** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                                                                                                               |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **For the  quarterly period ended:   ****December 31, 2002**                                                                                                                                                                                                                                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **o**      |   | **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**                                                                                                                                                                                                                                                                                                                                                                               |

 

**ARCHONCORPORATION**

(Exactname of registrant as specified in its charter)

** **

| **Nevada**                                                                          |   | **88-0304348**                          |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization)                      |   | (I.R.S. Employer Identification Number) |
|                                                                                |   |                                    |
| **3993  Howard Hughes Parkway, Suite 630, Las Vegas, Nevada  89109**      |
| (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) |

 

Indicate by a check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  YES  ý    NO o

 

APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

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

 

APPLICABLEONLY TO CORPORATE ISSUERS:

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

6,221,431as of February 11, 2003

 

 

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**ARCHON CORPORATIONINDEX**

 
| **PART  I .** | **FINANCIAL INFORMATION**                                                                                                |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                     |
| Item 1             | Consolidated Condensed  Financial Statements                                                                             |
|               |                                                                                                                     |
|               | Consolidated  Condensed Balance Sheets (Unaudited) December 31, 2002 and September 30, 2002                              |
|               |                                                                                                                     |
|               | Consolidated  Condensed Statements of Operations (Unaudited) for the three months ended  December 31, 2002 and 2001      |
|               |                                                                                                                     |
|               | Consolidated  Condensed Statement of Stockholders’ Equity (Unaudited) for the three months  ended December 31, 2002 |
|               |                                                                                                                     |
|               | Consolidated  Condensed Statements of Cash Flows (Unaudited) for the three months ended  December 31, 2002 and 2001      |
|               |                                                                                                                     |
|               | Notes to Consolidated  Condensed Financial Statements (Unaudited)                                                        |
|               |                                                                                                                     |
| Item 2             | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                              |
|               |                                                                                                                     |
| Item 3             | Market Risk Disclosure                                                                                                   |
|               |                                                                                                                     |
| Item 4             | Controls and Procedures                                                                                                  |
|               |                                                                                                                     |
| **PART II.**       | **OTHER INFORMATION**                                                                                                    |

 

1

----

 

**Archon Corporation and Subsidiaries**

**Consolidated Condensed Balance Sheets**

**(Unaudited)**

 
|                                            |   | **December 31,  2002** |        | **September 30,  2002** |       |
|-------------------------------------------------|--------|------------------------|-------------|-------------------------|------------|
|                                            |   |                   | ** **  |                    | ** ** |
| **ASSETS**                                      |   |                   |        |                    |       |
| Current assets:                                 |   |                   |        |                    |       |
| Cash and cash equivalents                       |   | $                      | 5,869,286   |                    | $          | 8,615,412 |   |
| Investment in marketable securities             |   | 13,000,958             |        | 12,180,399              |       |
| Restricted cash                                 |   | 12,073,726             |        | 13,021,550              |       |
| Accounts receivable, net                        |   | 1,415,172              |        | 3,352,179               |       |
| Inventories                                     |   | 366,607                |        | 286,585                 |       |
| Prepaid expenses and other                      |   | 885,582                |        | 975,199                 |       |
| Total current assets                            |   | 33,611,331             |        | 38,431,324              |       |
|                                            |   |                   |        |                    |       |
| Land held for development                       |   | 23,109,400             |        | 23,109,400              |       |
|                                            |   |                   |        |                    |       |
| Property held for investment, net               |   | 139,203,505            |        | 139,996,477             |       |
|                                            |   |                   |        |                    |       |
| Property and equipment, net                     |   | 33,564,681             |        | 34,171,292              |       |
|                                            |   |                   |        |                    |       |
| Other assets                                    |   | 6,774,134              |        | 6,377,072               |       |
|                                            |   |                   |        |                    |       |
| Total assets                                    |   | $                      | 236,263,051 |                    | $          | 242,085,565 |   |
|                                            |   |                   |        |                    |       |
| **LIABILITIES and  STOCKHOLDERS’ EQUITY**  |   |                   |        |                    |       |
| Current liabilities:                            |   |                   |        |                    |       |
| Accounts payable                                |   | $                      | 1,863,008   |                    | $          | 1,926,804 |   |
| Interest payable                                |   | 212,195                |        | 2,285,248               |       |
| Accrued and other liabilities                   |   | 2,115,615              |        | 2,360,996               |       |
| Current portion of long-term debt               |   | 89,698                 |        | 93,100                  |       |
| Current portion of non-recourse debt            |   | 6,017,408              |        | 5,733,795               |       |
| Total current liabilities                       |   | 10,297,924             |        | 12,399,943              |       |
|                                            |   |                   |        |                    |       |
| Long-term debt - less current portion           |   | 238,766                |        | 261,966                 |       |
|                                            |   |                   |        |                    |       |
| Non-recourse debt - less current portion        |   | 114,626,883            |        | 117,401,909             |       |
|                                            |   |                   |        |                    |       |
| Obligation under lease                          |   | 35,668,056             |        | 35,365,308              |       |
|                                            |   |                   |        |                    |       |
| Deferred income taxes                           |   | 33,327,482             |        | 34,091,076              |       |
|                                            |   |                   |        |                    |       |
| Other liabilities                               |   | 12,598,554             |        | 11,269,374              |       |
|                                            |   |                   |        |                    |       |
| Stockholders’ equity                       |   | 29,505,386             |        | 31,295,989              |       |
|                                            |   |                   |        |                    |       |
| Total liabilities and stockholders’ equity |   | $                      | 236,263,051 |                    | $          | 242,085,565 |   |

 

See the accompanying Notesto Consolidated Condensed Financial Statements (Unaudited).

 

2

----

 

**Archon Corporation and Subsidiaries**

**Consolidated Condensed Statements ofOperations**

**(Unaudited)**

 
|                                                    |   | **Three Months Ended December 31,** |       |
|---------------------------------------------------------|--------|-------------------------------------|------------|
|                                                    |   | **2002**                            |       | **2001** |   |
|                                                    |   |                                |       |   |   |
| Revenues:                                               |   |                                |       |   |   |
| Casino                                                  |   | $                                   | 6,772,329  |   | $ | 7,887,102 |   |
| Hotel                                                   |   | 557,582                             |       | 556,741 |   |
| Food and beverage                                       |   | 1,707,677                           |       | 2,005,592 |   |
| Investment properties                                   |   | 3,100,562                           |       | 3,100,562 |   |
| Other                                                   |   | 580,593                             |       | 740,113 |   |
| Gross revenues                                          |   | 12,718,743                          |       | 14,290,110 |   |
| Less casino promotional allowances                      |   | (1,418,532                          | )          | (1,884,106 | ) |
| Net operating revenues                                  |   | 11,300,211                          |       | 12,406,004 |   |
|                                                    |   |                                |       |   |   |
| Operating expenses:                                     |   |                                |       |   |   |
| Casino                                                  |   | 3,875,754                           |       | 4,387,148 |   |
| Hotel                                                   |   | 178,338                             |       | 188,112 |   |
| Food and beverage                                       |   | 874,896                             |       | 1,016,694 |   |
| Other                                                   |   | 472,323                             |       | 610,862 |   |
| Selling, general and administrative                     |   | 1,262,924                           |       | 1,258,444 |   |
| Corporate expenses                                      |   | 620,278                             |       | 597,602 |   |
| Utilities and property expenses                         |   | 1,247,386                           |       | 1,462,784 |   |
| Depreciation and amortization                           |   | 1,557,538                           |       | 1,298,217 |   |
| Total operating expenses                                |   | 10,089,437                          |       | 10,819,863 |   |
|                                                    |   |                                |       |   |   |
| Operating income                                        |   | 1,210,774                           |       | 1,586,141 |   |
| Interest expense                                        |   | (3,889,786                          | )          | (4,007,361 | ) |
| Interest income                                         |   | 433,146                             |       | 346,697 |   |
| Loss before income tax benefit                          |   | (2,245,866                          | )          | (2,074,523 | ) |
|                                                    |   |                                |       |   |   |
| Federal income tax benefit                              |   | 763,594                             |       | 705,338 |   |
|                                                    |   |                                |       |   |   |
| Net loss                                                |   | (1,482,272                          | )          | (1,369,185 | ) |
|                                                    |   |                                |       |   |   |
| Dividends accrued on preferred shares, net              |   | (379,224                            | )          | (383,719 | ) |
|                                                    |   |                                |       |   |   |
| Net loss applicable to common shares                    |   | $                                   | (1,861,496 | ) | $ | (1,752,904 | ) |
|                                                    |   |                                |       |   |   |
| Average common shares outstanding                       |   | 6,221,431                           |       | 6,153,256 |   |
| Average common and common equivalent shares outstanding |   | 6,221,431                           |       | 6,153,256 |   |
|                                                    |   |                                |       |   |   |
| Loss per common share:                                  |   |                                |       |   |   |
| Basic                                                   |   | $                                   | (0.30      | ) | $ | (0.28 | ) |
| Diluted                                                 |   | $                                   | (0.30      | ) | $ | (0.28 | ) |

 

See the accompanying Notesto Consolidated Condensed Financial Statements (Unaudited).

