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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended: June 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

ARCHON CORPORATION

(Exact name of registrant as specified in its charter)



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

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

(Address of principal executive office and zip code)

(702) 732-9120

(Registrants telephone number, including area code)





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

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

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

Large
accelerated filer ̈Accelerated filer ̈Non-accelerated filer x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

6,235,931 as of August 15, 2006



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ARCHON CORPORATION

INDEX



|        |  |                                                                                                            |  |     
|------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                            |  | Page
|PART I  |  | FINANCIAL INFORMATION                                                                                      |  |     
|        |  |                                                                                                           
|Item 1  |  | Unaudited Condensed Consolidated Financial Statements:                                                     |  |     
|        |  |                                                                                                           
|        |  | Condensed Consolidated Balance Sheets as of June 30, 2006 and September 30, 2005                           |  | 1   
|        |  |                                                                                                           
|        |  | Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2006 and 2005 |  | 3   
|        |  |                                                                                                           
|        |  | Condensed Consolidated Statement of Stockholders Equity for the nine months ended June 30, 2006           |  | 4   
|        |  |                                                                                                           
|        |  | Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2006 and 2005           |  | 5   
|        |  |                                                                                                           
|        |  | Notes to Condensed Consolidated Financial Statements                                                       |  | 6   
|        |  |                                                                                                           
|Item 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 17  
|        |  |                                                                                                           
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 27  
|        |  |                                                                                                           
|Item 4  |  | Controls and Procedures                                                                                    |  | 28  
|        |  |                                                                                                           
|PART II |  | OTHER INFORMATION                                                                                          |  |     
|        |  |                                                                                                           
|Item 1  |  | Legal Proceedings                                                                                          |  | 29  
|        |  |                                                                                                           
|Item 2  |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                           |  | 29  
|        |  |                                                                                                           
|Item 3  |  | Defaults Upon Senior Securities                                                                            |  | 29  
|        |  |                                                                                                           
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                                        |  | 30  
|        |  |                                                                                                           
|Item 5  |  | Other Information                                                                                          |  | 31  
|        |  |                                                                                                           
|Item 6  |  | Exhibits                                                                                                   |  | 31  



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PART I  FINANCIAL INFORMATION



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

Archon Corporation and Subsidiaries

Condensed Consolidated Balance Sheets



|                                    |  |              |             |                   |   |            
|----------------------------------- |  | ------------ | ----------- | ----------------- | - | -----------
|                                    |  | June 30,2006 |             | September 30,2005
|ASSETS                              |  |              |             |                   |   |            
|Current assets:                     |  |              |             |                   |   |            
|Cash and cash equivalents           |  | $            | 2,774,145   |                   | $ | 2,116,708  
|Investment in marketable securities |  |              | 6,595,227   |                   |   | 6,803,967  
|Accounts receivable, net            |  |              | 172,587     |                   |   | 1,051,998  
|Inventories                         |  |              | 422,331     |                   |   | 355,459    
|Prepaid expenses and other          |  |              | 1,035,756   |                   |   | 761,307    
|                                    |  |              |             |                   |   |            
|Total current assets                |  |              | 11,000,046  |                   |   | 11,089,439 
|Property held for sale              |  |              | 21,847,343  |                   |   | 21,852,710 
|Property held for investment, net   |  |              | 128,157,597 |                   |   | 130,536,513
|Property and equipment, net         |  |              | 26,720,922  |                   |   | 28,365,442 
|Other assets                        |  |              | 8,708,520   |                   |   | 7,793,447  
|                                    |  |              |             |                   |   |            
|Total assets                        |  | $            | 196,434,428 |                   | $ | 199,637,551
|                                    |  |              |             |                   |   |            

