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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

(Amendment No. 1)



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

For the fiscal year ended: September 30, 2006



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

For the transition period from  to

Commission File Number: 1-9481



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ARCHON CORPORATION

(Exact name of registrant as specified in its charter)



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

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

(Address of principal executive office and zip code)

(702) 732-9120

(Registrants telephone number, including area code)



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



|                                        |  |                                
|--------------------------------------- |  | -------------------------------
|Common Stock, par value $.01 per share  |  | Over the Counter Bulletin Board
|(Title of Class)                       
|Exchangeable Redeemable Preferred Stock |  | Over the Counter Bulletin Board
|(Title of Class)                       



---

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

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

Large accelerated
filer ̈an accelerated filer ̈or a non-accelerated filer  x

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $45,000,000. The market value was computed by reference to the closing price of the common stock as of
March 31, 2006.

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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



|          |  |       |  |                 
|--------- |  | ----- |  | ----------------
|6,235,931 |  | as of |  | January 16, 2007

DOCUMENTS INCORPORATED BY REFERENCE

None

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K).    YES  x

Explanatory Note:The
purpose of filing this Annual Report on Form 10-K/A is to correct a typo in Item 8. Financial Statements - Consolidated Statements of Stockholders Equity that Archon Corporation reported on its original filing for the year ended
September 30, 2006. The Company removed a set of parentheses from the total column as of September 30, 2006 that did not belong.



---



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|Item 8. | FINANCIAL STATEMENTS
|------- | --------------------

INDEX

TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended September 30, 2006, 2005 and 2004



|                                                                                                      |  |         
|----------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                      |  | Page No.
|Report of Independent Registered Public Accounting Firm  Ernst & Young LLP                           |  | 26      
|Report of Independent Registered Public Accounting Firm  Deloitte & Touche LLP                       |  | 27      
|Consolidated Balance Sheets as of September 30, 2006 and 2005                                         |  | 28      
|Consolidated Statements of Operations for the Years Ended September 30, 2006, 2005 and 2004           |  | 30      
|Consolidated Statements of Stockholders Equity for the Years Ended September 30, 2006, 2005 and 2004 |  | 31      
|Consolidated Statements of Cash Flows for the Years Ended September 30, 2006, 2005 and 2004           |  | 32      
|Notes to Consolidated Financial Statements                                                            |  | 33      

Financial Statement Schedules are omitted because of the absence of conditions under which they
are required or because the information is included in the financial statements or the notes thereto.



25



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Archon Corporation:

We have audited the accompanying consolidated balance sheets of Archon Corporation and Subsidiaries (the Company) as of September 30, 2006
and 2005, and the related consolidated statements of operations, stockholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the
Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as
of September 30, 2006 and 2005, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Las Vegas, Nevada

December 21, 2006

/s/ Ernst & Young LLP



26



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders of Archon Corporation:

We have audited the accompanying consolidated statements of operations, stockholders equity and cash flows for the year ended September 30, 2004 of Archon
Corporation and subsidiaries (the Company. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Archon
Corporation and subsidiaries for the year ended September 30, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Las Vegas, Nevada

December 23, 2004



27



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Archon Corporation and Subsidiaries

Consolidated Balance Sheets

As of September 30,



|                                         |  |      |             |   |      |   |             |  
|---------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                         |  | 2006 |             |   | 2005 |  
|ASSETS                                   |  |      |             |   |      |   |             |  
|Current assets:                          |  |      |             |   |      |   |             |  
|Cash and cash equivalents                |  | $    | 6,187,533   |   |      | $ | 2,116,708   |  
|Investment in marketable securities      |  |      | 6,011,225   |   |      |   | 6,803,967   |  
|Accounts receivable, net                 |  |      | 1,096,333   |   |      |   | 1,051,998   |  
|Inventories                              |  |      | 414,033     |   |      |   | 355,459     |  
|Prepaid expenses and other               |  |      | 1,045,654   |   |      |   | 761,307     |  
|                                         |  |      |             |   |      |   |             |  
|Total current assets                     |  |      | 14,754,778  |   |      |   | 11,089,439  |  
|                                         |  |     
|Property held for sale                   |  |      | 21,504,400  |   |      |   | 21,504,400  |  
|                                         |  |     
|Property and equipment:                  |  |      |             |   |      |   |             |  
|Rental property held for investment, net |  |      | 127,364,625 |   |      |   | 130,536,513 |  
|Land used in operations                  |  |      | 8,125,589   |   |      |   | 8,125,589   |  
|Buildings and improvements               |  |      | 35,082,588  |   |      |   | 35,365,442  |  
|Machinery and equipment                  |  |      | 9,234,649   |   |      |   | 9,230,908   |  
|Accumulated depreciation                 |  |      | (25,664,662 | ) |      |   | (24,008,187 | )
|                                         |  |      |             |   |      |   |             |  
|Property and equipment, net              |  |      | 154,142,789 |   |      |   | 159,250,265 |  
|                                         |  |     
|Other assets                             |  |      | 7,648,201   |   |      |   | 7,793,447   |  
|                                         |  |      |             |   |      |   |             |  
|Total assets                             |  | $    | 198,050,168 |   |      | $ | 199,637,551 |  
|                                         |  |      |             |   |      |   |             |  

See the accompanying Notes to Consolidated Financial Statements.



28



---

Archon Corporation and Subsidiaries

Consolidated Balance Sheets  (continued)

As of September 30,



|                                                                                                                                                                                                                                                                                          |  |      |             |   |      |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                                                                                                                                          |  | 2006 |             |   | 2005 |  
|LIABILITIES and STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                      |  |      |             |   |      |   |             |  
|Current liabilities:                                                                                                                                                                                                                                                                      |  |      |             |   |      |   |             |  
|Accounts payable                                                                                                                                                                                                                                                                          |  | $    | 2,770,938   |   |      | $ | 2,096,606   |  
|Interest payable                                                                                                                                                                                                                                                                          |  |      | 1,310,796   |   |      |   | 1,255,096   |  
|Accrued and other liabilities                                                                                                                                                                                                                                                             |  |      | 3,524,408   |   |      |   | 3,197,668   |  
|Nonrefundable option payment                                                                                                                                                                                                                                                              |  |      | 5,750,000   |   |      |   | 0           |  
|Current portion of debt                                                                                                                                                                                                                                                                   |  |      | 11,427,277  |   |      |   | 14,915,525  |  
|Current portion of non-recourse debt                                                                                                                                                                                                                                                      |  |      | 2,195,326   |   |      |   | 1,915,478   |  
|                                                                                                                                                                                                                                                                                          |  |      |             |   |      |   |             |  
|Total current liabilities                                                                                                                                                                                                                                                                 |  |      | 26,978,745  |   |      |   | 23,380,373  |  
|                                                                                                                                                                                                                                                                                          |  |     
|Debt  less current portion                                                                                                                                                                                                                                                               |  |      | 223,306     |   |      |   | 484,856     |  
|Non-recourse debt  less current portion                                                                                                                                                                                                                                                  |  |      | 76,818,600  |   |      |   | 79,013,926  |  
|Deferred income taxes                                                                                                                                                                                                                                                                     |  |      | 27,245,317  |   |      |   | 27,353,693  |  
|Deferred rent and other accrued liabilities                                                                                                                                                                                                                                               |  |      | 45,051,567  |   |      |   | 48,021,017  |  
|Commitments and contingencies (see Note 15)                                                                                                                                                                                                                                               |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                                                                                                          |  |     
|Stockholders equity:                                                                                                                                                                                                                                                                     |  |      |             |   |      |   |             |  
|Common stock, $.01 par value; authorized  100,000,000 shares; issued and outstanding  6,672,281 and 6,235,931 shares on
September 30, 2006 and 2005; 436,350 shares are subject to non-recourse option note agreements at September 30, 2006                                            |  |      | 66,723      |   |      |   | 62,359      |  
|Preferred stock, exchangeable, redeemable 16.0% cumulative, stated at $2.14 liquidation value, authorized  10,000,000 shares; issued and
outstanding  4,413,777 shares on September 30, 2006 and 2005 with cumulative dividends in arrears of $12,302,741 and $10,791,464, respectively |  |      | 9,445,483   |   |      |   | 9,445,483   |  
|Additional paid-in capital                                                                                                                                                                                                                                                                |  |      | 61,482,194  |   |      |   | 58,342,933  |  
|Accumulated deficit                                                                                                                                                                                                                                                                       |  |      | (51,098,102 | ) |      |   | (47,742,393 | )
|Accumulated other comprehensive income                                                                                                                                                                                                                                                    |  |      | 1,924,109   |   |      |   | 1,363,078   |  
|                                                                                                                                                                                                                                                                                          |  |      |             |   |      |   |             |  
|Subtotal                                                                                                                                                                                                                                                                                  |  |      | 21,820,407  |   |      |   | 21,471,460  |  
|Less treasury common stock  4,875 shares, at cost                                                                                                                                                                                                                                        |  |      | (87,774     | ) |      |   | (87,774     | )
|                                                                                                                                                                                                                                                                                          |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                                                                                                                                                                                                |  |      | 21,732,633  |   |      |   | 21,383,686  |  
|                                                                                                                                                                                                                                                                                          |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                                |  | $    | 198,050,168 |   |      | $ | 199,637,551 |  
|                                                                                                                                                                                                                                                                                          |  |      |             |   |      |   |             |  

See the accompanying Notes to Consolidated Financial Statements.