 

3

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**Archon Corporation and Subsidiaries**

**Consolidated Condensed Statements ofStockholders’ Equity**

**(Unaudited)**

**For the Quarter Ended December 31, 2002**

 
|                                     |   | **Common  Stock** |   | **Preferred  Stock** |   | **Additional  Paid-In  Capital** |   | **Accumulated  Deficit** |       | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Stock  Subscriptions  Receivable** |   | **Treasury  Stock** |    | **Total**  |   |
|------------------------------------------|--------|-------------------|--------|----------------------|--------|----------------------------------|--------|--------------------------|------------|------------------------------------------------------|--------|--------------------------------------|--------|---------------------|---------|------------|--------|
|                                     |   |              |   |                 |   |                             |   |                     |       |                                                 |   |                                 |   |                |    |       |   |
| Balances, October 1, 2002                |   | $                 | 62,214 |                 | $      | 18,146,756                       |   | $                        | 57,437,482 |                                                 | $      | (44,094,268                          | )      | $                   | (94,678 | )          | $      | (73,743 | ) | $ | (87,774 | ) | $ | 31,295,989 |   |
|                                     |   |              |   |                 |   |                             |   |                     |       |                                                 |   |                                 |   |                |    |       |   |
| Net loss                                 |   |              |   |                 |   |                             |   | (1,482,272               | )          |                                                 |   |                                 |   |                |    | (1,482,272 | )      |
|                                     |   |              |   |                 |   |                             |   |                     |       |                                                 |   |                                 |   |                |    |       |   |
| Preferred stock Dividends accrued, net   |   |              |   | 379,224              |   |                             |   | (379,224                 | )          |                                                 |   |                                 |   |                |    | 0          |   |
|                                     |   |              |   |                 |   |                             |   |                     |       |                                                 |   |                                 |   |                |    |       |   |
| Preferred stock purchased                |   |              |   | (1,258,650           | )      | 782,696                          |   |                     |       |                                                 |   |                                 |   |                |    | (475,954   | )      |
|                                     |   |              |   |                 |   |                             |   |                     |       |                                                 |   |                                 |   |                |    |       |   |
| Unrealized gain on marketable securities |   |              |   |                 |   |                             |   |                     |       | 167,623                                              |   |                                 |   |                |    | 167,623    |   |
|                                     |   |              |   |                 |   |                             |   |                     |       |                                                 |   |                                 |   |                |    |       |   |
| Balances, December 31, 2002              |   | $                 | 62,214 |                 | $      | 17,267,330                       |   | $                        | 58,220,178 |                                                 | $      | (45,955,764                          | )      | $                   | 72,945  |       | $      | (73,743 | ) | $ | (87,774 | ) | $ | 29,505,386 |   |

 

See the accompanying Notesto Consolidated Condensed Financial Statements (Unaudited).

 

4

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**Archon Corporation and Subsidiaries**

**Consolidated Condensed Statements of CashFlows**

**(Unaudited)**

 
|                                                |   | **Three Months Ended December 31,** |      |
|-----------------------------------------------------|--------|-------------------------------------|-----------|
|                                                |   | **2002**                            |      | **2001** |   |
|                                                |   |                                |      |   |   |
| Cash flows from operating activities:               |   |                                |      |   |   |
| Cash and cash equivalents provided by operations    |   | $                                   | 378,014   |   | $ | 194,945 |   |
| Changes in assets and liabilities:                  |   |                                |      |   |   |
| Accounts receivable, net                            |   | 1,937,007                           |      | 2,783,632 |   |
| Inventories                                         |   | (80,022                             | )         | (95,389 | ) |
| Prepaid expenses and other                          |   | 89,618                              |      | 228 |   |
| Deferred income taxes                               |   | (763,594                            | )         | (705,338 | ) |
| Other assets                                        |   | (455,061                            | )         | (609,157 | ) |
| Accounts payable                                    |   | (63,796                             | )         | 18,219 |   |
| Interest payable                                    |   | (2,073,053                          | )         | (2,160,182 | ) |
| Accrued and other liabilities                       |   | 1,083,799                           |      | 1,483,949 |   |
|                                                |   |                                |      |   |   |
| Net cash provided by operating activities           |   | 52,912                              |      | 910,907 |   |
|                                                |   |                                |      |   |   |
| Cash flows from investing activities:               |   |                                |      |   |   |
| Decrease (increase) in restricted cash              |   | 724,896                             |      | (79,403 | ) |
| Capital expenditures                                |   | (99,956                             | )         | (216,689 | ) |
| Marketable securities purchased                     |   | (1,924,240                          | )         | (2,773,933 | ) |
| Marketable securities sold                          |   | 1,494,231                           |      | 370,736 |   |
|                                                |   |                                |      |   |   |
| Net cash provided by (used in) investing activities |   | 194,931                             |      | (2,699,289 | ) |
|                                                |   |                                |      |   |   |
| Cash flows from financing activities:               |   |                                |      |   |   |
| Paid on long-term debt                              |   | (2,518,015                          | )         | (2,255,674 | ) |
| Preferred stock acquired                            |   | (475,954                            | )         | 0 |   |
|                                                |   |                                |      |   |   |
| Net cash used in financing activities               |   | (2,993,969                          | )         | (2,255,674 | ) |
|                                                |   |                                |      |   |   |
| Decrease in cash and cash equivalents               |   | (2,746,126                          | )         | (4,044,056 | ) |
| Cash and cash equivalents, beginning of period      |   | 8,615,412                           |      | 16,213,088 |   |
|                                                |   |                                |      |   |   |
| Cash and cash equivalents, end of period            |   | $                                   | 5,869,286 |   | $ | 12,169,032 |   |

 

See the accompanying Notesto Consolidated Condensed Financial Statements (Unaudited).

 

5

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**ARCHONCORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED CONDENSED FINANCIALSTATEMENTS(unaudited)**

## ** **

## **1.**                                      Basis ofPresentation and General Information

 

Archon Corporation (the“Company” or “Archon”), is a publicly traded Nevada corporation.  The Company’s primary business operationsare conducted through a wholly owned subsidiary corporation, Pioneer Hotel Inc.(“PHI”), which operates the Pioneer Hotel & Gambling Hall (the“Pioneer”) in Laughlin, Nevada under long-term lease and licenseagreements.  In addition, the Companyowns real estate on Las Vegas Boulevard South (the “Strip”) and at the cornerof Rainbow and Lone Mountain Road, both in Las Vegas, Nevada, and also ownsinvestment properties in Dorchester, Massachusetts and Gaithersburg,Maryland.  Until October 2, 2000, theCompany, through its wholly-owned subsidiary SFHI Inc., formerly known as SantaFe Hotel, Inc. (“SFHI”), owned and operated the Santa Fe Hotel and Casino (the“Santa Fe”), located in Las Vegas, Nevada. On October 2, 2000, SFHI sold substantially all of its assets, includingthe rights to the name “Santa Fe Hotel and Casino,” for $205.0 million(the “SFHI Asset Sale”).

 

The condensed consolidatedfinancial statements included herein are unaudited and have been prepared bythe Company pursuant to the rules and regulations of the United StatesSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted pursuant to such rules and regulations, although the Company believesthat the disclosures are adequate to make the information presented notmisleading.  In the opinion ofmanagement, all adjustments (which include normal recurring adjustments)necessary for a fair presentation of results for the interim periods have beenmade.  The results for the three-monthperiod is not necessarily indicative of results to be expected for the fullfiscal year.  These condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Reports on Form 10-K and 10-K/A for the year ended September 30,2002 and Forms 8-K.

 

## **2.**                                      Summary ofSignificant Accounting Policies

 

***Principles ofConsolidation****. *The accompanying unauditedconsolidated condensed financial statements include the accounts of Archon andits wholly-owned subsidiaries.  Amountsrepresenting the Company’s investment in less than majority-owned companies inwhich a significant equity ownership interest is held are accounted for on theequity method.  All materialintercompany accounts and transactions have been eliminated in consolidation.