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

Archon Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (continued)



|                                           |  |              |             |                   |   |            
|------------------------------------------ |  | ------------ | ----------- | ----------------- | - | -----------
|                                           |  | June 30,2006 |             | September 30,2005
|LIABILITIES and STOCKHOLDERS EQUITY       |  |              |             |                   |   |            
|Current liabilities:                       |  |              |             |                   |   |            
|Accounts payable                           |  | $            | 2,262,736   |                   | $ | 2,096,606  
|Interest payable                           |  |              | 370,852     |                   |   | 1,255,096  
|Accrued and other liabilities              |  |              | 3,286,539   |                   |   | 3,197,668  
|Current portion of debt                    |  |              | 14,107,918  |                   |   | 14,915,525 
|Current portion of non-recourse debt       |  |              | 2,122,697   |                   |   | 1,915,478  
|                                           |  |              |             |                   |   |            
|Total current liabilities                  |  |              | 22,150,742  |                   |   | 23,380,373 
|Debt  less current portion                |  |              | 191,486     |                   |   | 484,856    
|Non-recourse debt  less current portion   |  |              | 77,395,417  |                   |   | 79,013,926 
|Deferred income taxes                      |  |              | 27,214,282  |                   |   | 27,353,693 
|Other liabilities                          |  |              | 46,940,459  |                   |   | 48,021,017 
|Stockholders equity                       |  |              | 22,542,042  |                   |   | 21,383,686 
|                                           |  |              |             |                   |   |            
|Total liabilities and stockholders equity |  | $            | 196,434,428 |                   | $ | 199,637,551
|                                           |  |              |             |                   |   |            

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Archon Corporation and Subsidiaries

Condensed Consolidated Statements of Operations



|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------- |  | --------------------------- | ---------- | - | -------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                        |  | Three Months Ended June 30, |            |   | Nine Months Ended June 30, |  
|                                                        |  | 2006                        |            |   | 2005                       |   |            | 2006 |  |   | 2005       |  
|Revenues:                                               |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Casino                                                  |  | $                           | 5,797,738  |   |                            | $ | 5,847,066  |      |  | $ | 18,882,938 |   |  | $ | 18,416,771 |  
|Hotel                                                   |  |                             | 829,760    |   |                            |   | 835,180    |      |  |   | 2,161,889  |   |  |   | 2,070,709  |  
|Food and beverage                                       |  |                             | 1,914,484  |   |                            |   | 1,773,059  |      |  |   | 5,646,673  |   |  |   | 5,312,827  |  
|Investment properties                                   |  |                             | 3,100,562  |   |                            |   | 3,100,562  |      |  |   | 9,301,685  |   |  |   | 9,301,685  |  
|Other                                                   |  |                             | 921,222    |   |                            |   | 689,905    |      |  |   | 2,627,461  |   |  |   | 2,350,595  |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Gross revenues                                          |  |                             | 12,563,766 |   |                            |   | 12,245,772 |      |  |   | 38,620,646 |   |  |   | 37,452,587 |  
|Less casino promotional allowances                      |  |                             | (1,438,087 | ) |                            |   | (1,271,847 | )    |  |   | (4,606,884 | ) |  |   | (4,261,096 | )
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Net operating revenues                                  |  |                             | 11,125,679 |   |                            |   | 10,973,925 |      |  |   | 34,013,762 |   |  |   | 33,191,491 |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Operating expenses:                                     |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Casino                                                  |  |                             | 3,387,914  |   |                            |   | 3,019,882  |      |  |   | 10,342,408 |   |  |   | 9,754,778  |  
|Hotel                                                   |  |                             | 302,130    |   |                            |   | 302,876    |      |  |   | 805,112    |   |  |   | 767,799    |  
|Food and beverage                                       |  |                             | 1,097,120  |   |                            |   | 1,138,521  |      |  |   | 3,017,775  |   |  |   | 3,194,426  |  
|Other                                                   |  |                             | 407,878    |   |                            |   | 332,554    |      |  |   | 1,229,151  |   |  |   | 837,662    |  
|Selling, general and administrative                     |  |                             | 857,692    |   |                            |   | 875,906    |      |  |   | 2,607,587  |   |  |   | 2,642,556  |  
|Corporate expenses                                      |  |                             | 2,102,855  |   |                            |   | 4,635,137  |      |  |   | 3,880,531  |   |  |   | 6,837,475  |  
|Utilities and property expenses                         |  |                             | 1,145,566  |   |                            |   | 1,110,484  |      |  |   | 3,375,685  |   |  |   | 3,408,472  |  
|Depreciation and amortization                           |  |                             | 1,369,072  |   |                            |   | 1,445,583  |      |  |   | 4,140,101  |   |  |   | 4,411,162  |  
|Loss on sale/disposal of assets                         |  |                             | 21,520     |   |                            |   | 0          |      |  |   | 21,520     |   |  |   | 244,648    |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                |  |                             | 10,691,747 |   |                            |   | 12,860,943 |      |  |   | 29,419,870 |   |  |   | 32,098,978 |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Operating income (loss)                                 |  |                             | 433,932    |   |                            |   | (1,887,018 | )    |  |   | 4,593,892  |   |  |   | 1,092,513  |  
|Interest expense                                        |  |                             | (2,213,531 | ) |                            |   | (3,094,507 | )    |  |   | (6,636,453 | ) |  |   | (8,836,837 | )
|Interest and other income                               |  |                             | 8,040      |   |                            |   | 374,324    |      |  |   | 197,113    |   |  |   | 1,184,433  |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Loss before income tax benefit                          |  |                             | (1,771,559 | ) |                            |   | (4,607,201 | )    |  |   | (1,845,448 | ) |  |   | (6,559,891 | )
|Federal income tax benefit                              |  |                             | 620,046    |   |                            |   | 1,612,520  |      |  |   | 645,907    |   |  |   | 2,295,962  |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                                |  |                             | (1,151,513 | ) |                            |   | (2,994,681 | )    |  |   | (1,199,541 | ) |  |   | (4,263,929 | )
|Dividends accrued on preferred shares                   |  |                             | (377,819   | ) |                            |   | (366,603   | )    |  |   | (1,133,458 | ) |  |   | (1,140,453 | )
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Net loss applicable to common shares                    |  | $                           | (1,529,332 | ) |                            | $ | (3,361,284 | )    |  | $ | (2,332,999 | ) |  | $ | (5,404,382 | )
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Average common shares outstanding                       |  |                             | 6,235,931  |   |                            |   | 6,234,616  |      |  |   | 6,235,931  |   |  |   | 6,226,684  |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Average common and common equivalent shares outstanding |  |                             | 6,235,931  |   |                            |   | 6,234,616  |      |  |   | 6,235,931  |   |  |   | 6,226,684  |  
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Loss per common share:                                  |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Basic                                                   |  | $                           | (0.25      | ) |                            | $ | (0.54      | )    |  | $ | (0.37      | ) |  | $ | (0.87      | )
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Diluted                                                 |  | $                           | (0.25      | ) |                            | $ | (0.54      | )    |  | $ | (0.37      | ) |  | $ | (0.87      | )
|                                                        |  |                             |            |   |                            |   |            |      |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Archon Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity

For the Nine Months Ended June 30, 2006



|                                         |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |            |  
|---------------------------------------- |  | ----------- | ------ | -------------- | - | ------------------------ |  | ------------------ | ---------- |  | ----------------------------------- | ----------- | ------------- |  | - | --------- |  | - | ------- | - |  | - | ---------- | -
|                                         |  | CommonStock |        | PreferredStock |   | AdditionalPaid-InCapital |  | AccumulatedDeficit |            |  | AccumulatedOtherComprehensiveIncome |             | TreasuryStock |  |   | Total     | 
|Balances, October 1, 2005                |  | $           | 62,359 |                | $ | 9,445,483                |  | $                  | 58,342,933 |  | $                                   | (47,742,393 | )             |  | $ | 1,363,078 |  | $ | (87,774 | ) |  | $ | 21,383,686 |  
|Net loss                                 |  |             |        |                |   |                          |  |                    |            |  |                                     | (1,199,541  | )             |  |   |           |  |   |         |   |  |   | (1,199,541 | )
|Stock-based compensation expense         |  |             |        |                |   |                          |  |                    | 1,417,264  |  |                                     |             |               |  |   |           |  |   |         |   |  |   | 1,417,264  |  
|Unrealized gain on marketable securities |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   | 940,633   |  |   |         |   |  |   | 940,633    |  
|                                         |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |            |  
|Balances, June 30, 2006                  |  | $           | 62,359 |                | $ | 9,445,483                |  | $                  | 59,760,197 |  | $                                   | (48,941,934 | )             |  | $ | 2,303,711 |  | $ | (87,774 | ) |  | $ | 22,542,042 |  
|                                         |  |             |        |                |   |                          |  |                    |            |  |                                     |             |               |  |   |           |  |   |         |   |  |   |            |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Archon Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows



|                                                    |  |                            |            |   |      |   |             |  
|--------------------------------------------------- |  | -------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                    |  | Nine Months Ended June 30, |           
|                                                    |  | 2006                       |            |   | 2005 |  
|Cash flows from operating activities:               |  |                            |            |   |      |   |             |  
|Cash and cash equivalents provided by operations    |  | $                          | 4,663,618  |   |      | $ | 4,842,733   |  
|Changes in assets and liabilities:                  |  |                            |            |   |      |   |             |  
|Accounts receivable, net                            |  |                            | 879,411    |   |      |   | 3,118,934   |  
|Inventories                                         |  |                            | (66,872    | ) |      |   | (17,547     | )
|Prepaid expenses and other                          |  |                            | (274,449   | ) |      |   | (117,540    | )
|Deferred income taxes                               |  |                            | (645,907   | ) |      |   | (2,295,962  | )
|Other assets                                        |  |                            | (789,014   | ) |      |   | (176,599    | )
|Accounts payable                                    |  |                            | 166,130    |   |      |   | (176,821    | )
|Interest payable                                    |  |                            | (884,244   | ) |      |   | (1,671,957  | )
|Accrued and other liabilities                       |  |                            | (991,687   | ) |      |   | 27,104,844  |  
|                                                    |  |                            |            |   |      |   |             |  
|Net cash provided by operating activities           |  |                            | 2,056,986  |   |      |   | 30,610,085  |  
|                                                    |  |                            |            |   |      |   |             |  
|Cash flows from investing activities:               |  |                            |            |   |      |   |             |  
|Proceeds from sale of assets                        |  |                            | 54,950     |   |      |   | 0           |  
|Capital expenditures                                |  |                            | (187,768   | ) |      |   | (420,781    | )
|Marketable securities purchased                     |  |                            | (199,131   | ) |      |   | (898,838    | )
|Marketable securities sold                          |  |                            | 1,855,000  |   |      |   | 63,039      |  
|Investments in partnerships                         |  |                            | (410,333   | ) |      |   | (150,000    | )
|                                                    |  |                            |            |   |      |   |             |  
|Net cash provided by (used in) investing activities |  |                            | 1,112,718  |   |      |   | (1,406,580  | )
|                                                    |  |                            |            |   |      |   |             |  
|Cash flows from financing activities:               |  |                            |            |   |      |   |             |  
|Proceeds from debt                                  |  |                            | 683,069    |   |      |   | 1,164,187   |  
|Paid on debt                                        |  |                            | (3,195,336 | ) |      |   | (31,145,937 | )
|Stock options exercised                             |  |                            | 0          |   |      |   | 19,420      |  
|Preferred stock acquired                            |  |                            | 0          |   |      |   | (308,808    | )
|                                                    |  |                            |            |   |      |   |             |  
|Net cash used in financing activities               |  |                            | (2,512,267 | ) |      |   | (30,271,138 | )
|                                                    |  |                            |            |   |      |   |             |  
|Increase (decrease) in cash and cash equivalents    |  |                            | 657,437    |   |      |   | (1,067,633  | )
|Cash and cash equivalents, beginning of period      |  |                            | 2,116,708  |   |      |   | 3,442,418   |  
|                                                    |  |                            |            |   |      |   |             |  
|Cash and cash equivalents, end of period            |  | $                          | 2,774,145  |   |      | $ | 2,374,785   |  
|                                                    |  |                            |            |   |      |   |             |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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ARCHON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | Basis of Presentation and General Information
|-- | ---------------------------------------------

Archon Corporation (the Company or Archon) is a Nevada corporation. The Companys primary business operations are conducted through a wholly-owned subsidiary corporation, Pioneer Hotel Inc. (PHI),
which operates the Pioneer Hotel & Gambling Hall (the Pioneer) in Laughlin, Nevada. In addition, the Company owns real estate on Las Vegas Boulevard South (the Strip) in Las Vegas, Nevada, and also owns investment
properties in Dorchester, Massachusetts and Gaithersburg, Maryland. In June 2006, the Company announced that it had entered into an option agreement for the sale of the real estate it owns on the Strip for a total sale price of $450 million, subject
to the terms of the agreement. See Note 7

The condensed consolidated financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. The results for the three and nine-month periods are not necessarily
indicative of results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended September 30, 2005.

Reclassifications.Certain reclassifications have been made in
prior years condensed consolidated financial statements to conform to the presentations used in fiscal 2006.