29



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Archon Corporation and Subsidiaries

Consolidated Statements of Operations

For the Years Ended September 30,



|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|---------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                 |  | 2006 |            |   | 2005 |   |             | 2004 | 
|Revenues:                                                        |  |      |            |   |      |   |             |      |  |   |             |  
|Casino                                                           |  | $    | 24,919,899 |   |      | $ | 24,119,395  |      |  | $ | 27,470,751  |  
|Hotel                                                            |  |      | 2,955,969  |   |      |   | 2,782,506   |      |  |   | 3,125,408   |  
|Food and beverage                                                |  |      | 7,433,296  |   |      |   | 6,914,157   |      |  |   | 8,381,094   |  
|Investment properties                                            |  |      | 12,402,247 |   |      |   | 12,402,247  |      |  |   | 12,402,247  |  
|Other                                                            |  |      | 3,685,589  |   |      |   | 3,088,930   |      |  |   | 2,166,278   |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Gross revenues                                                   |  |      | 51,397,000 |   |      |   | 49,307,235  |      |  |   | 53,545,778  |  
|Less casino promotional allowances                               |  |      | (6,243,334 | ) |      |   | (5,619,377  | )    |  |   | (7,853,205  | )
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Net operating revenues                                           |  |      | 45,153,666 |   |      |   | 43,687,858  |      |  |   | 45,692,573  |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Operating expenses:                                              |  |      |            |   |      |   |             |      |  |   |             |  
|Casino                                                           |  |      | 13,874,582 |   |      |   | 13,051,698  |      |  |   | 15,126,830  |  
|Hotel                                                            |  |      | 1,074,335  |   |      |   | 1,040,601   |      |  |   | 669,411     |  
|Food and beverage                                                |  |      | 3,923,775  |   |      |   | 4,138,451   |      |  |   | 4,382,641   |  
|Other                                                            |  |      | 1,634,239  |   |      |   | 1,204,775   |      |  |   | 1,133,699   |  
|Selling, general and administrative                              |  |      | 3,807,060  |   |      |   | 3,550,890   |      |  |   | 4,325,537   |  
|Corporate expenses                                               |  |      | 5,776,989  |   |      |   | 7,634,409   |      |  |   | 3,850,474   |  
|Utilities and property expenses                                  |  |      | 4,702,539  |   |      |   | 4,702,176   |      |  |   | 5,088,568   |  
|Depreciation and amortization                                    |  |      | 5,502,009  |   |      |   | 5,834,726   |      |  |   | 5,980,476   |  
|Provision for receivable and investment                          |  |      | 0          |   |      |   | 0           |      |  |   | 162,225     |  
|Loss (gain) on sale/disposal of assets                           |  |      | 14,523     |   |      |   | 244,648     |      |  |   | (3,953,148  | )
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Total operating expenses                                         |  |      | 40,310,051 |   |      |   | 41,402,374  |      |  |   | 36,766,713  |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Operating income                                                 |  |      | 4,843,615  |   |      |   | 2,285,484   |      |  |   | 8,925,860   |  
|Interest expense                                                 |  |      | (8,854,722 | ) |      |   | (11,059,577 | )    |  |   | (12,880,017 | )
|Interest and other income                                        |  |      | 244,926    |   |      |   | 1,268,134   |      |  |   | 1,158,928   |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Loss before income tax benefit                                   |  |      | (3,766,181 | ) |      |   | (7,505,959  | )    |  |   | (2,795,229  | )
|Federal income tax benefit                                       |  |      | 410,472    |   |      |   | 2,594,181   |      |  |   | 913,487     |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Net loss                                                         |  |      | (3,355,709 | ) |      |   | (4,911,778  | )    |  |   | (1,881,742  | )
|Dividends accrued on preferred shares                            |  |      | (1,511,277 | ) |      |   | (1,511,277  | )    |  |   | (1,562,171  | )
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Net loss applicable to common shares                             |  | $    | (4,866,986 | ) |      | $ | (6,423,055  | )    |  | $ | (3,443,913  | )
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Average common shares outstanding                                |  |      | 6,235,931  |   |      |   | 6,229,015   |      |  |   | 6,221,431   |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Average common and common equivalent shares outstanding          |  |      | 6,235,931  |   |      |   | 6,229,015   |      |  |   | 6,221,431   |  
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Basic loss per common share                                      |  | $    | (0.78      | ) |      | $ | (1.03       | )    |  | $ | (0.55       | )
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  
|Diluted loss per common and common equivalent shares outstanding |  | $    | (0.78      | ) |      | $ | (1.03       | )    |  | $ | (0.55       | )
|                                                                 |  |      |            |   |      |   |             |      |  |   |             |  

See the accompanying Notes to Consolidated Financial Statements.



30



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Archon Corporation and Subsidiaries

Consolidated Statements of Stockholders Equity

For the Years Ended September 30, 2006, 2005 and
2004



|                                         |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   |            |  
|---------------------------------------- |  | ----------- | ------ | -------------- | - | --------- | ------------------------ |  | - | ------------------ | - |  | ------------------------------------------ | ----------- | ---------------------------- |  | - | ------------- |  | - | ------- | - |  | - | ------- | - |  | - | ---------- | -
|                                         |  | CommonStock |        | PreferredStock |   |           | AdditionalPaid-InCapital |  |   | AccumulatedDeficit |   |  | AccumulatedOtherComprehensiveIncome/(Loss) |             | StockSubscriptionsReceivable |  |   | TreasuryStock |  |   | Total   |  
|Balances, October 1, 2003                |  | $           | 62,214 |                | $ | 9,926,221 |                          |  | $ | 54,529,070         |   |  | $                                          | (40,948,873 | )                            |  | $ | 844,841       |  | $ | (73,743 | ) |  | $ | (87,774 | ) |  | $ | 24,251,956 |  
|Net loss                                 |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            | (1,881,742  | )                            |  |   |               |  |   |         |   |  |   |         |   |  |   | (1,881,742 | )
|Preferred stock purchased                |  |             |        |                |   | (252,668  | )                        |  |   | 3,294              |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | (249,374   | )
|Stock-based compensation expense         |  |             |        |                |   |           |                          |  |   | 50,000             |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | 50,000     |  
|Stock subscriptions received             |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   | 73,743  |   |  |   |         |   |  |   | 73,743     |  
|Unrealized gain on marketable securities |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   | 147,182       |  |   |         |   |  |   |         |   |  |   | 147,182    |  
|                                         |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   |            |  
|Balances, September 30, 2004             |  |             | 62,214 |                |   | 9,673,553 |                          |  |   | 54,582,364         |   |  |                                            | (42,830,615 | )                            |  |   | 992,023       |  |   | 0       |   |  |   | (87,774 | ) |  |   | 22,391,765 |  
|Net loss                                 |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            | (4,911,778  | )                            |  |   |               |  |   |         |   |  |   |         |   |  |   | (4,911,778 | )
|Preferred stock purchased                |  |             |        |                |   | (228,070  | )                        |  |   | (188,340           | ) |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | (416,410   | )
|Exercise of stock options                |  |             | 145    |                |   |           |                          |  |   | 19,275             |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | 19,420     |  
|Stock-based compensation expense         |  |             |        |                |   |           |                          |  |   | 3,929,634          |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | 3,929,634  |  
|Unrealized gain on marketable securities |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   | 371,055       |  |   |         |   |  |   |         |   |  |   | 371,055    |  
|                                         |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   |            |  
|Balances, September 30, 2005             |  |             | 62,359 |                |   | 9,445,483 |                          |  |   | 58,342,933         |   |  |                                            | (47,742,393 | )                            |  |   | 1,363,078     |  |   | 0       |   |  |   | (87,774 | ) |  |   | 21,383,686 |  
|Net loss                                 |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            | (3,355,709  | )                            |  |   |               |  |   |         |   |  |   |         |   |  |   | (3,355,709 | )
|Exercise of stock options                |  |             | 4,364  |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | 4,364      |  
|Stock-based compensation expense         |  |             |        |                |   |           |                          |  |   | 3,139,261          |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   | 3,139,261  |  
|Unrealized gain on marketable securities |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   | 561,031       |  |   |         |   |  |   |         |   |  |   | 561,031    |  
|                                         |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   |            |  
|Balances, September 30, 2006             |  | $           | 66,723 |                | $ | 9,445,483 |                          |  | $ | 61,482,194         |   |  | $                                          | (51,098,102 | )                            |  | $ | 1,924,109     |  | $ | 0       |   |  | $ | (87,774 | ) |  | $ | 21,732,633 |  
|                                         |  |             |        |                |   |           |                          |  |   |                    |   |  |                                            |             |                              |  |   |               |  |   |         |   |  |   |         |   |  |   |            |  

See the accompanying Notes to Consolidated Financial Statements.



31



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Archon Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended September 30,



|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                |  | 2006 |            |   | 2005 |   |             | 2004 | 
|Cash flows from operating activities:                                           |  |      |            |   |      |   |             |      |  |   |             |  
|Net loss                                                                        |  | $    | (3,355,709 | ) |      | $ | (4,911,778  | )    |  | $ | (1,881,742  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |      |            |   |      |   |             |      |  |   |             |  
|Depreciation and amortization                                                   |  |      | 5,502,009  |   |      |   | 5,834,726   |      |  |   | 5,980,476   |  
|Interest expense from amortization of debt issuance costs                       |  |      | 379,032    |   |      |   | 615,976     |      |  |   | 342,934     |  
|Stock-based compensation expense                                                |  |      | 3,139,261  |   |      |   | 3,929,634   |      |  |   | 50,000      |  
|Provision for doubtful receivables                                              |  |      | (17,701    | ) |      |   | 36,916      |      |  |   | 31,220      |  
|Loss (gain) on sale of assets                                                   |  |      | 14,523     |   |      |   | 244,648     |      |  |   | (3,953,148  | )
|Negative amortization of debt                                                   |  |      | 0          |   |      |   | 0           |      |  |   | 344,685     |  
|Change in assets and liabilities:                                               |  |      |            |   |      |   |             |      |  |   |             |  
|Accounts receivable, net                                                        |  |      | (26,634    | ) |      |   | 2,197,754   |      |  |   | (139,745    | )
|Inventories                                                                     |  |      | (58,574    | ) |      |   | (61,297     | )    |  |   | (5,215      | )
|Prepaid expenses and other                                                      |  |      | (284,347   | ) |      |   | 44,272      |      |  |   | (50,041     | )
|Deferred income taxes                                                           |  |      | (410,472   | ) |      |   | (2,594,181  | )    |  |   | (725,498    | )
|Other assets                                                                    |  |      | 176,547    |   |      |   | (255,069    | )    |  |   | (67,659     | )
|Accounts payable                                                                |  |      | 674,332    |   |      |   | (41,471     | )    |  |   | 175,273     |  
|Interest payable                                                                |  |      | 55,700     |   |      |   | (684,654    | )    |  |   | (310,204    | )
|Accrued and other liabilities                                                   |  |      | 326,740    |   |      |   | (862,212    | )    |  |   | 5,465,248   |  
|Nonrefundable option payment                                                    |  |      | 5,750,000  |   |      |   | 0           |      |  |   | 0           |  
|Other liabilities                                                               |  |      | (2,969,450 | ) |      |   | 26,957,686  |      |  |   | 0           |  
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Net cash provided by operating activities                                       |  |      | 8,895,257  |   |      |   | 30,450,950  |      |  |   | 5,256,584   |  
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Cash flows from investing activities:                                           |  |      |            |   |      |   |             |      |  |   |             |  
|Proceeds from sale of assets                                                    |  |      | 63,203     |   |      |   | 0           |      |  |   | 5,770,000   |  
|Decrease in restricted cash                                                     |  |      | 0          |   |      |   | 0           |      |  |   | 13,898,971  |  
|Capital expenditures                                                            |  |      | (186,744   | ) |      |   | (458,926    | )    |  |   | (989,102    | )
|Marketable securities purchased                                                 |  |      | (199,131   | ) |      |   | (946,133    | )    |  |   | (272,214    | )
|Marketable securities sold                                                      |  |      | 1,855,000  |   |      |   | 111,459     |      |  |   | 2,817,330   |  
|Investment in partnerships                                                      |  |      | (410,333   | ) |      |   | (825,000    | )    |  |   | (525,000    | )
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) investing activities                             |  |      | 1,121,995  |   |      |   | (2,118,600  | )    |  |   | 20,699,985  |  
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Cash flows from financing activities:                                           |  |      |            |   |      |   |             |      |  |   |             |  
|Proceeds from long-term debt                                                    |  |      | 683,069    |   |      |   | 2,408,865   |      |  |   | 18,565,751  |  
|Paid on long-term debt and obligation under capital lease                       |  |      | (6,633,860 | ) |      |   | (31,669,935 | )    |  |   | (51,203,512 | )
|Note receivable                                                                 |  |      | 0          |   |      |   | 0           |      |  |   | 4,884,301   |  
|Debt issuance costs                                                             |  |      | 0          |   |      |   | 0           |      |  |   | (437,414    | )
|Preferred stock acquired                                                        |  |      | 0          |   |      |   | (416,410    | )    |  |   | (249,374    | )
|Stock subscription received                                                     |  |      | 0          |   |      |   | 0           |      |  |   | 73,743      |  
|Stock options exercised                                                         |  |      | 4,364      |   |      |   | 19,420      |      |  |   | 0           |  
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Net cash used in financing activities                                           |  |      | (5,946,427 | ) |      |   | (29,658,060 | )    |  |   | (28,366,505 | )
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Increase (decrease) in cash and cash equivalents                                |  |      | 4,070,825  |   |      |   | (1,325,710  | )    |  |   | (2,409,936  | )
|Cash and cash equivalents, beginning of year                                    |  |      | 2,116,708  |   |      |   | 3,442,418   |      |  |   | 5,852,354   |  
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  
|Cash and cash equivalents, end of year                                          |  | $    | 6,187,533  |   |      | $ | 2,116,708   |      |  | $ | 3,442,418   |  
|                                                                                |  |      |            |   |      |   |             |      |  |   |             |  

See the accompanying Notes to Consolidated Financial Statements.