 

***Earnings PerShare****. *The Company presents its pershare results in accordance with SFAS No. 128, *“Earnings Per Share”* (“SFAS128”).  SFAS 128 requires thepresentation of basic net income (loss) per share and diluted net income (loss)per share.  Basic per share amounts arecomputed by dividing net income (loss) by average shares outstanding during theperiod, while diluted per share amounts reflect the impact of additionaldilution for all potentially dilutive securities, such as stock options.  The effect of options outstanding was notincluded in diluted calculations during either quarter ended December 31,2002 or 2001 since the Company incurred a net loss during both periods.  The dilutive effect of the assumed exerciseof stock options increased the weighted average number of shares 

 

6

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of common stock by 546,360 and610,535 shares for the quarters ended December 31, 2002 and 2001,respectively.

 

***Estimates andAssumptions****. *The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Significant estimates used by the Companyinclude those related to customer incentives, bad debts, inventories,investments, estimated useful lives for depreciable and amortizable assets, valuationreserves and estimated cash flows in assessing the recoverability of long-livedassets, estimated liabilities for slot club bonus point programs, income taxes,contingencies and litigation.  Actualresults may differ from estimates.

 

***Recently IssuedAccounting Standards.***  In January 2003, the Financial Accounting Standards Board (the“FASB”) issued Interpretation No. 46 (“FIN 46”), “*Consolidation of Variable Interest Entities, anInterpretation of ARB No. 51*”. FIN 46 requires an investor to consolidate a variable interest entity ifit is determined that the investor is a primary beneficiary of that entity,subject to the criteria set forth in FIN 46. Assets, liabilities, and non controlling interests of newly consolidatedvariable interest entities will be initially measured at fair value.  After initial measurement, the consolidatedvariable interest entity will be accounted for under the guidance provided byAccounting Research Bulletin No. 51, “*ConsolidatedFinancial Statements*”  FIN 46is effective for variable interest entities created or entered into afterJanuary 31, 2003.  For variable interestentities created or acquired before February 1, 2003, FIN 46 applies in thefirst fiscal year or interim period beginning after June 15, 2003.  The Company believes that the adoption ofFIN 46 is not expected to have a material impact on the Company’s financialposition and results of operations.

 

In December 2002, the FASB issued Statement ofFinancial Accounting Standards No. 148, “*Accountingfor Stock-Based Compensation - Transition and Disclosure-an amendment of FASBStatement No. 123*” (SFAS 148). SFAS 148 amends FASB Statement No.123, “*Accounting for Stock-BasedCompensation*.” Although it does not require use of fair value methodof accounting for stock-based employee compensation, it does providealternative methods of transition. It also amends the disclosure provisions ofStatement 123 and APB Opinion No. 28, “*InterimFinancial Reporting*,” to require disclosure in the summary ofsignificant accounting policies of the effects of an entity’s accounting policywith respect to stock-based employee compensation on reported net income andearnings per share in annual and interim financial statements. SFAS 148’samendment of the transition and annual disclosure requirements are effectivefor fiscal years ending after December 15, 2002. The amendment of disclosurerequirements of Opinion No. 28 are effective for interim periods beginningafter December 15, 2002.  The Companybelieves that the adoption of SFAS No. 148 will not have a material impact onthe Company’s consolidated financial position or results of operations.

 

In November 2002, the FASB issued Interpretation No.45 (“FIN 45”), *“Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others”.*FIN 45 addresses financial accounting for,and disclosure of, guarantees.  FIN 45 requires certain guarantees to berecorded at fair value, as opposed to the existing standard of recording aliability only when a loss is probable and reasonably estimable according toSFAS No. 5, *“Accounting for Contingencies”*. The Company believes that the adoption of FIN 45 is not expected to have amaterial impact on the Company’s financial position and results of operations.

 

In June 2002, the FASB issued SFASNo. 146, *Accounting for CostsAssociated with Exit or Disposal Activities* (“SFAS 146”).  SFAS 146 addresses financial accounting andreporting for costs associated with exit or disposal activities and nullifiesEmerging Issues Task Force Issue No. 94-3, Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring).  SFAS 146 requires that a liability for acost associated with an exit or disposal activity be recognized when theliability is incurred.  A fundamentalconclusion reached by the FASB in this statement is that an entity’s commitmentto a plan, by itself, does not create a present obligation to others that meetsthe definition of a liability.  SFAS 146also establishes that fair value is the objective for initial measurement ofthe liability.  The provisions of thisstatement are effective for exit or disposal activities that are initiatedafter December 31, 2002, with early application encouraged.  The Company has determined that SFAS 146will not have a material impact on its financial position and results ofoperations.

 

7

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## **3.**                                      Cash and CashEquivalents

 

At December 31, 2002the Company held cash and cash equivalents of $5.9 million compared to $8.6million at September 30, 2002. Approximately $1.3 million was held by PHI and was subject tocertain restrictions and limitations on its use, including restrictions on itsavailability for distribution to the Company, by the terms of the agreementsentered into in connection with the sale/leaseback transactions in December2000 relating to the Pioneer.

 

AtDecember 31, 2002, approximately $1.6 million was heldin escrow pursuant to the agreements related to the SFHI Asset Sale.

 

## **4**                                         Other Assets

 

Included in Other assets atDecember 31, 2002 is $1.0 million of commercial and residential mortgage loans,representing loans originally funded by J & J Mortgage tounaffiliated third parties as well as loans made directly to****J & J Mortgage under amaster loan agreement.  The loanspurchased by the Company were purchased for the principal amount, plus accruedinterest, if any.  The advances toJ & J Mortgage under the master loan agreement bear interest atthe prime rate plus 2%. J & J Mortgage is owned by LICO, which in turn iswholly-owned by Paul W. Lowden, the President, Chief ExecutiveOfficer and majority stockholder of the Company.  John W. Delaney, a director of the Company, is thepresident of J & J Mortgage.

 

## **5.**                                      Related Parties

 

The Company has entered intoa Patent Rights and Royalty Agreement with David Lowden, brother of Paul W.Lowden, with respect to certain gaming technology for which David Lowden hasbeen issued a patent.  The Company hasagreed to pay certain royalty payments with respect to the technologyincorporated into gaming devices placed in operation, as well as costs relatedto maintain the patent.  David Lowdenhas granted the Company an exclusive five-year license in the United Stateswith respect to the technology, which will be automatically renewed foradditional two-year terms unless Archon terminates the agreement within thirtydays prior to the renewal or the agreement is otherwise earlier terminated inaccordance with its terms.  The Companyalso has an understanding with David Lowden that it will pay for the costs ofcommercial development of the technology. At December 31, 2002, the Company had expended $245,000 forcommercial development of the technology.

 

In fiscal 2001, the Company purchased for $100,000Class B member interests in Duke’s-Sparks (“Duke’s”), a Nevada limitedliability company that is developing Duke’s Casino, a restricted slotoperation, restaurant and entertainment facility in Sparks, Nevada.  Christopher Lowden, son of Paul W.Lowden, is a limited partner in the company that is the managing member ofDuke’s.

 

On October 8, 2002 the Company entered into aSubordinated Loan Agreement (the “Duke’s Loan Agreement”) with Duke’s.  Under the Duke’s Loan Agreement, Duke’s wasentitled to borrow up to $1.1 million for construction, equipment,furnishings and other costs related to the completion and opening of Duke’sCasino.  The loan matures on October 8,2009 and bears interest at an annual rate of 15%, plus additional interest atan annual rate of 10% until such time as the option described in the followingsentence is exercised.  In connectionwith the Duke’s Loan Agreement, the Company received an option to acquire 70%of the equity in the entity that owns Duke’s. As of December 31, 2002 Duke’s 

 

8

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had borrowed the entire $1.1 million available under the Duke’s LoanAgreement.  Furthermore, the Company hasadvanced Duke’s an additional $400,000, which advances are evidenced by apromissory note payable on demand with other terms consistent with those of theDuke’s Loan Agreement.

 

On October 4, 2002, a subsidiary of the Companyentered into a lease (the “Duke’s-Sparks Lease”) with Duke’s, under which asubsidiary of the Company will lease and operate Duke’s Casino.  The Duke’s-Sparks Lease will becomeeffective on the first day of the month immediately following the month inwhich the Company has obtained all gaming approvals required in order for theCompany to operate the casino at Duke’s Casino and will expire on the datewhich is the earlier of three years after the commencement date of theDuke’s-Sparks Lease, or the date which is the first day of the month whichimmediately follows the month in which Duke’s receives the necessary approvalsto operate the casino.  The Companybegan operating Duke’s Casino on February 7, 2003, under the terms of theDuke's-Sparks Lease.  The Duke’s-SparksLease provides for monthly base rent in the amount of $81,216.

