
administrative expenses are greater than the consolidated total due to the elimination of intercompany transactions in consolidation. Utilities and property expenses as a percentage of revenues were 13% in both quarters. Depreciation and
amortization expenses were relatively unchanged at $500,000 in the 2006 quarter compared to $600,000 in the 2005 quarter.



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Liquidity and Capital Resources; Trends and Factors Relevant to Future Operations

Contractual Obligations and Commitments: The following table summarizes the Companys fiscal year contractual obligations and commitments as
of December 31, 2006 (for the nine-month period ending September 30, 2007 and for the fiscal years ending September 30, 2008, 2009, 2010, 2011, 2012, 2013 and thereafter.)



|                    |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|------------------- |  | --------------------------- | ----- | ---- | - | ------ |  | ---- | ----- | ---- | - | ----- |  | ------------------ | ----- | ----- | - | ----- |  | - | ------ |  | - | -------
|                    |  | Payments Due By Periods (1)
|                    |  | 2007                        |       | 2008 |   | 2009   |  | 2010 |       | 2011 |   | 2012  |  | 2013 andthereafter |       | Total
|                    |  | (dollars in thousands)     
|Non-recourse debt:  |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Gaithersburg        |  | $                           | 1,673 |      | $ | 2,490  |  | $    | 2,828 |      | $ | 3,186 |  | $                  | 3,573 |       | $ | 3,987 |  | $ | 29,555 |  | $ | 47,292 
|Sovereign           |  |                             | 0     |      |   | 0      |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 31,199 |  |   | 31,199 
|Debt:               |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Equipment           |  |                             | 1,198 |      |   | 182    |  |      | 52    |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 1,432  
|Mortgage obligation |  |                             | 388   |      |   | 9,638  |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 10,026 
|Operating leases:   |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Ground lease        |  |                             | 271   |      |   | 364    |  |      | 364   |      |   | 364   |  |                    | 364   |       |   | 364   |  |   | 24,096 |  |   | 26,187 
|Corporate offices   |  |                             | 11    |      |   | 0      |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 11     
|                    |  |                             |       |      |   |        |  |     
|Total               |  | $                           | 3,541 |      | $ | 12,674 |  | $    | 3,244 |      | $ | 3,550 |  | $                  | 3,937 |       | $ | 4,351 |  | $ | 84,850 |  | $ | 116,147

---

|(1) | The Company is required to make
the following cash interest payments related to the above debt obligations: (i) Non-recourse debt  $4.4 million (2007), $7.0 million (2008), $6.8 million (2009), $6.6 million (2010), $6.3 million (2011), $6.1 million (2012) and $33.8
million (2013 and thereafter)), and (ii) Long-term debt$0.8 million (2007), $0.3 million (2008), $0 (2009), $0 (2010), $0 (2011), $0 (2012) and $0 (2013 and thereafter).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has no significant purchase commitments or obligations other than those included in the above schedule.

The Companys ability to service its contractual obligations and commitments, other than the non-recourse debt, will be dependent on the future
performance of the Pioneer, which will be affected by, among other things, prevailing economic conditions and financial, business and other factors, including competitive pressure from the expansion of Native American gaming facilities in the
southwest United States, certain of which are beyond the Companys control. In addition, the Company will be dependent on the continued ability of the tenants in the investment properties in Gaithersburg, Maryland and Dorchester, Massachusetts
to make payments pursuant to the leases with the Company. The payments under the leases are contractually committed to be used to make payments on the Companys non-recourse debt obligations related to the properties.

Under an existing debt agreement with a bank, the Company is obligated to make a balloon payment of approximately $9.5 million in January 2008. At
December 31, 2006, under the original loan terms, the loan balance of $10.0 million was due as of December 15, 2006. In January 2007, the loan was modified to extend the maturity date until January 15, 2008. The Company will either
have to sell certain assets or will have to refinance this debt as current cash balances and projected cash flow from operations is not expected to equal this debt obligation. Although the Company believes one of these alternatives will occur, the
Company can give no assurance that assets can be sold or that the debt can be refinanced at terms acceptable to the Company. The debt is guaranteed by the Companys primary shareholder, who is also the CEO and Chairman of the Board.



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Liquidity. As of December 31, 2006, the Company held cash and cash equivalents of
approximately $8.7 million compared to $6.2 million at September 30, 2006. The Company had $7.8 million in investment in marketable securities at December 31, 2006 compared to $6.0 million at September 30, 2006. The investment
properties are structured such that future tenants payments cover future required mortgage payments including any balloon payments. Management believes that the Company will have sufficient available cash and cash resources to meet its cash
requirements for a reasonable period of time.

The Company has a balloon payment due in January 2008 of approximately $9.5 million related
to debt owed to a bank. The Company plans to either refinance the debt or sell certain assets of the Company to pay the obligation. The debt obligation is secured by 27 acres of land owned on the Las Vegas Strip and is personally guaranteed by Paul
W. Lowden, the Companys CEO, Chairman of the Board and primary stockholder.