32



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ARCHON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended September 30, 2006, 2005 and 2004

1. BASIS OF PRESENTATION AND GENERAL INFORMATION

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

On December 29, 2000, the Company entered into a
series of agreements to exchange, pursuant to Sections 721 and 351 of the Internal Revenue Code of 1986, as amended (the Code), the real and personal property, excluding gaming equipment, and intangible assets used in the operation of
the Pioneer to a third party and agreed to lease and license the assets sold for up to 20 years, during which period the Company would operate the Pioneer (collectively, the Pioneer Transactions). Additionally, the Company had the option
to acquire the Pioneer during the period from December 29, 2003 to December 31, 2007. On November 13, 2003, the Company notified GE Capital that in accordance with Article 25 of the lease between HAHF Pioneer, LLC (GE) and
PHI, the Company exercised its Early Purchase Option on December 29, 2003.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Cash and Cash Equivalents

Investments which mature within 90 days from the date of purchase are treated as
cash equivalents. These investments are stated at cost which approximates their market value.

Investment in Marketable Securities

Debt securities available-for-sale are stated at market value with unrealized gains or losses reported as a component of
accumulated other comprehensive income. Gains or losses on disposition are based on the net proceeds and the adjusted carrying amount of the securities. Debt securities available-for-sale at September 30, 2006 and 2005 include investments in
corporate securities.

Equity securities available-for-sale are reported at fair value with unrealized gains or losses reported as a
component of accumulated other comprehensive income. Realized gains and losses are determined on a specific



33



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identification method. At September 30, 2006 and 2005, equity securities available-for-sale included investments in common and preferred stock.

Included in Other income with the consolidated statements of operations are approximately $(8,000), $112,000 and $94,000 of
realized gains/(losses) for the years ended September 30, 2006, 2005 and 2004, respectively. The Company recorded approximately $561,000, $371,000 and $147,000 of other comprehensive gain associated with unrealized gains or losses on these
securities during the years ended September 30, 2006, 2005 and 2004, respectively.

The following is a summary of available-for-sale
marketable securities as of September 30, 2006 and 2005:



|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          
|--------------------- |  | ---- | --------- | --------------- | - | ----------------- |  | -------------------- | ------- |  | - | ---------
|                      |  | 2006
|                      |  | Cost |           | Unrealized Gain |   | Unrealized Losses |  | Market or Fair Value
|Other debt securities |  | $    | 745,000   |                 | $ | 0                 |  | $                    | 137,182 |  | $ | 607,818  
|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          
|Total debt securities |  |      | 745,000   |                 |   | 0                 |  |                      | 137,182 |  |   | 607,818  
|Equity securities     |  |      | 2,306,056 |                 |   | 3,158,424         |  |                      | 61,073  |  |   | 5,403,407
|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          
|Total                 |  | $    | 3,051,056 |                 | $ | 3,158,424         |  | $                    | 198,255 |  | $ | 6,011,225
|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          



|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          
|--------------------- |  | ---- | --------- | --------------- | - | ----------------- |  | -------------------- | ------- |  | - | ---------
|                      |  | 2005
|                      |  | Cost |           | Unrealized Gain |   | Unrealized Losses |  | Market or Fair Value
|Other debt securities |  | $    | 2,600,000 |                 | $ | 46,900            |  | $                    | 146,800 |  | $ | 2,500,100
|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          
|Total debt securities |  |      | 2,600,000 |                 |   | 46,900            |  |                      | 146,800 |  |   | 2,500,100
|Equity securities     |  |      | 2,106,925 |                 |   | 2,272,134         |  |                      | 75,192  |  |   | 4,303,867
|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          
|Total                 |  | $    | 4,706,925 |                 | $ | 2,319,034         |  | $                    | 221,992 |  | $ | 6,803,967
|                      |  |      |           |                 |   |                   |  |                      |         |  |   |          

All debt contractually matures more than ten years in the future as of September 30, 2006 and
2005.

Accounts Receivable

Accounts receivable are stated at cost, net of related allowance for doubtful accounts. The allowance for doubtful accounts is determined based on a specific identification method.

Inventories

Food, beverage, gift shop
and other inventories are stated at first-in, first-out cost, not in excess of market.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Costs of maintenance and repairs of property and equipment are expensed as
incurred. Costs of major improvements are capitalized and depreciated over the estimated useful lives of the assets or the remaining term of the leases. Gains or losses on the disposal of property and equipment are recognized in the year of sale. In
sale/leaseback transactions of equipment, gains are deferred and recognized over the lease term and losses are recognized in the year of sale.

The Company periodically assesses the recoverability of property and equipment and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not



34



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be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the carrying
amount in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).

Depreciation and amortization are computed by the straight-line method over the shorter of the estimated useful lives or lease terms. The length of
depreciation and amortization periods for buildings and improvements is seven to 40 years and for machinery and equipment three to 15 years.

Nonrefundable Option Payment

The nonrefundable option payment at September 30, 2006 is a nonrefundable
option payment of $5.0 million and a nonrefundable extension fee of $750,000 received from a third party which has an option to acquire certain land on the Las Vegas strip owned by the Company.

Slot Club Liability

The Pioneer has a
program called the Bounty Hunter Round-Up Club (the Club) established to encourage repeat business from frequent and active slot and table game customers. A member of the Club accumulates points in the members account
for play on slot machines and table games that can be redeemed for cash, free gifts, food and beverages and additional points redeemable for free play. Included in accrued liabilities is approximately $1.4 million and $1.5 million at
September 30, 2006 and 2005, respectively, for estimated redemption value of points accumulated by patrons. This value is estimated based on historical amounts of free gift costs redeemed.

Federal Income Taxes

Deferred income
taxes are provided on temporary differences between pre-tax financial statement income and taxable income resulting primarily from different methods of depreciation and amortization. The Company accounts for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes (SFAS 109).

Treasury Stock

Treasury stock is the Companys common stock that has been issued and subsequently reacquired. The acquisition of common stock is accounted for under
the cost method, and presented as a reduction of stockholders equity.

Revenue Recognition

Casino revenue is recorded as gaming wins less losses. Revenues include the retail amount of room, food, beverage and other services provided gratuitously
to customers. Such amounts are then deducted as promotional allowances. The estimated cost of providing these promotional services has been reported in the accompanying Consolidated Statements of Operations as an expense of each department granting
complimentary services. The table below summarizes the departments costs of such services (dollars in thousands):



|                  |  |      |       |      |   |       |  |   |      
|----------------- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                  |  | 2006 |       | 2005 |   | 2004 
|Food and beverage |  | $    | 4,531 |      | $ | 4,061 |  | $ | 5,217
|Hotel             |  |      | 436   |      |   | 409   |  |   | 855  
|Other             |  |      | 201   |      |   | 195   |  |   | 138  
|                  |  |      |       |      |   |       |  |   |      
|Total             |  | $    | 5,168 |      | $ | 4,665 |  | $ | 6,210
|                  |  |      |       |      |   |       |  |   |      



35



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Rental revenue from investment properties is recognized and accrued as earned on a pro rata basis over
the term of the lease. When rents received exceed rents recognized, the difference is recorded as other liabilities. When rents recognized exceed rents received, the difference is recorded as other assets.

Indirect Expenses

Certain indirect
expenses of operating departments such as utilities and property expense and depreciation and amortization are shown separately in the accompanying Consolidated Statements of Operations.

Earnings Per Share

The Company presents its per share results in accordance with SFAS
No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires the presentation of basic net loss per share and diluted net loss per share. Basic per share amounts are computed by dividing net loss by average shares outstanding
during the period, while diluted per share amounts reflect the impact of additional dilution for all potentially dilutive securities, such as stock options. Stock options of approximately 830,000, 830,000 and 430,000, respectively were not included
in the computation of diluted net loss per share for the years ended September 30, 2006, 2005 and 2004, since the Company incurred a net loss and their effect would be antidilutive.

The Board of Directors of the Company has authorized the purchase from time-to-time by the Company of preferred stock for total consideration of up to
$2.5 million. Pursuant to the Certificate of Designation of the preferred stock, shares of preferred stock acquired by the Company are retired.

Accounting for Stock-Based Compensation

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

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

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates used by the Company include estimated useful lives for depreciable and amortizable assets, certain other estimated liabilities and valuation reserves and estimated cash flows in assessing the recoverability of
long-lived assets. Actual results may differ from estimates.



36



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Recently Issued Accounting Standards

SFAS 157. In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for
measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarch used to classify the
source of the information. This statement is effective beginning in October 2008. The Company is evaluating whether adoption of this statement will result in a change to its fair value measurements.

SAB 108. In September 2006, the SEC issued SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements. SAB 108 requires analysis of misstatements using both an income statement (rollover approach) and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative
effect transition adjustment. SAB 108 is effective for the Companys fiscal year 2007 annual financial statements. The Company does not expect the adoption of the statement to have a material impact on its consolidated results of operations,
financial position or cash flows.

SFAS 154. In May 2005, the FASB issued SFAS 154, Accounting Changes and Error
Corrections, Requiring Retrospective Application to Prior-Period Financial Statements of Changes in Accounting Principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154
also redefines restatement as the revising of previously issued financial statements to reflect the corrections of errors. This statement is effective for the Company beginning in October 2006. Although the Company has no current
application for this statement, the adoption of this statement may affect its future consolidated results of operations, financial position or cash flows.

SFAS 123R. In the first quarter of fiscal 2006, the Company adopted SFAS 123R, Share-Based Payment, and recognized share-based compensation expense in our financial statements. See
Notes to Consolidated Financial Statements  Note 2, Accounting for Stock-Based Compensation for a discussion of the impact to operating results for the year on the Companys Consolidated Financial Statements for additional
information regarding the adoption of SFAS 123R.