 

See Note 4 for information regarding transactionsbetween the Company and J & J Mortgage.

 

## **6.**                                      Contingencies

 

The Company was the defendant in an action titled *Local JointExecutive Board, et al. v. Santa Fe Gaming Corporation et al.*, No.CV-S-01-0233-RLH.  The plaintiffs institutedthe action on or about February 28, 2001 in the United States District Courtfor the District of Nevada, alleging that the Company violated the WorkerAdjustment Retraining and Notification Act, (“WARN Act”), by improperlyproviding notification of the closing of the Santa Fe.  The plaintiffs sought damages in the amountprovided for by the statute.  Theplaintiffs filed a motion for class certification, and the Company stipulatedto the certification.  OnOctober 12, 2001, Archon filed a motion for summary judgment to dismissthe complaint in its entirety. Plaintiffs filed a memorandum in opposition to defendant’s motion forsummary judgment, as well as a counter-motion for summary judgment alleging theWARN Act notices sent by Archon were invalid. On February 1, 2002 a hearing was held on the motions and the courtdenied both the plaintiffs’ and Archon’s motions for summary judgment.  However, the court subsequently narrowed thescope of the case, and set the case for trial to commence October 21, 2002.  On October 1, 2002, the partiesparticipated in a settlement conference with a magistrate judge assigned to thecase.  A settlement was reached wherebythe Company agreed to pay the plaintiffs the total sum of $202,000 in exchangefor a dismissal of the lawsuit with prejudice and a full release of all claimsrelating to the closure of the Santa Fe. The class action settlement was approved by the court onOctober 24, 2002.  The Companyaccrued the settlement payment in September 2002 and made the payment inDecember 2002.

On December 29, 2000, the Company entered into aseries of agreements to transfer, pursuant to Sections 721 and 351 of theInternal Revenue Code of 1986 as amended, the real and personal property,excluding gaming equipment, and intangible assets used in the operation of thePioneer to a third party (the “Purchaser”) and agreed to lease and license theassets for up to 20 years, during which period the Company will operate thePioneer (collectively, the “Pioneer Transactions”).

Pursuantto the agreements relating to the Pioneer Transactions, Archon would have beenrequired to make capital contributions aggregating approximately $400,000 as aresult of PHI’s fixed charge ratios for the four quarters endedDecember 31, 2001 and March 31, 2002, in which the ratio of fixedcharges to operating cash flow was 0.93 to 1.00, and 0.92 to 1.00,respectively.  However, in May 2002, theCompany completed the purchase, for approximately $2.1 million, of leasedgaming equipment with $1.9 million of cash from the restricted cashaccount and cash from operations. Giving effect to the gaming equipment purchase as if it had occurred atthe beginning of the relevant four–quarter period, on a pro forma basisPHI’s ratio of fixed charges to operating cash flow for the four quarters endedDecember 31, 2001 and March 31, 2002 would have been 1.04 to 1.00 and1.05 to 1.00, respectively.  Archonadvised the Purchaser that it was not making any capital contributions to PHIfor the four–quarter periods ended December 31, 2001 and March 31,2002 based on the pro forma fixed charge ratios giving effect to the May 2002purchase of leased gaming equipment. The Purchaser has not advised the Company whether it agrees that theCompany has the right to calculate the ratios on a pro forma basis.  If the Purchaser disagrees, the Company willbe required to make capital contributions with respect to the four-quarterperiods ended December 31, 2001 and March 31, 2002 and will berequired to deposit additional cash to the restricted cash account.

 

9

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## **7.**                                      SupplementalStatement of Cash Flows Information

 

Supplemental statement of cash flows information forthe quarters ended December 31, 2002 and 2001 is presented below:

 
|                                                                                   |   | **2002**                   |       | **2001** |       |
|----------------------------------------------------------------------------------------|--------|----------------------------|------------|----------|------------|
|                                                                                   |   | **(amounts in thousands)** |       |
|                                                                                   |   |                       | ** ** |     | ** ** |
| **Operating  activities:**                                                             |   |                       |       |     |       |
| Cash paid during the  period for interest                                              |   | $                          | 5,460      |     | $          | 6,257 |   |
|                                                                                   |   |                       |       |     |       |
| Cash paid during the  period for income taxes                                          |   | $                          | 0          |     | $          | 0 |   |
|                                                                                   |   |                       |       |     |       |
| **Investing  and financing activities:**                                               |   |                       |       |     |       |
| Long-term debt incurred in  connection with the acquisition of machinery and equipment |   | $                          | 0          |     | $          | 104 |   |
|                                                                                   |   |                       |       |     |       |
| Negative amortization of  obligation under lease                                       |   | $                          | 303        |     | $          | 266 |   |
|                                                                                   |   |                       |       |     |       |
| Unrealized gain on  marketable securities                                              |   | $                          | 168        |     | $          | 180 |   |

 

## **8.**                                      Segment Information

 

The Company’s operations arein the hotel/casino industry and investment properties.  The Company’s hotel/casino operations areconducted at the Pioneer in Laughlin, Nevada. The Company owns investment properties in Dorchester, Massachusetts andGaithersburg, Maryland. “Other & Eliminations” below includes financial information forthe Company’s corporate operations, adjusted to reflect eliminations uponconsolidation.

 

Set forth below is thefinancial information for the segments in which the Company operates for thethree-month periods ended December 31, 2002 and 2001:

 

10

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|                           |   | **Three Months Ended********December 31,** |       |
|--------------------------------|--------|-------------------------------------------------|------------|
|                           |   | **2002**                                        |       | **2001** |   |
|                           |   | **(dollars in thousands)**                      |       |
|                           |   |                                            | ** ** |   | ** ** |
| **Pioneer  Hotel**             |   |                                            |       |   |   |
| Operating revenues             |   | $                                               | 8,124      |   | $ | 9,211 |   |
| Operating loss                 |   | $                                               | (389       | ) | $ | (114 | ) |
| Interest expense               |   | $                                               | 1,211      |   | $ | 1,184 |   |
| Depreciation and  amortization |   | $                                               | 636        |   | $ | 487 |   |
| Interest income                |   | $                                               | 6          |   | $ | 7 |   |
| EBITDA (1)                     |   | $                                               | 253        |   | $ | 380 |   |
| Capital expenditures           |   | $                                               | 100        |   | $ | 106 |   |
| Identifiable assets  (2)       |   | $                                               | 36,290     |   | $ | 35,671 |   |
|                           |   |                                            |       |   |   |
| **Investment  Properties**     |   |                                            |       |   |   |
| Operating revenues             |   | $                                               | 3,101      |   | $ | 3,101 |   |
| Operating income               |   | $                                               | 2,250      |   | $ | 2,374 |   |
| Interest expense               |   | $                                               | 2,717      |   | $ | 2,857 |   |
| Depreciation and  amortization |   | $                                               | 851        |   | $ | 727 |   |
| Interest income                |   | $                                               | 0          |   | $ | 0 |   |
| EBITDA (1)                     |   | $                                               | 3,101      |   | $ | 3,101 |   |
| Capital expenditures           |   | $                                               | 0          |   | $ | 0 |   |
| Identifiable assets (2)        |   | $                                               | 143,374    |   | $ | 146,471 |   |
|                           |   |                                            |       |   |   |
| **Other  & Eliminations**  |   |                                            |       |   |   |
| Operating revenues             |   | $                                               | 75         |   | $ | 94 |   |
| Operating loss                 |   | $                                               | (650       | ) | $ | (674 | ) |
| Interest expense               |   | $                                               | (38        | ) | $ | (34 | ) |
| Depreciation and  amortization |   | $                                               | 71         |   | $ | 84 |   |
| Interest income                |   | $                                               | 427        |   | $ | 340 |   |
| EBITDA (1)                     |   | $                                               | (152       | ) | $ | (250 | ) |
| Capital expenditures           |   | $                                               | 0          |   | $ | 214 |   |
| Identifiable assets (2)        |   | $                                               | 56,599     |   | $ | 62,868 |   |
|                           |   |                                            |       |   |   |
| **Total**                      |   |                                            |       |   |   |
| Operating revenues             |   | $                                               | 11,300     |   | $ | 12,406 |   |
| Operating income               |   | $                                               | 1,211      |   | $ | 1,586 |   |
| Interest expense               |   | $                                               | 3,890      |   | $ | 4,007 |   |
| Depreciation and  amortization |   | $                                               | 1,558      |   | $ | 1,298 |   |
| Interest income                |   | $                                               | 433        |   | $ | 347 |   |
| EBITDA (1)                     |   | $                                               | 3,202      |   | $ | 3,231 |   |
| Capital expenditures           |   | $                                               | 100        |   | $ | 320 |   |
| Identifiable assets (2)        |   | $                                               | 236,263    |   | $ | 245,010 |   |

 

----

(1)                                  EBITDArepresents earnings before interest, taxes, depreciation and amortization.  The Company’s definition of EBITDA may notbe the same as that of similarly captioned measures used by other companies.