Cash Flows from Operating Activities. The
Companys cash provided by operating activities was $1.8 million for the three months ended December 31, 2006 as compared to $900,000 for the three months ended December 31, 2005. The increase of $900,000 was primarily due to the
receipt of a nonrefundable option payment of $1.2 million.

Cash Flows from Investing Activities. Cash provided by investing
activities was $1.4 million for the three months ended December 31, 2006, as compared to $900,000 for the three months ended December 31, 2005. In the current year period, the Company received $1.8 million form the sale of fixed assets,
which was partially offset by $200,000 in capital expenditures and $200,000 from the purchase of marketable securities. In the prior year period, the company received $900,000 from the sale of marketable securities.

Cash Used in Financing Activities. Cash used in financing activities was $700,000 for the three months ended December 31, 2006 as
compared to $1.4 million for the three months ended December 31, 2005, all of which was used to make debt payments.

The
Companys primary source of operating cash is from the Pioneer operations, from interest income on available cash and cash equivalents and investments in marketable securities and, to a lesser extent, from net cash generated from the leasing of
certain land owned on the Las Vegas strip. Rental income from the Companys two investment properties is contractually committed to reducing the non-recourse indebtedness issued or assumed in connection with the acquisition of the investment
properties. Under the two leases, the tenants are responsible for substantially all obligations related to the property. Sahara Las Vegas Corp. (SLVC), an indirect wholly-owned subsidiary of the Company, owns an approximately 27-acre
parcel of real property on Las Vegas Boulevard South which is subject to a lease with a condominium developer. SLVC generates minimal cash from the lease agreement after payment of property costs, most notably property taxes.

Pioneer

Pioneers principal uses of cash
are for payments of slot machine debt obligations, ground lease rent and capital expenditures to maintain the facility. The Company has implemented changes in personnel and promotional programs and installed new slot equipment to address the
decreases in revenues and operating income. One of managements main focuses is to recapture market share in the Laughlin market. Management, however, can give no assurance that market share will be recaptured in its Laughlin market as its
competition in the market typically has greater capital resources than does the Pioneer.

Payments of rent were approximately $100,000 and
$0 for the three months ended December 31, 2006 and 2005, respectively. Capital expenditures to maintain the facility in fiscal 2007 are expected to be less than $1 million.



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Preferred Stock

The Companys preferred stock provides that dividends accrue on a semi-annual basis, to the extent not declared. Prior to fiscal 1997, the Company satisfied the semiannual dividend payments on its preferred stock
through the issuance of paid-in-kind dividends. The Company has not declared the semiannual preferred stock dividends since October 1, 1996. The dividend rate per annum was equal to 8% of $2.14 for each share of preferred stock until
September 30, 1998, at which date the dividend rate increased to 11%; the dividend rate continued to increase by an additional 50 basis points on each succeeding semiannual dividend payment date up to a maximum of 16% per annum. In October
2003, the dividend rate increased to 16.0%. As of December 31, 2006, the aggregate liquidation preference of the preferred stock was approximately $21.7 million, or $4.93 per share.

Pursuant to the Certificate of Designation of Preferred Stock, dividends are payable only when, as and if declared by the Board of Directors and
the liquidation preference is payable only upon a liquidation, dissolution or winding up of the Company. Because dividends in an amount equal to dividend payments for one dividend period have accrued and remain unpaid for at least two years, the
preferred stockholders, voting as a separate class, are entitled to elect two directors. As such, two of the Companys six directors have been elected by the preferred shareholders.

The Board of Directors of the Company authorized an increase in the amount of cash that may be used to purchase preferred stock to $2.5 million. As of
February 13, 2007, the Company had purchased 709,305 shares of preferred stock for $1.4 million under this program. Previously, the Company had purchased 276,627 shares for $500,000. During the three months ended December 31, 2006, the
Company did not purchase any of its outstanding preferred shares.

During the quarter ended June 30, 2006, a holder of the
Companys preferred stock advised the Company that the holder had concluded that the Companys calculation of the dividends on the preferred stock would accumulate at a compounded rate and is therefore erroneous, and that as a result the
aggregate liquidation preference of the preferred stock is significantly greater than that calculated by the Company. Based upon the Companys review to date of the relevant documents, the Company does not agree with the holders position.

The holder of the preferred stock filed a complaint in November 2006. The Complaint alleges, amongst other things, that the Company has
failed to properly apply the cumulative cash dividend and liquidation preferences related to certain exchangeable preferred stock issued by the Company approximately 13 years ago. The Complaint further alleges that previous disclosure by the Company
with regard to the same exchangeable preferred stock is not in accord with the manner of computation the plaintiffs believe is proper and required. The Company plans to vigorously defend this Complaint and has both procedural and substantive
defenses and may have rights against other persons or parties related to the purported claim.

In this suit, two holders of the
Companys Exchangeable Refundable Preferred Stock (the Preferred Stock) have alleged that the Company, beginning in February 2006, had made false and misleading statements concerning the calculation of accrued but unpaid dividends
and the Liquidation Preference for the Preferred Stock. The complaint seeks damages for violations of Section 10(b) of the Securities Exchange Act of 1934, common-law fraudulent misrepresentation, breach of contract and Connecticuts Unfair
Trade Practices Act. The complaint seeks unspecified compensatory damages and the equitable relief of an accounting.