FIN 48 In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise
concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement.
Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. FIN 48 is effective for fiscal years beginning after December 15, 2006, in which the impact of adoption should be accounted for
as a cumulative-effect adjustment to the beginning balance of retained earnings. The Company is evaluating FIN 48 and has not yet determined the impact the adoption will have on the consolidated financial statements.

EITF 04-5. In June 2005, the U.S. Emerging Issues Task Force (EITF) reached a consensus on EITF
Issue 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (EITF 04-5), addressing when a general partner,
or general partners as a group, control and should therefore, consolidate a limited partnership. Under EITF 04-5, a sole general partner is presumed to control a limited partnership when certain conditions are met. As a result, for the fiscal year
ended September 30, 2007, the Company will be required to include the accounts of Santa Fe Mining Corp (SFMC) for U.S. GAAP purposes.

The Company currently accounts for its 50% ownership in SFMC using the equity method of accounting whereby its equity in SFMC is reflected in the caption Other assets within its consolidated balance
sheets. After adopting this accounting guidance, the Company will consolidate all accounts of SFMC into its consolidated financial statements.



37



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Fair Value of Financial Instruments

The Company estimates the fair value of its preferred stock to be approximately $23.4 million at September 30, 2006 based upon available market
prices. The Company estimates that its debt and all other financial instruments have a fair value that materially approximates their recorded value, except for its non-recourse debt associated with an investment property owned in Massachusetts. The
debt, which bears interest at 12.18% and matures in 2020, has a fair market value approximately $6 million greater than its carrying cost at September 30, 2006 of approximately $31.2 million. The interest rate used to discount the notes and
estimate the fair value was 7%, the same interest rate that is associated with similar non-recourse debt of the Company.

Other Income

Other income consists primarily of gains from the sale of marketable securities and income from investments in unconsolidated
entities.

Comprehensive Loss

Comprehensive loss is the total of net loss and all other non-stockholder changes in stockholders equity. Comprehensive loss for each of the three years ended September 30, 2006, 2005 and 2004 is as follows (in thousands):



|                                                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                         |  | 2006 |        |   | 2005 |   |        | 2004 | 
|Net loss                                                                                                                 |  | $    | (3,356 | ) |      | $ | (4,912 | )    |  | $ | (1,882 | )
|Unrealized gain on marketable securities, net of income taxes of $302, $199 and $79 in 2006, 2005 and 2004, respectively |  |      | 561    |   |      |   | 371    |      |  |   | 147    |  
|                                                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  
|Comprehensive loss                                                                                                       |  | $    | (2,795 | ) |      | $ | (4,541 | )    |  | $ | (1,735 | )
|                                                                                                                         |  |      |        |   |      |   |        |      |  |   |        |  

Reclassification

Certain amounts included in the 2004 statement of operations have been reclassified to conform with the proper presentation of similar amounts in the 2005
and 2006 statements of operations. Specifically, gains on the sale of certain land and other assets of approximately $4.0 million in fiscal 2004 had previously been included as nonoperating income but have been reclassified as operating income
within these consolidated financial statements.

3. ACCOUNTS RECEIVABLE, NET

Accounts receivable at September 30, 2006 and 2005 consisted of the following:



|                                      |  |      |           |   |      |   |           |  
|------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                      |  | 2006 |           |   | 2005 |  
|Casino and hotel                      |  | $    | 177,849   |   |      | $ | 178,873   |  
|Rental properties                     |  |      | 950,018   |   |      |   | 950,018   |  
|                                      |  |      |           |   |      |   |           |  
|Subtotal                              |  |      | 1,127,867 |   |      |   | 1,128,891 |  
|Less: allowance for doubtful accounts |  |      | (31,534   | ) |      |   | (76,893   | )
|                                      |  |      |           |   |      |   |           |  
|Total                                 |  | $    | 1,096,333 |   |      | $ | 1,051,998 |  
|                                      |  |      |           |   |      |   |           |  



38



---

Changes in the allowance for doubtful accounts for the years ended September 30, 2006, 2005, and
2004 were as follows:



|                           |  |      |         |   |      |   |          |      |  |   |          |  
|-------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                           |  | 2006 |         |   | 2005 |   |          | 2004 | 
|Balance, beginning of year |  | $    | 76,893  |   |      | $ | 195,875  |      |  | $ | 586,637  |  
|Provision                  |  |      | (17,701 | ) |      |   | 36,916   |      |  |   | 31,220   |  
|Accounts written-off       |  |      | (27,658 | ) |      |   | (155,898 | )    |  |   | (421,982 | )
|                           |  |      |         |   |      |   |          |      |  |   |          |  
|Balance, end of year       |  | $    | 31,534  |   |      | $ | 76,893   |      |  | $ | 195,875  |  
|                           |  |      |         |   |      |   |          |      |  |   |          |  

4. PROPERTY HELD FOR SALE

In October 1995, the Company acquired an approximately 27-acre parcel on Las Vegas Boulevard South which was recorded at approximately $21.5 million. The
Company assumed an operating lease under which a water theme park operated on the 27-acre parcel. The lease was terminated by the Company in September 2004 and the tenant had until January 2005 to vacate the premises. Under the terms of the lease,
as amended, the water theme park remitted a base rent of approximately $19,000 monthly plus an annual rent payment based on gross receipts. Subsequent to September 30, 2004, the Company entered into an agreement to lease a small portion of this
property for 16 months at a rate of approximately $42,000 per month. The month-to-month lease amount is currently $65,000 per month with the lessee for the land.

In 1994, Santa Fe Hotel, Inc. (SFHI) acquired for $1.6 million the approximately 20-acre parcel of undeveloped real property at the corner of Rainbow and Lone Mountain Road in Las Vegas, Nevada. In
connection with the SFHI Asset Sale, the Company and SFHI granted an option to the buyer through October 2003 to purchase the property for $5.0 million. The buyer declined to exercise the option to purchase the property and the property was sold in
September 2004 to a third party for approximately $5.6 million. A gain of approximately $4.2 million was recorded in the fourth fiscal quarter ended September 30, 2004 and is included in Gain on sale of assets in the accompanying
consolidated statements of operations.

5. RENTAL PROPERTY HELD FOR INVESTMENT, NET

The property in Dorchester, Massachusetts is located on 12 acres and includes several buildings with approximately 425,000 square feet of commercial
office space. The property was acquired for approximately $82.4 million plus $0.5 million in debt issuance costs. The Company paid $5.6 million in cash and assumed $77.3 million in non-recourse debt associated with the property. The property is
under a net lease through 2020 with a single tenant with an investment grade credit rating. Under the lease, the tenant is responsible for substantially all obligations related to the property. The Company allocated approximately $15.0 million of
the purchase price to land and the balance to building and improvements. The loan issue costs incurred to acquire the property recorded in Other assets in the accompanying Consolidated Balance Sheets are being amortized over the remaining loan
period. Deferred rent at September 30, 2006 and 2005 in the amount of $45.0 million and $48.0 million, respectively, is included in Other liabilities on the accompanying Consolidated Balance Sheets. See Note 8

The property in Gaithersburg, Maryland is located on 55 acres and includes one building with approximately 342,000 square feet of commercial office
space. The property was acquired for $62.6 million, plus debt issuance costs of $2.7 million. The Company paid $9.9 million in cash and issued $55.4 million in non-recourse first mortgage indebtedness. The building is located on approximately 20
acres of the property. The property is under a net lease through 2014 with a single tenant with an investment grade credit rating. Under the lease, the tenant is responsible for substantially all obligations related to the property. The Company
allocated



39



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approximately $23.0 million of the purchase price to land, $3.0 million to machinery and equipment and the balance to building and improvements. The expenses
incurred to acquire the property (approximately $2.7 million) are recorded in Other assets in the accompanying Consolidated Balance Sheets and are being amortized over the remaining loan period. Deferred rent at September 30, 2006 and 2005 in
the amount of $2.9 million and $2.7 million, respectively, is included in Other assets on the accompanying Consolidated Balance Sheets. See Note 8

6.
OTHER ASSETS

Included in Other assets at September 30, 2006 and 2005 are unamortized loan issue costs, which were incurred
during the acquisition of certain rental property and certain debt, and deferred rents of approximately $4.6 million and $4.7 million, respectively. The unamortized loan issue costs are being amortized on the straight-line basis over the loan
period, which closely approximates the effective interest method, and the deferred rents are being amortized on the straight-line basis over the lease period.

Additionally, Other assets at September 30, 2006 and 2005 include $0.1 million and $0.3 million, respectively, of commercial and residential mortgage loans, representing loans originally funded by J & J
Mortgage to unaffiliated third parties as well as loans made directly to J & J Mortgage under a master loan agreement. The loans purchased by the Company were purchased for the principal amount, plus accrued interest, if any. The advances to J
& J Mortgage under the master loan agreement bear interest at the prime rate plus 2%. J & J Mortgage is owned by LICO, which in turn is wholly-owned by Paul W. Lowden, the President, Chief Executive Officer and majority stockholder of the
Company. John W. Delaney, a director of the Company, is the president of J & J Mortgage.

Other assets also include amounts for the
cash surrender value of life insurance of approximately $0.8 million and $0.7 million on September 30, 2006 and 2005, respectively, and investments in unconsolidated entities of approximately $1.8 million and $1.7 million on September 30,
2006 and 2005, respectively. One of the unconsolidated entities is a 50% owned LLC which has the following financial profile at and for the years ended September 30, 2006: current and total assets of approximately $0.2 million and $1.0 million,
respectively; current and total liabilities of approximately $0.1 million and $0.3 million, respectively; total equity of approximately $0.7 million; revenues of approximately $2.0 million and pretax income of approximately $0.4 million. As of and
for the year ended September 30, 2005, current and total assets of approximately $0.3 million and $1.1 million, respectively; current and total liabilities of approximately $0.1 million and $0.4 million, respectively; total equity of
approximately $0.7 million; revenues of approximately $1.9 million and pretax income of approximately $0.3 million. In accordance with accounting literature, the Company plans to consolidate this entity into its consolidated financial statements in
fiscal 2007 because it is the general partner (controlling member) but accounts for this investment presently under the equity method.

7. DEBT

As of September 30, 2006, the Companys long-term debt was comprised primarily of the following obligations: a loan payable
to a bank with a balance of approximately $10.1 million, secured by land held for development on the Las Vegas Strip, monthly payments of approximately $120,000, including interest of prime plus 1% (9.25% at September 30, 2006) with a balloon
payment of approximately $10.0 million in December 2006 and various loans with a total balance of $1.5 million collateralized by slot equipment with interest rates between 0% and 10.0%, current monthly principal payments of approximately $60,000
with maturities thru September 2009.