 

(2)                                  Identifiableassets represents total assets less elimination for intercompany items.

 

11

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**ARCHONCORPORATION**

 

**Item 2.****                                  ****Management’s Discussion AndAnalysis Of Financial Condition And Results Of Operations**

 

**General**

 

## **Critical Accounting Policies andEstimates**

 

Management’s Discussion and Analysis of FinancialCondition and Results of Operations discusses Archon’s condensed consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America.  The preparation of these financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  On an ongoing basis, management evaluatesits estimates and judgments, including those related to customer incentives,bad debts, inventories, investments, estimated useful lives for depreciable andamortizable assets, valuation reserves and estimated cash flows in assessingthe recoverability of long-lived assets, estimated liabilities for slot clubbonus point programs, income taxes, contingencies and litigation.  Management bases its estimates and judgmentson historical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

 

**Results of Operations – Three Months EndedDecember 31, 2002 and 2001**

** **

**Consolidated**

*** ***

***Net Operating Revenues.**** *Consolidated net operating revenues for the three months endedDecember 31, 2002 were $11.3 million, a $1.1 million, or 8.9%,decrease from $12.4 million for the same period in the prior fiscalyear.  Income from investment propertieswas $3.1 million in each of the quarters ended December 31, 2002 and 2001.  Revenues decreased by $1.1 million to $8.1million at the Pioneer Hotel and Gambling Hall (the “Pioneer”).

*** ***

***Operating Expenses.**** *Total operating expenses decreased $700,000, or 6.8%, to $10.1 millionfor the quarter ended December 31, 2002 from $10.8 million in thequarter ended December 31, 2001. Total operating expenses as a percentage of revenue increased to 89.3%in the quarter ended December 31, 2002 from 87.2% in the quarter endedDecember 31, 2001.  Operatingexpenses decreased by $800,000, or 8.7%, at the Pioneer.

*** ***

***Operating Income.**** *Consolidated operating income for the quarter ended December 31,2002 was $1.2 million, a decrease of $400,000, or 23.7%, from $1.6 millionfor the same period in fiscal 2002. Operating income of $2.3 million and $2.4 million in the 2002 and2001 quarters, respectively, is attributable to investment properties.  Operating loss increased by $300,000 to$400,000 at the Pioneer.

 

12

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***Interest Expense.**** *Consolidated interest expense for the quarter ended December 31,2002 was $3.9 million, a $100,000 decrease compared to $4.0 million in thequarter ended December 31, 2001.

*** ***

***Interest Income*****. ** Consolidated interest income for the quarter ended December 31,2002 was $400,000, a $100,000 increase compared to $300,000 in the quarterended December 31, 2001.

*** ***

***Loss Before Income Tax.**** *Consolidated loss before income tax for the quarter endedDecember 31, 2002 was $2.2 million, a $100,000 increase compared to a lossof  $2.1 million in the fiscal 2002quarter.

*** ***

***Federal Income Tax.**** *The Company recorded a federal income tax benefit of $800,000 in thecurrent quarter, compared to a $700,000 benefit in the prior year’squarter.

*** ***

***Preferred Share Dividends.**** *Dividends of approximately $400,000 accrued on the preferred stock foreach of the quarters ended December 31, 2002 and 2001.  The dividend rate increased to 15% in thecurrent period compared to 14% in the prior year pursuant to the terms of theCertificate of Designations of the preferred stock.  Dividends are reported net of shares of preferred stock acquiredand retired by the Company.

*** ***

***Net Loss.**** *Consolidated net loss attributable to common shares was$1.9 million, or $0.30 per common share, in the fiscal year 2003 periodcompared to a net loss attributable to common shares of $1.8 million, or$0.28 per common share, in the prior year period.

## ** **

## **Pioneer**

*** ***

***Net Operating Revenues.**** *Revenues at the Pioneer decreased $1.1 million, or 11.8%, to$8.1 million in the quarter ended December 31, 2002 from$9.2 million in the quarter ended December 31, 2001 due to a decreasein the number of casino patrons.

 

Casino revenues decreased$1.1 million, or 14.1%, to $6.8 million in the quarter endedDecember 31, 2002 from $7.9 million in the quarter endedDecember 31, 2001.  Slot and videopoker revenues decreased $1.1 million, or 16.2%, to $5.8 million in thequarter ended December 31, 2002 from $6.9 million in the quarterended December 31, 2001.  Othergaming revenues, including table games, remained unchanged at$1.0 million.  Casino promotionalallowances decreased $500,000, or 24.7%, to $1.4 million in the quarterended December 31, 2002 from $1.9 million in the quarter endedDecember 31, 2001.

 

Hotel revenues remainedunchanged at approximately $600,000 for the quarters ended December 31,2002 and 2001, as a slight increase in occupancy rate to 65.8% from 65.3% inthe fiscal year 2003 quarter was offset by a 1.3% decrease in average dailyroom rate.  Food and beverage revenuesdecreased $300,000, or 14.9%, to $1.7 million in the quarter endedDecember 31, 2002 compared to $2.0 million in the quarter endedDecember 31, 2001 due to the decrease in the number of casinopatrons.  Other revenues decreased$100,000, or 21.8%, to $500,000 in the quarter ended December 31, 2002from $600,000 in the quarter ended December 31, 2001 due to decreasedsales in the Pioneer’s retail outlets caused by fewer patrons and competitionfrom retail sales in other casinos in Laughlin.

*** ***

***Operating Expenses.**** *Operating expenses decreased $800,000, or 8.7%, to $8.5 million inthe quarter ended December 31, 2002 from $9.3 million in the quarterended December 31, 2001, as discussed below.  Operating expenses as a percentage of revenue increased to 104.8%in the quarter ended December 31, 2002 from 101.2% in the quarter endedDecember 31, 2001.

 

13

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Casino expenses decreased$500,000, or 11.7% to $3.9 million, in the quarter ended December 31, 2002compared to $4.4 million in the quarter ended December 31, 2001,primarily related to the decrease in casino promotional allowances.  Casino expenses as a percentage of casinorevenues increased to 57.2% in the quarter ended December 31, 2002 from55.6% in the quarter ended December 31, 2001.  Hotel expenses were unchanged at $200,000 in the quarters endedDecember 31, 2002 and 2001.  Foodand beverage expenses decreased $100,000, or 13.9%, to $900,000 in the quarterended December 31, 2002 from $1.0 million in the quarter ended December31, 2001, due to the decrease in food and beverage revenues.  Food and beverage expenses as a percentageof food and beverage revenues increased to 51.2% in the quarter endedDecember 31, 2002 from 50.7% in the quarter ended December 31,2001.  Other expenses decreased$100,000, or 22.7%, to $500,000 for the quarter ended December 31, 2002compared to $600,000 for the quarter ended December 31, 2001.  The decrease was related to the lower volumeof retail sales.  Other expenses as apercentage of other revenues decreased to 92.1% in the quarter endedDecember 31, 2002 from 93.2% in the quarter ended December 31, 2001.

 

Selling, general andadministrative expenses were unchanged at $1.4 million in the quartersended December 31, 2002 and 2001. Selling, general and administrative expenses as a percentage of revenuesincreased to 17.6% in the quarter ended December 31, 2002 from 14.9% inthe quarter ended December 31, 2001. Utilities and property expenses decreased $200,000, or 17.2%, to$1.1 million in the quarter ended December 31, 2002 from$1.3 million in the quarter ended December 31, 2001, due to decreasedrent expense associated with gaming equipment that was leased in the prior yearand was purchased in May 2002. Utilities and property expenses as a percentage of revenues decreased to12.9% in the quarter ended December 31, 2002 from 13.8% in the quarterended December 31, 2001. Depreciation and amortization expenses increased $100,000, or 30.7%, to$600,000 in the quarter ended December 31, 2002 from $500,000 in thequarter ended December 31, 2001, due to the purchase of gaming equipmentsubsequent to the first quarter of fiscal 2002.