The Company filed a
motion to dismiss the complaint in its entirety on December 19, 2006. On February 7, 2007, the plaintiffs filed a motion for leave to amend the complaint. The Court granted the motion to amend.

Recently Issued Accounting Standards

The
Company keeps abreast of new generally accepted principles and disclosure reporting requirements issued by the SEC and other standard setting agencies. Recently issued accounting standards which may affect the financial results are noted in Note 1
of the Notes to Unaudited Condensed Consolidated Financial Statements.

Effects of Inflation

The Company has been generally successful in recovering costs associated with inflation through price adjustments in its hotel. Any such future increases
in costs associated with casino operations and maintenance of properties may not be completely recovered by the Company.



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Private Securities Litigation Reform Act

Certain statements in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements, such as statements relating to
future operating results, existing and expected competition, financing and refinancing sources and availability and plans for future development or expansion activities, capital expenditures and expansion of business operations into new areas. Such
forward-looking statements involve a number of risks and uncertainties that may significantly affect the Companys liquidity and results in the future and, accordingly, actual results may differ materially from those expressed in any
forward-looking statements. Such risks and uncertainties include, but are not limited to, those related to effects of competition, leverage and debt service, general economic conditions, changes in gaming laws or regulations (including the
legalization of gaming in various jurisdictions) and risks related to development activities and the startup of non-gaming operations.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity process. Excluding its non-recourse debt, the Company has total
interest-bearing debt at December 31, 2006 of approximately $11.5 million, of which approximately $10.0 million bears interest at a variable rate (approximately 9.25% at December 31, 2006). Therefore, the Company maintains certain market
rate risk related to this debt. A change in the interest rates of 1% would cause an approximate $100,000 change in the amount of interest the Company would incur based on the amount of variable-interest rate debt outstanding for any current or
future year in which this debt is outstanding. Future borrowings related to this debt will be exposed to this same market rate risk.

The
Company holds investments in various available-for-sale securities; however, management believes that exposure to price risk arising from the ownership of these investments is not material to the Companys consolidated financial position,
results of operations or cash flow as historically price fluctuations of these securities have not been material.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure
Controls and Procedures:

We maintain disclosure controls and procedures that are designed to ensure that information required
to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on
the foregoing, our Chief Executive Officer and Principal Accounting Officer concluded that Archons disclosure controls and procedures are effective.



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As a part of our normal operations, we update our internal controls as necessary to accommodate any
modifications to our business processes or accounting procedures. There have not been any other changes in our internal controls or in other factors that materially affected, or are reasonably likely to materially affect these controls as of the end
of the period covered by this report.



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##### Table of Contents

ARCHON CORPORATION

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

During the quarter ended
June 30, 2006, a holder of the Companys preferred stock advised the Company that the holder had concluded that the Companys calculation of the dividends on the preferred stock would accumulate at a compounded rate and is therefore
erroneous, and that as a result the aggregate liquidation preference of the preferred stock is significantly greater than that calculated by the Company. Based upon the Companys review to date of the relevant documents, the Company does not
agree with the holders position.

The holder of the preferred stock filed a complaint in November 2006. The Complaint alleges,
amongst other things, that the Company has failed to properly apply the cumulative cash dividend and liquidation preferences related to certain exchangeable preferred stock issued by the Company approximately 13 years ago. The Complaint further
alleges that previous disclosure by the Company with regard to the same exchangeable preferred stock is not in accord with the manner of computation the plaintiffs believe is proper and required. The Company plans to vigorously defend this Complaint
and has both procedural and substantive defenses and may have rights against other persons or parties related to the purported claim.

In
this suit, two holders of the Companys Exchangeable Refundable Preferred Stock (the Preferred Stock) have alleged that the Company, beginning in February 2006, had made false and misleading statements concerning the calculation of
accrued but unpaid dividends and the Liquidation Preference for the Preferred Stock. The complaint seeks damages for violations of Section 10(b) of the Securities Exchange Act of 1934, common-law fraudulent misrepresentation, breach of contract and
Connecticuts Unfair Trade Practices Act. The complaint seeks unspecified compensatory damages and the equitable relief of an accounting.

The Company filed a motion to dismiss the complaint in its entirety on December 19, 2006. On February 7, 2007, the plaintiffs filed a motion for leave to amend the complaint. The Court granted the motion to amend.



|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------

None



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None



|Item 5. | Other Information
|------- | -----------------

None



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------

a. Exhibits.



|               |  |                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                  
|31.1           |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.         
|               | 
|31.2           |  | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|               | 
|32             |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                



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##### Table of Contents

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.



ARCHON CORPORATION,RegistrantBy:

/s/ Paul W. LowdenPaul W. LowdenChairman of the Board, President and Chief Executive Officer


Date: February 13, 2007



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