The Companys loan with a balance of approximately $10.1 million includes a financial covenant
which requires the Company to maintain certain levels of earnings before interest, taxes, depreciation and amortization without including financial results related to the Companys investment properties in Massachusetts and Maryland. At
September 30, 2005 and 2004, the Company was not in compliance with this covenant. The bank has informed



40



---

the Company that it does not intend to accelerate the payment of the note, which includes a balloon payment of principal in December 2006 of approximately
$10.1 million, but does not plan to grant a waiver to the Company relating to the default. As such, the Company has included all principal amounts owing to the bank in current debt at September 30, 2006 and 2005. The Bank has informed the
Company of its commitment to extend the maturity date of the note obligation to January 2008. The terms of the extension include monthly principal and interest payments of approximately $120,000 with interest at a rate of prime plus 1% and a balloon
payment of approximately $9.5 million in January 2008 with no prepayment penalties. The extended note continues to be secured by the land owned on the Las Vegas strip by the Company and by a personal guaranty of the Companys Chairman of the
Board and CEO, Paul W. Lowden. Although the Company believes the banks commitment to extend the maturity date of the loan will be made formal in the near-term, it can not give any assurances that the extension will occur on terms and
conditions ultimately acceptable to the Company.

As of September 30, 2005, the Companys long-term debt was comprised primarily
of the following obligations: a loan payable to a bank with a balance of approximately $12.1 million, secured by land held for development on the Las Vegas Strip, monthly payments of approximately $120,000, including interest of prime plus 1% (7.75%
at September 30, 2005) with a balloon payment of approximately $11.4 million in December 2006; borrowings of $1.9 million from a margin account (collateralized by securities owned by the Company) at a brokerage firm with a variable rate of
interest (7.25% at September 30, 2005); a loan with a balance of $1.3 million collateralized by slot equipment with an approximate interest rate of 7.25%, monthly principal payments of approximately $70,000 through October 2007; and a loan with
a balance of $90,000 collateralized by real property with an interest rate of 13.5%, monthly payments of $8,000 through November 2006.

The
scheduled maturities of long-term debt as of September 30, 2006 are as follows:



|      |  |                         |           
|----- |  | ----------------------- | ----------
|      |  | As of September 30,2006
|2007  |  | $                       | 11,427,277
|2008  |  |                         | 171,042   
|2009  |  |                         | 52,264    
|      |  |                         |           
|Total |  | $                       | 11,650,583
|      |  |                         |           

8. NON-RECOURSE DEBT OBLIGATIONS

The Company assumed $77.3 million of indebtedness, consisting of approximately $75.1 million of first mortgage indebtedness, $43.9 million with an
interest rate of 10.2% and $31.2 million with an interest rate of 12.18% and $2.1 million of indebtedness under Section 467 of the Code, in connection with its acquisition on March 2, 2001 of the commercial office building located in
Dorchester, Massachusetts. The building is under a net lease through June 2020, which requires the tenant to make higher semi-annual lease payments through June 2005 and lower semi-annual lease payments thereafter. The lease payments are applied to
the outstanding indebtedness and reduced the first mortgage note balance to $31.2 million by June 2005. The portion of higher lease payments attributable to future periods is considered an advance of rent. The first mortgage indebtedness is
non-recourse and matures in June 2020 to coincide with the end of the lease term. See Note 5.

The Company issued approximately $55.4
million of first mortgage debt with a 7.01% interest rate per annum in connection with its acquisition of a commercial office building located in Gaithersburg, Maryland. The building is under lease through April 2014. The monthly lease payments are
applied against the outstanding indebtedness. Monthly principal and interest payments amortize the debt to approximately $22.3 million by the end of the lease in April 2014. The Company anticipates that the future tenant payments related to the net
leases will be sufficient to fund required payments under the first mortgage notes and Section 467 debt. See Note 5



41



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The scheduled maturities of non-recourse debt as of September 30, 2006 are as follows:



|           |  |                        |           
|---------- |  | ---------------------- | ----------
|           |  | As ofSeptember 30,2006
|2007       |  | $                      | 2,195,326 
|2008       |  |                        | 2,490,198 
|2009       |  |                        | 2,828,304 
|2010       |  |                        | 3,185,888 
|2011       |  |                        | 3,573,478 
|Thereafter |  |                        | 64,740,732
|           |  |                        |           
|Total      |  | $                      | 79,013,926
|           |  |                        |           

9. LEASES

All non-cancelable leases have been classified as operating leases. Under most leasing arrangements, the Company pays the taxes, insurance and the operating expenses related to the leased property. Amortization of
assets leased under capital leases in prior years is included in depreciation and amortization expense in the Consolidated Statements of Operations.

At September 30, 2006, the Company had an operating lease for real property that expires in 2078 and operating leases for corporate offices. The Company had no significant property and equipment under capital
leases at September 30, 2006.

Future minimum lease payments as of September 30, 2006 are as follows:



|           |  |                        |           
|---------- |  | ---------------------- | ----------
|           |  | As ofSeptember 30,2006
|2007       |  | $                      | 385,886   
|2008       |  |                        | 363,710   
|2009       |  |                        | 363,710   
|2010       |  |                        | 363,710   
|2011       |  |                        | 363,710   
|Thereafter |  |                        | 24,459,524
|           |  |                        |           
|Total      |  | $                      | 26,300,250
|           |  |                        |           

Rent expense was $313,435, $629,470 and $1,084,533 for the years ended September 30, 2006,
2005 and 2004, respectively.

10. PREFERRED STOCK

The Companys preferred stock provides that dividends accrue on a semi-annual basis, to the extent not declared. Prior to fiscal 1997, the Company satisfied the semiannual dividend payments on its preferred stock
through the issuance of paid-in-kind dividends. The Company has not declared the semiannual preferred stock



42



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dividends since October 1, 1996. As originally drafted, the Certificate of Designation of the Exchangeable Redeemable Preferred Stock(Certificate of Designation) provided in part that:



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

During the quarter ended June 30, 2006, a holder of the Companys preferred stock
advised the Company that the holder had concluded that the Companys calculation of the dividends on the preferred stock would accumulate at a compounded rate and is therefore erroneous, and that as a result the aggregate liquidation preference
of the preferred stock is significantly greater than that calculated by the Company. Based upon the Companys review to date of the relevant documents, the Company does not agree with the holders position. The Company is continuing its
review of the 1993 transaction in which the preferred stock was issued.

On November 9, 2006, the Company was served with a legal
action in the United States District Court for the District of Connecticut styled as Mercury Real Estate Securities Fund, LP and Mercury Real Estate Securities Offshore Limited v. Archon Corporation, Case No. 306CV1740 (SRU), dated and
filed November 1, 2006. The Complaint alleges, amongst other things, that the Company has failed to properly apply the cumulative cash dividend and liquidation preferences related to certain exchangeable preferred stock issued by the Company
approximately 13 years ago. The Complaint further alleges that previous disclosure by the Company with regard to the same exchangeable preferred stock is not in accord with the manner of computation the plaintiffs believe is proper and required. At
September 30, 2006, the difference between the Companys liquidation preference calculation and the amount asserted by the preferred shareholder is approximately $11.5 million. The Company plans to vigorously defend this Complaint and has
both procedural and substantive defenses and may have rights against other persons or parties related to the purported claim.

The accrued
stock dividends have not been recorded as an increase to the preferred stock account. As of September 30, 2006, the aggregate liquidation preference of the preferred stock was approximately $21.7 million, or $4.93 per share.

Pursuant to the Certificate of Designation of Preferred Stock, dividends are payable only when, as and if declared by the Board of Directors and the
liquidation preference is payable only upon a liquidation, dissolution or winding up of the Company. Because dividends in an amount equal to dividend payments for one dividend period have accrued and remain unpaid for at least two years, the
preferred stockholders, voting as a separate class, are entitled to elect two directors. Accordingly, one of the Companys current six board members has been elected by the preferred shareholders while one was appointed by the Board. The
Preferred Stockholders right to elect two directors will continue until all dividend arrearages have been paid.

The Board of
Directors of the Company authorized an increase in the amount of cash that may be used to purchase preferred stock to $2.5 million. As of December 20, 2006, the Company had purchased 709,305 shares of preferred stock for $1,370,042 under this
program. Previously, the Company had purchased 276,627 shares for $452,232. During the year ended September 30, 2006, the Company did not purchase any preferred shares.



43



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Pursuant to the terms of the Certificate of Designation with respect to the Preferred Stock, dividends
that are not declared are cumulative and accrue. The dividend rate per annum was equal to 8.0% of $2.14 for each share of preferred stock until September 30, 1998, at which date the dividend rate increased to 11.0%. Beginning October 1,
1999, the dividend rate increased by an additional 50 basis points on each succeeding semi-annual dividend payment date up to a maximum of 16.0% per annum. The dividend rate is 16.0% effective October 1, 2003.

At the election of the Company, the Preferred Stock is redeemable, in whole or in part, at any time and from time to time at a redemption price equal to
the per share liquidation preference of $2.14 plus an amount equal to all accrued but unpaid dividends, whether or not declared.

At the
election of the Company, shares of Preferred Stock may be exchanged from time-to-time for junior subordinated notes of the Company. The principal amount of the junior subordinated notes, if issued, will be equal to the Liquidation Preference of the
Preferred Stock for which such notes are exchanged. The junior subordinated notes would mature on September 30, 2008, and would bear interest at an annual rate of 11.0%, payable semi-annually.

The Company has not declared dividends on the Preferred Stock since September 30, 1996. Cumulative dividends in arrears were approximately $12.3
million and $10.8 million as of September 30, 2006 and 2005, respectively.

11. STOCK OPTION PLAN

The Companys Stock Option Plan provided for the grant of up to 1.2 million shares of its common stock to key employees. The Stock Option Plan
provided for both incentive stock options and non-qualified stock options. Stock option grants had generally vested over a three-year period from the employees hire date. The Stock Option Plan ceased granting options as of September 30,
2003 as the plan had expired. However, in July 2005, the Stock Option Plan was reinstated for an additional 10-year period. During fiscal 2005, there were 300,000 fully vested stock options granted under the Stock Option Plan. No options were
granted during the fiscal year 2006 . As of September 30, 2006, 2005 and 2004, there were approximately 830,000, 830,000 and 430,000 options, respectively, outstanding and exercisable under the Stock Option Plan. During fiscal years 2006 and
2005, 436,350 and 2,000 options, respectively, were exercised. No options were exercised during fiscal year 2004.

The Company received
notice of the exercise of stock option grants from Mr. David Lowden and from Mr. Chris Lowden in September, 2006 in exchange for notes totaling approximately $6.3 million. In accordance with SFAS 123R, the Company recorded compensation
expense of approximately $1.7 million with no tax benefit recorded. At the time of exercise of the stock option grants, the Company and Messrs. Lowden believed the grants to be of the type designated pursuant to Internal Revenue Code
Section 422 (Section 422), commonly called qualified stock option grants (sometimes referred to as incentive stock options). To exercise the purported incentive option grants, certain loans were made to the optionees which loans
were documented in written form. Upon further review of the original basis for the grant and later exercise, it was subsequently determined by the Company and its advisors that the grants believed to be exercised as incentive stock option grants did
not qualify as qualified stock options. As the timing and tax treatment for the exercise of qualified and non-qualified stock option grants is materially different, the exercise was recognized as being induced by a significant error in designating
the options as qualified stock options and subsequent to year-end the exercise was fully reversed at the request of the optionees and the shares have been fully restored to the Company (with the corresponding optionee grants also being restored).
The Company has reserved $300,000 it deems sufficient to pay any penalties or interest that may be due for the period of 2006 regarding the reversal of the option exercise should that reversal be determined to not comply with applicable tax laws,
rules and regulations.