 

14

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**Liquidity and Capital Resources; Trends and FactorsRelevant to Future Operations**

* *

*ContractualObligations and Commitments*:* *The following tablesummarizes the Company’s fiscal year contractual obligations and commitments asof December 31, 2002.  (For thenine month period ending September 30, 2003 and for the fiscal years endingSeptember 30, 2004, 2005 and 2006 and thereafter.)

 
|                     |   | **Payments Due By Periods** |   |
|--------------------------|--------|-----------------------------|--------|
|                     |   | **2003**                    |   | **2004** |   | **2005** |   | **2006 and  Thereafter** |   | **Total** |   |
|                     |   | **(dollars in thousands)**  |   |
|                     |   |                        |   |   |   |   |   |   |   |   |   |
| Non-recourse debt:       |   |                        |   |   |   |   |   |   |   |   |   |
| Gaithersburg             |   | $                           | 922    |   | $ | 1,411 |   | $ | 1,658 |   | $ | 49,730 |   | $ | 53,721 |   |
| Sovereign                |   | 2,322                       |   | 5,003 |   | 28,400 |   | 31,199 |   | 66,924 |   |
|                     |   |                        |   |   |   |   |   |   |   |   |   |
| Obligations under lease: |   |                        |   |   |   |   |   |   |   |   |   |
| Pioneer Hotel Inc.       |   | 2,561                       |   | 3,902 |   | 4,155 |   | 101,178 |   | 111,796 |   |
|                     |   |                        |   |   |   |   |   |   |   |   |   |
| Long-term debt:          |   |                        |   |   |   |   |   |   |   |   |   |
| Building                 |   | 40                          |   | 61 |   | 70 |   | 94 |   | 265 |   |
| Other                    |   | 25                          |   | 35 |   | 3 |   | 0 |   | 63 |   |
|                     |   |                        |   |   |   |   |   |   |   |   |   |
| Operating leases:        |   |                        |   |   |   |   |   |   |   |   |   |
| Ground lease             |   | 595                         |   | 792 |   | 792 |   | 58,041 |   | 60,220 |   |
| Corporate offices        |   | 109                         |   | 127 |   | 108 |   | 54 |   | 398 |   |
|                     |   |                        |   |   |   |   |   |   |   |   |   |
|                     |   | $                           | 6,574  |   | $ | 11,331 |   | $ | 35,186 |   | $ | 240,296 |   | $ | 293,387 |   |

 

Our ability to service ourcontractual obligations and commitments will be dependent on the futureperformance 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 gamingfacilities in the southwest United States, certain of which are beyond ourcontrol.  In addition, we will bedependent on the continued ability of the tenants in the investment propertiesin Gaithersburg, Maryland and Dorchester, Massachusetts to make payments pursuantto the leases with the Company.  Thepayments under the leases are contractually committed to be used to makepayments on the Company’s non-recourse debt obligations related to theproperties.

*** ***

***Liquidity.**** *As of December 31, 2002, the Company held cash and cashequivalents of $5.9 million compared to $8.6 million atSeptember 30, 2002.  Approximately$1.6 million at December 31, 2002 was held in escrow pursuant to theagreements related to the sale of the Santa Fe assets.  In addition, the Company had $13.0 millionin investment in marketable securities at December 31, 2002.  Management believes that the Company willhave sufficient available cash and cash resources to meet its cash requirementsthrough the twelve month period ending December 31, 2003.

*** ***

***Cash Flows from Operating Activities.**** *The Company’s cash provided by operations was$100,000 for the quarter ended December 31, 2002 as compared to $900,000for same period in the prior year.  Cashprovided by operations was $400,000 in 2002 compared to $200,000 in 2001,by  accounts receivable, net was $1.9million compared to $2.8 million.

 

15

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***Cash Flows from Investing Activities.**** *Cash provided by investing activities was $200,000  during thequarter ended December 31, 2002, as compared to cash used in investingactivities of  $2.7 million duringthe quarter ended December 31, 2001. In the prior year, the Company invested $2.4 million in marketablesecurities.

*** ***

***Cash Used in Financing Activities.**** *Cash used in financing activities was $3.0 million in the threemonth period ended December 31, 2002 compared to $2.3 million duringthe same period in 2001.  In thequarters ended December 31, 2002 and 2001, the Company repaid $2.5 million and$2.3 million of debt, respectively.  Inthe quarter ended December 31, 2002, the Company used $500,000 to acquireshares of its preferred stock.

 

The Company’s primary sourceof operating cash is from Pioneer operations and from interest income onavailable cash and cash equivalents and investment in marketablesecurities.  Rental income from theCompany’s two investment properties is contractually committed to reducing thenon-recourse indebtedness issued or assumed in connection with the acquisitionof the investment properties.  Under thetwo leases, the tenants are responsible for substantially all obligationsrelated to the property.  Sahara LasVegas Corp. (“SLVC”), an indirect wholly-owned subsidiary of the Company, ownsan approximately 27-acre parcel of real property on Las Vegas Boulevard Southwhich is subject to a lease with a water theme park operator.  SLVC generates minimal cash from the leaseagreement after payment of property costs.

 

The Company’s primary use offunds is for operations of Archon, which includes costs of executive andadministrative personnel, administrative functions and costs to exploredevelopment opportunities.

 

## **Pioneer**

 

Results of operations at thePioneer for the quarter ended December 31, 2002 generated earnings beforeinterest, taxes, depreciation and amortization (“EBITDA”) of $300,000, comparedto $400,000 of EBITDA in the same period in 2001.  The EBITDA margin decreased to 3.1% in fiscal 2003 from 4.1% infiscal 2002.  EBITDA should not beconstrued as a substitute for operating income or a better indicator ofliquidity than cash flows from operating, investing and financing activities,which are determined in accordance with generally accepted accountingprinciples, and it is included to provide additional information with respect tothe ability of the PHI to meet its future debt service, capital expenditure andworking capital requirements.  AlthoughEBITDA is not necessarily a measure of Pioneer’s ability to fund its cashneeds, management believes that EBITDA is a useful tool for measuring theability of Pioneer to service its debt. The Company’s definition of EBITDA may not be the same as that ofsimilarly captioned measures used by other companies.

 

The Company has implementedchanges in personnel and promotional programs to address the decreases inrevenues and EBITDA.

 

PHI’s principal uses of cashare for payments of obligations under lease rent, capital expenditures tomaintain the facility and, to the extent permitted to be paid, the managementfee payable to the Company.  Payments ofobligations under lease were $900,000 in the quarters ended December 31, 2002and 2001, and rent expense was approximately $200,000 and $400,000,respectively, in the quarters ended December 31, 2002 and 2001.  Rent expense decreased as the result of thepurchase of gaming equipment  previouslyunder lease in May 2002.  Capitalexpenditures to maintain the facility in fiscal 2003 are expected to beapproximately $1.0 million. Capital expenditures are expected to be funded from the restricted cashaccount.

 

16

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OnDecember 29, 2000, the Company entered into a series of agreements totransfer, pursuant to Sections 721 and 351 of the Internal Revenue Code of1986 as amended, the real and personal property, excluding gaming equipment,and intangible assets used in the operation of the Pioneer to a third party(the “Purchaser”) and agreed to lease and license the assets for up to 20years, during which period the Company will operate the Pioneer (collectively,the “Pioneer Transactions”).  Theconsideration for the Pioneer Transactions consisted of the assumption andimmediate repayment by the Purchaser of $32.5 million of debt owed by PHIto SFHI and preferred stock of the Purchaser having a $1.0 million liquidationpreference.

 

Archon and SFHI guaranteedthe payments under the lease and license agreements and agreed to certaincovenants, including restrictions on the payment of management fees, competingin the Laughlin, Nevada area and payment of dividends with respect to theArchon preferred stock.  In addition,Archon agreed to maintain consolidated liquidity (as defined in the agreementsrelating to the Pioneer Transactions) of not less than $25.0 million.  Archon has agreed to forgo all or a portionof the management fees payable by PHI if PHI’s ratio of operating cash flow tofixed charges falls below 1.20 to 1.00. Further, Archon has agreed to contribute capital to PHI and in certainevents to deposit cash to restricted cash accounts in the event PHI’s ratio offixed charges to operating cash flow falls below 1.00 to 1.00 during anyrolling four-quarter period, calculated on a quarterly basis.

 

Specifically, if the ratio of fixed charges tooperating cash flow is less than 1.00 to 1.00 for any four-quarter periodending on or before December 31, 2003, Archon will be obligated to contributecapital to PHI in the amount of the deficiency and, if the fixed chargecoverage ratio is less than 1.00 to 1.00 for three consecutive quarters duringthat period, to deposit additional cash to restricted cash accounts based upona specified percentage of the stipulated loss value set forth in the lease,with payments ranging from $500,000 for the quarter ending March 31, 2003 to$2,000,000 for the quarter ending December 31, 2003 with increasesthereafter.  With respect tofour-quarter periods ending after December 31, 2003, if the fixed chargeratio requirement is not met, Archon will be required to make a capital contributionin the amount of the deficiency and an additional cash payment to therestricted cash account based upon a specified percentage of the stipulatedloss value set forth in the lease. Notwithstanding the foregoing, if the fixed charge coverage ratio is lessthan 1.00 to 1.00 for four consecutive quarters and the fourth consecutivequarter ends after the quarter ending December 31, 2003, Archon will notbe permitted to cure the deficiency.  IfArchon fails to make any required payments or is not permitted to cure adeficiency with respect to quarters ending after the quarter ending December31, 2003, an event of default will occur under the lease.

 

Pursuant to the agreements relating to the PioneerTransactions, Archon has foregone the management fee otherwise payable to itsince April 2001.  PHI’s ratio of fixedcharges to operating cash flow was .81 to 1.0 for the four quarters endedDecember 31, 2002, the third consecutive quarter in which the ratio was lessthan 1.00 to 1.00.  The Company will bemaking the required capital contribution to PHI in the amount of $314,000 andthe required deposit to the restricted cash account in the amount of$484,000.  PHI’s ratio of fixed chargesto operating cash flow for the four quarters ended June 30, 2002 and September 30,2002 were 0.92 to 1.00 and 0.87 to 1.00, respectively.  As a result, Archon made capitalcontributions to PHI in the amount of approximately $375,000 and $275,000 withrespect to the June and September 2002 quarters, respectively.

 

Furthermore, Archon would have been required to makecapital contributions aggregating approximately $400,000 as a result of PHI’sfixed charge ratios for the four quarters ended December 31, 2001 andMarch 31, 2002, in which the ratio of fixed charges to operating cash flowwas 0.93 to 1.00, and 0.92 to 1.00, respectively.  However, in May 2002, the Company completed the purchase, forapproximately $2.1 million, of leased gaming equipment with$1.9 million of cash from the restricted cash account and cash from operations.  The elimination of the rent payments reducesfixed charges in periods subsequent to the repurchase date.  Giving effect to the gaming equipmentpurchase as if it had occurred at the beginning of the relevant four-quarterperiod, on a pro forma basis PHI’s ratio of fixed charges to operating cash flowfor the four quarters ended December 31, 2001 and March 31, 2002would 

 

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have been 1.04 to 1.00 and 1.05to 1.00, respectively.  Archon advisedthe Purchaser that it was not making any capital contributions to PHI for thefour-quarter periods ended December 31, 2001 and March 31, 2002 based onthe pro forma fixed charge ratios giving effect to the May 2002 purchase ofleased gaming equipment.  The Purchaserhas not advised the Company whether it agrees that the Company has the right tocalculate the ratios on a pro forma basis. If the Purchaser disagrees, the Company will be required to make capitalcontributions with respect to the four-quarter periods ended December 31,2001 and March 31, 2002 and will be required to deposit additional cash tothe restricted cash account.

 

The agreements related to the Pioneer Transactionsprovide an option for the Company to purchase the assets under the lease andlicense agreements to PHI between December 31, 2003 and December 31, 2007, atpurchase price amounts ranging between $35.5 million and$38.7 million, which, as of the date of the agreements, approximatedestimated fair market value at the relevant purchase dates, and at the end ofthe lease term for fair market value.

 

## **Preferred Stock**

 

The Company’s preferredstock provides that dividends accrue on a semi-annual basis, to the extent notdeclared.  Prior to fiscal 1997, theCompany satisfied the semi-annual dividend payments on its preferred stock throughthe issuance of paid in kind dividends. The Company has accrued the semi-annual preferred stock dividends sinceOctober 1, 1996.  The dividend rateper annum was equal to 8% of $2.14 for each share of preferred stock untilSeptember 30, 1998, at which date the dividend rate increased to 11% andthe dividend continues to increase by an additional 50 basis points on eachsucceeding semi-annual dividend payment date up to a maximum of 16% perannum.  In October 2002, thedividend rate increased to 15%.  Theaccrued stock dividends have been recorded as an increase to the preferredstock account.  As of December 31,2002, the aggregate liquidation preference of the preferred stock was$16.9 million, or $3.57 per share.

 

Pursuant to the Certificateof Designations of Preferred Stock, dividends are payable only when, as and ifdeclared by the Board of Directors and the liquidation preference is payableonly upon a liquidation, dissolution or winding up of the Company.  Because dividends in an amount equal todividend payments for one dividend period have accrued and remain unpaid for atleast two years, the preferred stockholders, voting as a separate class, areentitled to elect two directors.  Theagreements relating to the Pioneer Transactions contain provisions restrictingthe incurrence of debt by the Company and the payment of dividends on thepreferred stock.

 

The Board of Directors of the Company has authorizedthe purchase from time to time by the Company of preferred stock for totalconsideration of up to $2.5 million.  Asof February 11, 2003, the Company has purchased 674,801 shares of preferredstock for $1,004,351.  In addition, inApril 2001 the Company acquired approximately 3.5 million shares of preferred stock as part of alitigation settlement agreement.

 

**RecentlyIssued Accounting Standards**

 

In January 2003, the Financial Accounting StandardsBoard (the “FASB”) issued Interpretation No. 46 (“FIN 46”), “*Consolidation of Variable Interest Entities, anInterpretation of ARB No. 51*”. FIN 46 requires an investor to consolidate a variable interest entity ifit is determined that the investor is a primary beneficiary of that entity,subject to the criteria set forth in FIN 46. Assets, liabilities, and non controlling interests of newly consolidatedvariable interest entities will be initially measured at fair value.  After initial measurement, the consolidatedvariable interest entity will be accounted for under the guidance provided byAccounting Research Bulletin No. 51, “*ConsolidatedFinancial Statements.*”  FIN46 is effective for variable interest entities created or entered into afterJanuary 31, 2003.  For variable interestentities created or acquired before February 1, 2003, FIN 46 applies in thefirst fiscal year or interim period beginning after June 15, 2003.  The Company believes that the adoption ofFIN 46 is not expected to have a material impact on the Company's financialposition and results of operations.

 

In December 2002, the FASB issued Statement ofFinancial Accounting Standards No. 148, “*Accountingfor Stock-Based Compensation - Transition and Disclosure-an amendment of FASBStatement No. 123*” (SFAS 148). SFAS 148 amends FASB Statement 

 

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No. 123, “*Accounting for Stock-Based Compensation*.”Although it does not require use of fair value method of accounting forstock-based employee compensation, it does provide alternative methods oftransition. It also amends the disclosure provisions of Statement 123 and APBOpinion No. 28, “*Interim Financial Reporting*,”to require disclosure in the summary of significant accounting policies of theeffects of an entity’s accounting policy with respect to stock-based employeecompensation on reported net income and earnings per share in annual andinterim financial statements. SFAS 148’s amendment of the transition and annualdisclosure requirements are effective for fiscal years ending after December15, 2002. The amendment of disclosure requirements of Opinion No. 28 areeffective for interim periods beginning after December 15, 2002.  The Company believes that the adoption ofSFAS No. 148 will not have a material impact on the Company’s consolidatedfinancial position or results of operations.

 

In November 2002, the FASB issued Interpretation No.45 (“FIN 45”), “*Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others”.*FIN 45 addresses financial accounting for,and disclosure of, guarantees.  FIN 45 requires certain guarantees to berecorded at fair value, as opposed to the existing standard of recording aliability only when a loss is probable and reasonably estimable according toSFAS No. 5, *“Accounting for Contingencies”*. The Company believes that the adoption of FIN 45 is not expected to have amaterial impact on the Company’s financial position and results of operations.

 

In June 2002, the FASB issued SFASNo. 146, *Accounting for CostsAssociated with Exit or Disposal Activities* (“SFAS 146”).  SFAS 146 addresses financial accounting andreporting for costs associated with exit or disposal activities and nullifiesEmerging Issues Task Force Issue No. 94-3, Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring).  SFAS 146 requires that a liability for acost associated with an exit or disposal activity be recognized when theliability is incurred.  A fundamental conclusionreached by the FASB in this statement is that an entity’s commitment to a plan,by itself, does not create a present obligation to others that meets thedefinition of a liability.  SFAS 146also establishes that fair value is the objective for initial measurement ofthe liability.  The provisions of thisstatement are effective for exit or disposal activities that are initiatedafter December 31, 2002, with early application encouraged.  The Company has determined that SFAS 146will not have a material impact on its financial position and results ofoperations.