The outstanding options have expiration dates through 2007 and have an average remaining life of approximately 3.3
years. The average exercise price of the outstanding options at September 30, 2006 is approximately $19.84.



44



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In December 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (the
Non-Employee Director Plan) that provided for the grant of up to 100,000 shares of its common stock to the directors. Under the Non-Employee Director Plan, directors were automatically granted an option to purchase 12,500 shares of the
common stock at an exercise price equal to the market value of such shares on the date of such election to the board. Stock option grants vested immediately. The Non-Employee Director Plan ceased granting options on March 21, 2002. As of
September 30, 2006, 2005 and 2004, there were 25,000, 25,000 and 37,500 options, respectively, outstanding and exercisable under this plan. During fiscal 2005, 12,500 options were exercised. During fiscal years 2006 and 2004, no options were
granted or exercised. The outstanding options have an expiration date through 2007 and have an average remaining life of approximately 2 years. The average exercise price of the outstanding options at September 30, 2006 is approximately $1.00.

SFHI, SLVC and PHI (collectively, the Subsidiaries), have adopted subsidiary stock option plans (the Subsidiary
Plans). The Subsidiary Plans provide for the grant of options by each of the Subsidiaries with respect to an aggregate of up to 10% of the outstanding shares of such Subsidiarys Common Stock to employees, non-employee directors,
consultants or affiliates of the Company or the Subsidiaries. The purpose of the Subsidiary Plans is to enable the Subsidiaries and the Company to attract, retain and motivate their employees, non-employee directors, consultants and affiliates by
providing for or increasing the proprietary interest of such persons in the Subsidiaries. As of September 30, 2006, no options had been granted under any of the Subsidiary Plans.

Accounting for Stock-Based Compensation

During the fiscal third quarter 2005, certain stock
options were granted by the compensation committee of the Companys board of directors to Christopher Lowden, David Lowden and Paul Lowden. Each individual received a grant of 150,000 stock options (Paul Lowden, however, notified the
compensation committee in May 2005 that he was forfeiting the award that was to be granted to him). The options were granted in April 2005 and included terms of immediate vesting and were intended to be issued with an exercise price of $1.00 per
share. However, the Compensation Committee decided in June 2005 that the options granted in April 2005 were to be granted with an exercise price equal to the closing market price of the Companys common stock on the date of grant. The Company
recognized stock-based compensation associated with the issuance of the stock options of approximately $1.6 million, net of taxes, representing the difference in the Companys common stock price between the date of grant and the measurement
date of the options. In September 2006, Christopher and David Lowden exercised all of their outstanding stock options (218,175 each) and signed promissory notes dated August 30, 2006 with the Company to finance the purchase of the options. As
set forth above, the stock option exercises related to these notes were reversed. The Company has returned the notes to Messrs. Lowden and will not seek payment therefrom. The notes receivable from Christopher and David Lowden total approximately
$6.3 million in total, have a term of three (3) years, bear interest at 4.0% and are generally unsecured. Under SFAS 123R, the value of the notes relative to the stock options exercised was approximately $1.7 million and was recorded as
compensation expense with a related credit to additional paid-in-capital.

Additionally, the compensation committee approved an extension
of other previously issued stock options which otherwise would have expired. A charge of approximately $1.0 million related to this extension of stock options was recorded, net of taxes. The following table illustrates the effect on net loss and
loss per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123R, Accounting for Stock-Based Compensation, to stock-based employee compensation (in thousands except for per share amounts):



45



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|                                               |  |                                                                                                                                     |        |   |        |   |        |   |       |  
|---------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- | ------ | - | ------ | - | ------ | - | ----- | -
|                                               |  | Years Ended September 30,                                                                                                           |       
|                                               |  | 2005                                                                                                                                |        |   | 2004   |  
|Net loss applicable to common shares           |  | $                                                                                                                                   | (6,423 | ) |        | $ | (3,444 | )
|                                               |  |                                                                                                                                     |       
|Add:                                           |  | Compensation cost recorded on the consolidated statements of operations, net of related tax effects                                 |        |   | 2,554  |   |        |   | 33    |  
|                                               |  |                                                                                                                                     |       
|Deduct                                         |  | Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |        |   | (2,383 | ) |        |   | (33   | )
|                                               |  |                                                                                                                                     |        |   |        |   |        |   |       |  
|Pro forma net loss applicable to common shares |  | $                                                                                                                                   | (6,252 | ) |        | $ | (3,444 | )
|                                               |  |                                                                                                                                     |        |   |        |   |        |   |       |  
|                                               |  |                                                                                                                                    
|Loss per common share:                         |  |                                                                                                                                     |        |   |        |   |        |  
|                                               |  |                                                                                                                                     |       
|                                               |  | Basic and diluted  as reported                                                                                                     |        | $ | (1.03  | ) |        | $ | (0.55 | )
|                                               |  |                                                                                                                                     |        |   |        |   |        |   |       |  
|                                               |  |                                                                                                                                     |       
|                                               |  | Basic and diluted  pro forma                                                                                                       |        | $ | (1.03  | ) |        | $ | (0.55 | )
|                                               |  |                                                                                                                                     |        |   |        |   |        |   |       |  

There was no net impact on the Companys net loss for the twelve months ended
September 30, 2006 a result of adopting the fair value recognition provisions of SFAS 123R. There were no unvested share-based payments as of October 1, 2005 and no share-based payments have been granted subsequent to October 1, 2005.
However, effective in March and April 2006, certain stock options were extended for an additional period of exercise and the Company recorded stock-based compensation expense of approximately $1.4 million during the year ended September 30,
2006. In addition, approximately, 436,000 were exercised in the fourth quarter for which the Company recorded stock-based compensation expense of approximately $1.7 million.

There is also no material impact on net loss per share for the years ended September 30, 2005 and 2004 if the Company had applied the fair value
recognition provisions of SFAS 123R. The company recognized stock-based compensation expense associated with the issuance of stock options of approximately $3.9 million and $50,000 during the years ended September 30, 2005 and 2004,
respectively.

SFAS 123R requires the Company to disclose pro forma net loss and net loss per share assuming compensation cost for employee
stock options had been determined using the fair value-based method for the year ended September 30, 2005. The weighted average assumptions used in estimating the fair value of each option grant on the date of grant using the Black-Scholes
option pricing model, and the estimated weighted average fair value of the options granted should also be disclosed. No such stock options were granted in 2004, and therefore, no information has been included for that year.

The Companys valuation model assumes no expected future dividend payments on the Companys common stock for the options granted in 2006 and
2005 (dollars in thousands, except per share data).



|                                                             |  |      |       |   |      |   |       |      |  |    
|------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | ---
|                                                             |  | 2006 |       |   | 2005 |   |       | 2004
|Weighted average assumptions:                                |  |      |       |   |      |   |       |      |  |    
|Expected stock price volatility                              |  |      | 42.0  | % |      |   | 80.0  | %    |  | N/A
|Risk-free interest rate                                      |  |      | 8.82  | % |      |   | 5.0   | %    |  | N/A
|Expected option lives (in years)                             |  |      | 3     |   |      |   | 2     |      |  | N/A
|Expected dividend yield                                      |  |      | N/A   |   |      |   | N/A   |      |  | N/A
|Estimated fair value of options, net of tax effect           |  | $    | 1,722 |   |      | $ | 1,399 |      |  | N/A
|Estimated fair value of options per share, net of tax effect |  | $    | 0.17  |   |      | $ | 0.22  |      |  | N/A



46



---

The following table summarizes stock option activity during fiscal 2006 under all plans:



|                                           |  |                       |  |                                         |       |                                          |           |                                 |   |       
|------------------------------------------ |  | --------------------- |  | --------------------------------------- | ----- | ---------------------------------------- | --------- | ------------------------------- | - | ------
|                                           |  | NumberofShares(000s) |  | Weighted-AverageExercisePrice Per Share |       | Weighted-AverageRemainingContractualTerm |           | AggregateIntrinsicValue($000s)
|Options outstanding at September 30, 2005: |  | 830                   |  | $                                       | 8.05  |                                          | 4.5 years |                                 | $ | 24,656
|Granted                                    |  | 436                   |  | $                                       | 36.85 |                                          | 3 years   |                                 | $ | 1,898 
|Exercised                                  |  | 436                   |  | $                                       | 14.44 |                                          | 6.3 years |                                 | $ | 1,898 
|Canceled                                   |  | 0                     |  |                                         | N/A   |                                          | N/A       |                                 |   | N/A   
|                                           |  |                       |  |                                        
|Options outstanding at September 30, 2006: |  | 830                   |  | $                                       | 19.84 |                                          | 3.3 years |                                 | $ | 10,829
|Options exercisable at September 30, 2006: |  | 830                   |  | $                                       | 19.84 |                                          | 3.3 years |                                 | $ | 10,829

As of September 30, 2006, there was no unrecognized compensation cost related to unvested
stock options. There were no unvested shares at September 30, 2006.

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

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

The Black-Scholes-Merton option
valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions listed above represent managements best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, our recorded and pro forma stock-based compensation expense could have been materially different from that depicted above. In
addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the share-based compensation expense could be
materially different.