 

## **Effects of Inflation**

 

TheCompany has been generally successful in recovering costs associated withinflation through price adjustments in its hotel.  Any such future increases in costs associated with casinooperations and maintenance of properties may not be completely recovered by theCompany.

 

## **Private Securities LitigationReform Act**

 

Certain statements in thisQuarterly Report on Form 10-Q which are not historical facts areforward-looking statements, such as statements relating to future operatingresults, existing and expected competition, financing and refinancing sourcesand availability and plans for future development or expansion activities,capital expenditures and expansion of business operations into new areas.  Such forward looking statements involve anumber of risks and uncertainties that may significantly affect the Company’sliquidity and results in the future and, accordingly, actual results may differmaterially from those expressed in any forward looking statements.  Such risks and uncertainties include, butare not 

 

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limited to, those related toeffects of competition, leverage and debt service, general economic conditions,changes in gaming laws or regulations (including the legalization of gaming invarious jurisdictions) and risks related to development activities and thestartup of non-gaming operations.

 

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# **Item 3.**                               Market Risk Disclosure

 

Market risk is the risk ofloss arising from changes in market rates and prices, such as interest rates,foreign currency exchange rates and commodity process.  The Company has no debt instruments subjectto interest rate fluctuation.

 

The Company holdsinvestments in various available-for-sale securities; however, managementbelieves that exposure to price risk arising from the ownership of theseinvestments is not material to our consolidated financial position, results ofoperations or cash flow.

 

# **Item 4**.                               Controlsand Procedures

 

Withinthe 90 days prior to the date of filing this Quarterly Report on Form 10-Q, theCompany  carried out an evaluation,under the supervision and with the participation of the Company’s DisclosureCommittee and the Company’s management, including the Chief Executive Officerand the Chief Financial Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures pursuant to theSecurities Exchange Act of 1934 Rules 13a-14 and 15d-14.  Based upon that evaluation, the ChiefExecutive Officer and the Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective in timely alerting them tomaterial information relating to the Company (including its consolidatedsubsidiaries) required to be included in the Company’s periodic SECfilings.  Subsequent to the date of thatevaluation, there have been no significant changes in the Company’s internalcontrols or in other factors that could significantly affect internal controls,nor were any corrective actions required with regard to significantdeficiencies and material weaknesses.

 

 

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**ARCHON CORPORATION**

 

**PART II****– OTHER INFORMATION**

 

**Item 1.            Legal Proceedings**

 

The Company was the defendant in an action titled *Local Joint Executive Board, et al. v. Santa FeGaming Corporation et al.*, No. CV-S-01-0233-RLH.  The plaintiffs instituted the action on orabout February 28, 2001 in the United States District Court for the District ofNevada, alleging that the Company violated the Worker Adjustment Retraining andNotification Act, (“WARN Act”), by improperly providing notification of theclosing of the Santa Fe.  The plaintiffssought damages in the amount provided for by the statute.  The plaintiffs filed a motion for classcertification, and the Company stipulated to the certification.  On October 12, 2001, Archon filed a motionfor summary judgment to dismiss the complaint in its entirety.  Plaintiffs filed a memorandum in oppositionto defendant’s motion for summary judgment, as well as a counter-motion forsummary judgment alleging the WARN Act notices sent by Archon wereinvalid.  On February 1, 2002 a hearingwas held on the motions and the court denied both the plaintiffs’ and Archon’smotions for summary judgment.  However,the court subsequently narrowed the scope of the case, and set the case fortrial to commence October 21, 2002.  OnOctober 1, 2002, the parties participated in a settlement conference with amagistrate judge assigned to the case. A settlement was reached whereby the Company agreed to pay theplaintiffs the total sum of $202,000 in exchange for a dismissal of the lawsuitwith prejudice and a full release of all claims relating to the closure of theSanta Fe.  The class action settlementwas approved by the court on October 24, 2002. The Company accrued the settlement payment in September 2002 and madethe payment in December 2002.

 

**Item 2.            Changes in Securities**

 

None

 

**Item 3.            Defaults Upon Senior Securities**

 

The Company has outstandingredeemable exchangeable cumulative preferred stock (“Preferred Stock”).  Prior to fiscal 1997, the Company satisfiedthe semi-annual dividend payments on its Preferred Stock through the issuanceof paid in kind dividends.  Commencingin fiscal 1997, dividends paid on the Preferred Stock, to the extent declared,must be paid in cash.  No dividends havebeen declared on the Preferred Stock since October 1, 1996.  Pursuant to the terms of the Certificate ofDesignation with respect to the Preferred Stock, dividends that are notdeclared are cumulative and accrue.  Thedividend rate per annum was equal to 8% of $2.14 for each share of preferredstock until September 30, 1998, at which date the dividend rate increasedto 11% and the dividend continues to increase by an additional 50 basis pointson each succeeding semi-annual dividend payment date up to a maximum of 16% perannum.  The dividend rate is 15%effective October 1, 2002.  The accruedstock dividends have been recorded as an increase to the Preferred Stock account.  As of December 31, 2002, the aggregateliquidation preference of the Preferred Stock was $16.9 million, or $3.57per share.

 

 

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**Item 4.            Submission of Matters to a****Vote of Security Holders**

 

None

 

**Item 5.            Other Information**

 

None

 

**Item 6.            Exhibits and Reports on Form 8-K**

** **

**Exhibits**

 

10.35 Demand Note dated February 6,2003 between Archon Corporation and Duke’s-Sparks, LLC.

 

99.1 Certification Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

 

**Reports on Form 8-K**

 

On November 27, 2002, the Company filed a CurrentReport on Form 8-K under Item 5 announcing that Thomas K Land was removed as amember of Archon’s board of directors effective Wednesday, November 27, 2002.

 

On December 18, 2002, the Company filed a CurrentReport on Form 8-K under Item 9 announcing that Archon’s Board of Directors hadauthorized an increase of an additional $1.0 million in the Company’s preferredstock repurchase program.

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto authorized.

 
|                                            | ARCHON  CORPORATION, Registrant |
|-------------------------------------------------|---------------------------------|
|                                            |                            |
|                                            |                            |
|                                            | By:                             | /s/  Charles W.  Sandefur |
|                                            |                            | Charles W. Sandefur, Chief Financial Officer |
|                                            |                            |   |
| Dated:    February 13, 2003 |                            |   |

 

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**SECTION302 CERTIFICATION**

 

 

I, Paul W. Lowden, certifythat:

 

1.             I have reviewed this quarterly report on Form 10-Q ofArchon Corporation;

 

2.                                       Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport;

 

3                                          Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly report, fairly present in allmaterial respects the financial condition, results of operations and cash flowsof the registrant as of, and for, the periods presented in this quarterlyreport;

 

4.                                       The registrant’s other certifying officer and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)                                    designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)                                     evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):

 

a)                                    all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                                    The registrant’s other certifying officer and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

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| Date:    February 13, 2003             |   |
|-------------------------------------------------------|--------|
|                                                  |   |
|                                                  |   |
|  /s/ PAUL W. LOWDEN                              |   |   |
| Paul W. Lowden                                        |   |
| *Chairman  of the Board and  Chief Executive Officer* |   |
|                                                       |        |  |

 

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**SECTION302 CERTIFICATION**

 

 

I, Charles W. Sandefur,certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q ofArchon Corporation;

 

2.                                       Based on my knowledge, this quarterly report does not containany  untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                                    Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly report, fairly present in allmaterial respects the financial condition, results of operations and cash flowsof the registrant as of, and for, the periods presented in this quarterlyreport;

 

4.                                    The registrant’s other certifying officer and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)                                    designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this quarterlyreport is being prepared;

 

b)                                     evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                    presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.                                    The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):

 

a)                                    all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b)                                   any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                    The registrant’s other certifying officer and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

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| Date:    February 13, 2003                                             |   |
|---------------------------------------------------------------------------------------|--------|
|                                                                                  |   |
|                                                                                  |   |
|  /s/ CHARLES W. SANDEFUR                                                         |   |   |
| Charles W. Sandefur                                                                   |   |
| *Director  and Chief Financial Officer  (Principal Accounting and Financial Officer)* |   |
|                                                                                       |        |  |

 

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