12. FEDERAL INCOME TAXES

The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes (SFAS 109). In accordance with SFAS 109, deferred income taxes reflect the net effects of
(i) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (ii) operating loss and tax credit carryforwards. The provision (benefit)
for income taxes attributable to pre-tax loss consisted of:



|                          |  |                        |      |   |      |   |        |      |  |   |      |  
|------------------------- |  | ---------------------- | ---- | - | ---- | - | ------ | ---- |  | - | ---- | -
|                          |  | 2006                   |      |   | 2005 |   |        | 2004 | 
|                          |  | (dollars in thousands) |     
|Current                   |  | $                      | 0    |   |      | $ | 0      |      |  | $ | 0    |  
|Deferred                  |  |                        | (410 | ) |      |   | (2,594 | )    |  |   | (913 | )
|                          |  |                        |      |   |      |   |        |      |  |   |      |  
|Total provision (benefit) |  | $                      | (410 | ) |      | $ | (2,594 | )    |  | $ | (913 | )
|                          |  |                        |      |   |      |   |        |      |  |   |      |  

The benefit for income taxes attributable to pre-tax loss differs from the amount computed at the
federal income tax statutory rate as a result of the following:



47



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|                         |  |                        |        |   |      |   |        |      |  |   |      |  
|------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ---- | -
|                         |  | 2006                   |        |   | 2005 |   |        | 2004 | 
|                         |  | (dollars in thousands) |       
|Amount at statutory rate |  | $                      | (1,318 | ) |      | $ | (2,594 | )    |  | $ | (978 | )
|Stock options            |  |                        | 603    |   |      |   | 0      |      |  |   | 0    |  
|Tax credits              |  |                        | 199    |   |      |   | 0      |      |  |   | 0    |  
|Other                    |  |                        | 106    |   |      |   | 0      |      |  |   | 65   |  
|                         |  |                        |        |   |      |   |        |      |  |   |      |  
|Total                    |  | $                      | (410   | ) |      | $ | (2,594 | )    |  | $ | (913 | )
|                         |  |                        |        |   |      |   |        |      |  |   |      |  

The components of the net deferred tax liability consisted of the following:



|                                                     |  |                        |         |   |      |   |         |  
|---------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                     |  | 2006                   |         |   | 2005 |  
|                                                     |  | (dollars in thousands) |        
|Deferred tax liabilities:                            |  |                        |         |   |      |   |         |  
|Prepaid expenses                                     |  | $                      | 304     |   |      | $ | 263     |  
|Fixed asset cost, depreciation and amortization, net |  |                        | 29,275  |   |      |   | 31,373  |  
|Land                                                 |  |                        | 2,236   |   |      |   | 2,236   |  
|Unrealized gains                                     |  |                        | 1,036   |   |      |   | 727     |  
|                                                     |  |                        |         |   |      |   |         |  
|Deferred tax liabilities                             |  |                        | 32,851  |   |      |   | 34,599  |  
|                                                     |  |                        |         |   |      |   |         |  
|Deferred tax assets:                                 |  |                        |         |   |      |   |         |  
|Net operating loss carryforward                      |  |                        | 4,027   |   |      |   | 5,508   |  
|Reserves for accounts and contracts receivable       |  |                        | 51      |   |      |   | 27      |  
|Other                                                |  |                        | 536     |   |      |   | 1,014   |  
|Stock option SFAS 123R                               |  |                        | 496     |   |      |   | 0       |  
|Deferred payroll                                     |  |                        | 169     |   |      |   | 171     |  
|Tax credits and charitable contribution carryover    |  |                        | 326     |   |      |   | 525     |  
|                                                     |  |                        |         |   |      |   |         |  
|Deferred tax assets                                  |  |                        | 5,605   |   |      |   | 7,245   |  
|                                                     |  |                        |         |   |      |   |         |  
|Net deferred tax (liability)                         |  | $                      | (27,246 | ) |      | $ | (27,354 | )
|                                                     |  |                        |         |   |      |   |         |  

At September 30, 2006, the Company had a net operating loss carryforward for regular income
tax purposes of approximately $63 million, which will fully expire by the year 2025 and begins expiring in 2010. AMT credits of approximately $268,000 are carried forward indefinitely. Charitable contributions of approximately $166,000 will fully
expire in 2009 and begin expiring in 2007. Included in this amount is approximately $53.0 million that was not recorded related to the Pioneer Transaction for which the Company has not taken benefit in its financial statements until the uncertainty
related to the tax deduction is resolved.

The Company continues to record tax benefits for its taxable losses as it believes that tax
provisions from future taxable income from operations or from the sale of assets will be sufficient to offset the tax benefits currently recorded.

13.
BENEFIT PLANS

The Company has a savings plan (the Savings Plan) qualified under Section 401(k) of the Code. The
Plan covers substantially all employees, including the Companys executive officers. Employee contributions to the Plan are discretionary. The Plan allows eligible employees to contribute, on a pre-tax basis, up to 6% of their gross salary to
the plan; the Company matches 25% of such employee contributions made. Employees may also contribute, on a pre-tax basis, up to an additional 9% of their gross salary, and, on a post-tax basis, up to an



48



---

additional 10% of their salary. Such contributions are not matched by the Company. The Companys matching contributions paid in 2006, 2005 and 2004 were
$55,000, $49,000 and $48,000, respectively.

14. RELATED PARTIES

The Company has entered into a Patent Rights and Royalty Agreement with David Lowden, brother of Paul W. Lowden, with respect to certain gaming technology
for which David Lowden has been issued a patent. The Company has agreed to pay certain royalty payments with respect to the technology incorporated into gaming devices placed in operation, as well as costs related to maintain the patent. David
Lowden has granted the Company an exclusive five-year license expiring in January 2007 in the United States with respect to the technology, which will be automatically renewed for additional two-year terms unless the Company terminates the agreement
within thirty days prior to the renewal or the agreement is otherwise earlier terminated in accordance with its terms. The Company also has an understanding with David Lowden that it will pay for the costs of commercial development of the
technology. As of September 30, 2006 and 2005, the Company had expended approximately $0.4 million for commercial development of the technology, of which $30,000 was expensed in fiscal 2006 and $50,000 in fiscal 2005.

During fiscal 2003, the Company operated Dukes casino (Dukes) in Sparks, Nevada. The Company operated Dukes through its
subsidiary, Archon Sparks Management Corporation. One of Dukes partners is Christopher Lowden, son of Paul W. Lowden. The Company invested $100,000 in Dukes and loaned Dukes approximately $1.4 million. In December 2003, Dukes
closed its casino operations. The Company has written-off its investment in Dukes and has recorded a reserve for its receivable from Dukes of approximately $1.5 million during its fiscal year ended September 30, 2003 and has no
further asset exposure from Dukes. The Company made the determination to reserve the entire amount invested in and owed from Dukes as the collateral value securing the receivable was deemed insignificant subsequent to the closure of the
casino.

During an approximate 2-year period ended June 30, 2006, the Company had expended approximately $800,000 in legal fees
associated with Dukes litigation against a contractor. Dukes had entered into an agreement to reimburse the Company for legal fees and other amounts owed the Company depending on potential amounts recovered from the litigation. Through
September 30, 2006, the Company received approximately $1.0 million, of which $800,000 has been credited against legal expense and the balance has been included in operating income in the fiscal 2006 consolidated statement of operations. The
Company may recover additional amounts of approximately $60,000 monthly depending on several factors.

See Note 6 for information regarding
transactions between the Company and J & J Mortgage.

15. CONTINGENCIES AND COMMITMENTS

Litigation. The Company is subject to various lawsuits relating to routine matters incidental to its business. The Company does not believe
that the outcome of such litigation, in the aggregate, will have a material adverse effect on the Company.

Poulos v.
Caesars World, Inc., et al. and Ahern v. Caesars World, Inc., et al. The Company is a defendant in a class action lawsuit originally filed in the United States District Court of Florida in 1994, Orlando Division, entitled
Poulos v. Caesars World, Inc., et al., Ahern v. Caesars World, Inc., et al. and Schrier v. Caesars World, Inc., et al., along with a fourth action against cruise ship gaming operators and which have been consolidated
in a single action now pending in the United States District Court, District of Nevada (the Court). Also named as defendants in these actions are many of the largest gaming companies in the United States and certain gaming equipment
manufacturers. Each complaint is identical in its material allegations. The actions allege that the



49



---

defendants have engaged in fraudulent and misleading conduct by inducing people to play video poker machines and electronic slot machines based on false
beliefs concerning how the machines operate and the extent to which there is actually an opportunity to win on a given play. The complaints allege that the defendants acts constitute violations of the Racketeer Influenced and Corrupt
Organizations Act and also give rise to claims for common law fraud and unjust enrichment, and seek compensatory, special consequential, incidental and punitive damages of several billion dollars.

In response to the complaints, all of the defendants, including the Company, filed motions attacking the pleadings for failure to state a claim, seeking
to dismiss the complaints for lack of personal jurisdiction and venue. As a result of those motions, the Court has required the Plaintiffs in the four consolidated cases to file a single consolidated amended complaint. Subsequent to Plaintiffs
filing of their consolidated amended complaint, the defendants filed numerous motions attacking the amended complaint upon many of the bases as the prior motions. The Court heard the arguments on those motions and ultimately denied the motions.
Plaintiffs then filed their motion to certify a class. Defendants have vigorously opposed the motion. In June 2002, the court denied the motion to certify the class. Plaintiffs then sought discretionary review by the Ninth Circuit of the order
denying class certification. In August 2002, the Ninth Circuit granted review. The briefing is complete and an oral hearing took place in January 2004. In September 2005, the federal district court granted the defendants motion for dismissal. On
October 19, 2005, the plaintiffs appealed to the Ninth Circuit. The Company has not recorded a reserve under the provisions of SFAS No. 5 for this matter, as management does not believe that it is probable that a liability has been
incurred.

Pioneer Hotel and Gambling Hall adv. Eckstrom.The Company was a defendant in a
lawsuit filed in the Eighth Judicial District Court entitled Pioneer Hotel and Gambling Hall adv. Eckstrom. The complaint alleged that the plaintiffs were exposed to potentially hazardous levels of carbon monoxide from a malfunctioning water
heater in a hotel room at the Pioneer and that one of the plaintiffs suffered, among other things, a myocardial infarction as a result of the exposure. The Company has defended this lawsuit vigorously and has asserted its rights under its insurance
coverage which included a self-insured retention of $25,000. The plaintiffs were seeking damages amounting to $750,000. The Company has recorded a reserve of its $25,000 self-insured retention under the provisions of SFAS No. 5 for this matter.
The lawsuit was recently settled and the Company believes it has no further financial exposure, other than the $25,000 self-insured retention already recorded.

Douglas Medley v. Pioneer Hotel & Casino/Archon Corporation.The Company is a defendant in a lawsuit entitled Douglas Medley v. Pioneer
Hotel & Casino/Archon Corporation dated March 2006. The complaint alleges unpaid wages for overtime and the plaintiff is seeking approximately $160,000 in damages. The Company plans to defend this lawsuit vigorously and
has not recorded a reserve under the provisions of SFAS No. 5 for this matter, as management does not believe that it is probable that a liability has been incurred.

In addition, the Company is subject to various lawsuits relating to routine matters incidental to its business. The Company does not believe that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the Company.

16. SUBSEQUENT EVENTS

Subsequent to September 30, 2006, the Company with the approval of the Board, sold an investment in real estate with a net book value of approximately $0.4 million for $1.8 million.



50



---

17. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information for the years ended September 30, 2006, 2005 and 2004 consisted of:



|                                                                                      |  |                        |       |      |   |        |  |   |       
|------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- | - | ------ |  | - | ------
|                                                                                      |  | 2006                   |       | 2005 |   | 2004  
|                                                                                      |  | (dollars in thousands)
|Operating activities:                                                                 |  |                        |       |      |   |        |  |   |       
|Cash paid during the year for interest                                                |  | $                      | 8,386 |      | $ | 11,128 |  | $ | 12,502
|                                                                                      |  |                        |       |      |   |        |  |   |       
|Investing and financing non-cash activities:                                          |  |                        |       |      |   |        |  |   |       
|Long-term debt incurred in connection with the acquisition of machinery and equipment |  | $                      | 286   |      | $ | 0      |  | $ | 267   
|                                                                                      |  |                        |       |      |   |        |  |   |       
|Accounts payable converted to debt                                                    |  | $                      | 0     |      | $ | 0      |  | $ | 407   
|                                                                                      |  |                        |       |      |   |        |  |   |       
|Reduction of property and equipment from the acquisition of capital leases            |  | $                      | 0     |      | $ | 0      |  | $ | 1,412 
|                                                                                      |  |                        |       |      |   |        |  |   |       
|Reduction of accounts payable from disposal of machinery and equipment                |  | $                      | 0     |      | $ | 0      |  | $ | 299   
|                                                                                      |  |                        |       |      |   |        |  |   |       
|Unrealized gain on marketable securities                                              |  | $                      | 561   |      | $ | 371    |  | $ | 147   
|                                                                                      |  |                        |       |      |   |        |  |   |       

18. SEGMENT INFORMATION

The Companys operations are in the hotel/casino industry and investment properties. The Companys hotel/casino operations are conducted at the
Pioneer in Laughlin, Nevada. The Company owns investment properties in Dorchester, Massachusetts and Gaithersburg, Maryland, which were acquired in March 2001. Other and Eliminations below includes financial information for the
Companys corporate operations and Archon Sparks Management Company, adjusted to reflect eliminations upon consolidation.

Segment
information for the years ended September 30, 2006, 2005 and 2004 consisted of:



51



---

|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                      |  | 2006                   |         |   | 2005 |   |         | 2004 | 
|                                      |  | (dollars in thousands) |        
|Pioneer Hotel:                        |  |                        |         |   |      |   |         |      |  |   |         |  
|Net operating revenues                |  | $                      | 30,985  |   |      | $ | 29,697  |      |  | $ | 32,188  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Operating loss                        |  | $                      | (46     | ) |      | $ | (839    | )    |  | $ | (302    | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization         |  | $                      | 2,200   |   |      | $ | 2,477   |      |  | $ | 2,507   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest expense                      |  | $                      | 1,439   |   |      | $ | 1,291   |      |  | $ | 2,298   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest and other income             |  | $                      | 12      |   |      | $ | 11      |      |  | $ | 15      |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Net loss before income taxes          |  | $                      | (1,473  | ) |      | $ | (2,119  | )    |  | $ | (2,585  | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Capital expenditures(2)               |  | $                      | 462     |   |      | $ | 179     |      |  | $ | 2,460   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Identifiable assets(1)                |  | $                      | 30,100  |   |      | $ | 31,380  |      |  | $ | 34,539  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Investment Properties:                |  |                        |         |   |      |   |         |      |  |   |         |  
|Net operating revenues                |  | $                      | 12,402  |   |      | $ | 12,402  |      |  | $ | 12,402  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Operating income                      |  | $                      | 9,230   |   |      | $ | 9,230   |      |  | $ | 9,230   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization         |  | $                      | 3,172   |   |      | $ | 3,172   |      |  | $ | 3,172   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest expense                      |  | $                      | 7,494   |   |      | $ | 9,897   |      |  | $ | 10,660  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest and other income             |  | $                      | 2       |   |      | $ | 1       |      |  | $ | 0       |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Net income (loss) before income taxes |  | $                      | 1,738   |   |      | $ | (666    | )    |  | $ | (1,430  | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Capital expenditures(2)               |  | $                      | 0       |   |      | $ | 0       |      |  | $ | 0       |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Identifiable assets(1)                |  | $                      | 132,911 |   |      | $ | 136,065 |      |  | $ | 141,401 |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Other and Eliminations:               |  |                        |         |   |      |   |         |      |  |   |         |  
|Net operating revenues                |  | $                      | 1,767   |   |      | $ | 1,589   |      |  | $ | 1,103   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Operating loss                        |  | $                      | (4,340  | ) |      | $ | (6,106  | )    |  | $ | (2      | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization         |  | $                      | 130     |   |      | $ | 186     |      |  | $ | 301     |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest expense                      |  | $                      | (78     | ) |      | $ | (129    | )    |  | $ | (78     | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest and other income             |  | $                      | 231     |   |      | $ | 1,256   |      |  | $ | 1,144   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Net loss before income taxes          |  | $                      | (4,031  | ) |      | $ | (4,721  | )    |  | $ | 1,220   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Capital expenditures(2)               |  | $                      | 10      |   |      | $ | 280     |      |  | $ | (1,204  | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Identifiable assets(1)                |  | $                      | 35,039  |   |      | $ | 32,193  |      |  | $ | 30,992  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Total:                                |  |                        |         |   |      |   |         |      |  |   |         |  
|Net operating revenues                |  | $                      | 45,154  |   |      | $ | 43,688  |      |  | $ | 45,693  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Operating income                      |  | $                      | 4,844   |   |      | $ | 2,285   |      |  | $ | 8,926   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization         |  | $                      | 5,502   |   |      | $ | 5,835   |      |  | $ | 5,980   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest expense                      |  | $                      | 8,855   |   |      | $ | 11,059  |      |  | $ | 12,880  |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Interest and other income             |  | $                      | 245     |   |      | $ | 1,268   |      |  | $ | 1,159   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Net loss before income taxes          |  | $                      | (3,766  | ) |      | $ | (7,506  | )    |  | $ | (2,795  | )
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Capital expenditures(2)               |  | $                      | 472     |   |      | $ | 459     |      |  | $ | 1,256   |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  
|Identifiable assets(1)                |  | $                      | 198,050 |   |      | $ | 199,638 |      |  | $ | 206,932 |  
|                                      |  |                        |         |   |      |   |         |      |  |   |         |  

---

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

|(2) | Includes acquisition of capital assets through non-cash activities.
|--- | -------------------------------------------------------------------



52



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19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)



|                                               |  |                                                 |        |   |      |   |        |  
|---------------------------------------------- |  | ----------------------------------------------- | ------ | - | ---- | - | ------ | -
|                                               |  | 2006                                            |        |   | 2005 |  
|                                               |  | (dollars in thousands,except per share amounts) |       
|Revenues:                                      |  |                                                 |        |   |      |   |        |  
|First Quarter                                  |  | $                                               | 10,439 |   |      | $ | 10,175 |  
|Second Quarter                                 |  |                                                 | 12,449 |   |      |   | 12,042 |  
|Third Quarter                                  |  |                                                 | 11,126 |   |      |   | 10,974 |  
|Fourth Quarter                                 |  |                                                 | 11,140 |   |      |   | 10,497 |  
|                                               |  |                                                 |        |   |      |   |        |  
|Total                                          |  | $                                               | 45,154 |   |      | $ | 43,688 |  
|                                               |  |                                                 |        |   |      |   |        |  
|Operating income (loss):                       |  |                                                 |        |   |      |   |        |  
|First Quarter                                  |  | $                                               | 1,285  |   |      | $ | 366    |  
|Second Quarter                                 |  |                                                 | 2,875  |   |      |   | 2,614  |  
|Third Quarter                                  |  |                                                 | 434    |   |      |   | (1,887 | )
|Fourth Quarter                                 |  |                                                 | 250    |   |      |   | 1,192  |  
|                                               |  |                                                 |        |   |      |   |        |  
|Total                                          |  | $                                               | 4,844  |   |      | $ | 2,285  |  
|                                               |  |                                                 |        |   |      |   |        |  
|Net income (loss):                             |  |                                                 |        |   |      |   |        |  
|First Quarter                                  |  | $                                               | (530   | ) |      | $ | (1,531 | )
|Second Quarter                                 |  |                                                 | 482    |   |      |   | 261    |  
|Third Quarter                                  |  |                                                 | (1,152 | ) |      |   | (2,995 | )
|Fourth Quarter                                 |  |                                                 | (2,156 | ) |      |   | (647   | )
|                                               |  |                                                 |        |   |      |   |        |  
|Total                                          |  | $                                               | (3,356 | ) |      | $ | (4,912 | )
|                                               |  |                                                 |        |   |      |   |        |  
|Net income (loss) applicable to common shares: |  |                                                 |        |   |      |   |        |  
|First Quarter                                  |  | $                                               | (908   | ) |      | $ | (1,917 | )
|Second Quarter                                 |  |                                                 | 104    |   |      |   | (126   | )
|Third Quarter                                  |  |                                                 | (1,529 | ) |      |   | (3,361 | )
|Fourth Quarter                                 |  |                                                 | (2,534 | ) |      |   | (1,019 | )
|                                               |  |                                                 |        |   |      |   |        |  
|Total                                          |  | $                                               | (4,867 | ) |      | $ | (6,423 | )
|                                               |  |                                                 |        |   |      |   |        |  
|Net income (loss) per common share:            |  |                                                 |        |   |      |   |        |  
|First Quarter                                  |  | $                                               | (0.15  | ) |      | $ | (0.31  | )
|Second Quarter                                 |  |                                                 | 0.02   |   |      |   | (0.02  | )
|Third Quarter                                  |  |                                                 | (0.25  | ) |      |   | (0.54  | )
|Fourth Quarter                                 |  |                                                 | (0.40  | ) |      |   | (0.16  | )
|                                               |  |                                                 |        |   |      |   |        |  
|Total                                          |  | $                                               | (0.78  | ) |      | $ | (1.03  | )
|                                               |  |                                                 |        |   |      |   |        |  

Operating income (loss) amounts have been adjusted to reflect a reclassification of amortization
of loan issue costs from depreciation and amortization to interest expense for the 2005 quarters shown except for the fourth quarter.



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|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|Item 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure
Controls and Procedures

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

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

Changes in Internal Controls

In response to the material weakness discussed above and as of the end of the period covered by this report, the Company has implemented a more thorough
periodic review process to review cash flow statement classifications and to review debt covenants and perform appropriate covenant calculations to determine compliance.

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



54



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                  |  |                    |  |                          
|----------------- |  | ------------------ |  | -------------------------
|                  |  | ARCHON CORPORATION
|                  |  |                   
|February 13, 2007 |  | By:                |  | /s/ Paul W. Lowden       
|(Date Signed)     |  |                    |  | Paul W. Lowden, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date indicated.



|                       |  |                                     |  |                  
|---------------------- |  | ----------------------------------- |  | -----------------
|Signature              |  | Title                               |  | Date             
|/s/ Paul W. Lowden     |  | Chairman of the Board and President |  | February 13, 2007
|Paul W. Lowden         |  | (Principal Executive Officer)       |  |                  
|                       |  |                                    
|/s/ John Delaney       |  | Director                            |  | February 13, 2007
|John Delaney           |  |                                     |  |                  
|                       |  |                                    
|/s/ Suzanne Lowden     |  | Director                            |  | February 13, 2007
|Suzanne Lowden         |  |                                     |  |                  
|                       |  |                                    
|/s/ William J. Raggio  |  | Director                            |  | February 13, 2007
|William J. Raggio      |  |                                     |  |                  
|                       |  |                                    
|/s/ Howard E. Foster   |  | Special Director                    |  | February 13, 2007
|Howard E. Foster       |  |                                     |  |                  
|                       |  |                                    
|/s/ Richard H. Taggart |  | Special Director                    |  | February 13, 2007
|Richard H. Taggart     |  |                                     |  |                  



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