Summary of
Significant Accounting Policies:

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

Earnings Per Share. The Company presents its per share results in accordance with
Statement of Accounting Standards (SFAS) No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires the presentation of basic net loss per share and diluted net loss per share. Basic per share amounts
are computed by dividing net loss by average shares outstanding during the period, while diluted per share amounts reflect the impact of additional dilution for all potentially dilutive securities, such as stock options. Dilutive stock options of
approximately 830,000 were not included in diluted calculations during the three and nine months ended June 30, 2006 and 2005, as the Company incurred a net loss during these periods and the effect would be antidilutive.



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

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

There was no impact on our net income (loss) for the three and nine months ended June 30, 2006 as no share-based payments were unvested as of October 1, 2005 and no share-based payments have been granted
subsequent to October 1, 2005. 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 $150,000 and $1.3
million during the three months ended March 31, 2006 and June 30, 2006, respectively.

There is also no impact on
net loss and loss per share for the three and nine months ended June 30, 2005 if the Company had applied the fair value recognition provisions of FAS 123R. The Company recognized stock-based compensation expense associated with the issuance of
stock options of approximately $3.7 million and $3.9 million during the three and nine months, respectively, ended June 30, 2005.

As of
June 30, 2006, we have the following share-based compensation plans:

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



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|                                                                                                                                            |  |                                |        |   |                               |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ----------------------------- | - | ------ | -
|                                                                                                                                            |  | Three MonthsEndedJune 30, 2005 |        |   | Nine MonthsEndedJune 30, 2005 |  
|Net loss applicable to common shares                                                                                                        |  | $                              | (3,361 | ) |                               | $ | (5,404 | )
|Add: Total stock-based employee compensation expense included in reported net loss, net of related tax effects                              |  |                                | 2,435  |   |                               |   | 2,554  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                | (3,928 | ) |                               |   | (4,047 | )
|                                                                                                                                            |  |                                |        |   |                               |   |        |  
|Pro forma net loss applicable to common shares                                                                                              |  | $                              | (4,854 | ) |                               | $ | (6,897 | )
|                                                                                                                                            |  |                                |        |   |                               |   |        |  
|Loss per share:                                                                                                                             |  |                                |        |   |                               |   |        |  
|Basic and diluted - as reported                                                                                                             |  | $                              | (0.54  | ) |                               | $ | (0.87  | )
|                                                                                                                                            |  |                                |        |   |                               |   |        |  
|Basic and diluted - pro forma                                                                                                               |  | $                              | (0.78  | ) |                               | $ | (1.11  | )
|                                                                                                                                            |  |                                |        |   |                               |   |        |  

1995 Non-Employee Director Stock Option Plan: In
December 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (the Non-Employee Director Plan) that provided for the grant of up to 100,000 shares of its common stock to the directors. Under the Non-Employee
Director Plan, directors were automatically granted an option to purchase 12,500 shares of the common stock at an exercise price equal to the market value of such shares on the date of such election to the board. Stock option grants vested
immediately. The Non-Employee Director Plan ceased granting options on March 21, 2002. As of June 30, 2006, there were 25,000 options outstanding and exercisable under this plan. During the nine months ended June 30, 2006, no options
were exercised.

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

The following table summarizes stock option activity during the third
quarter of fiscal 2006 under all plans:



|                                           |  |                       |  |                                        |      |                                          |           |                                 |   |       
|------------------------------------------ |  | --------------------- |  | -------------------------------------- | ---- | ---------------------------------------- | --------- | ------------------------------- | - | ------
|                                           |  | NumberofShares(000s) |  | Weighted-AverageExercisePricePer Share |      | Weighted-AverageRemainingContractualTerm |           | AggregateIntrinsicValue($000s)
|Options outstanding at September 30, 2005: |  | 830                   |  | $                                      | 8.05 |                                          | 4.5 years |                                 | $ | 24,656
|Granted                                    |  | 0                     |  |                                        | N/A  |                                          | N/A       |                                 |   | N/A   
|Exercised                                  |  | 0                     |  |                                        | N/A  |                                          | N/A       |                                 |   | N/A   
|Canceled                                   |  | 0                     |  |                                        | N/A  |                                          | N/A       |                                 |   | N/A   
|Options outstanding at June 30, 2006:      |  | 830                   |  | $                                      | 8.05 |                                          | 4.5 years |                                 | $ | 25,353
|Exercisable at June 30, 2006:              |  | 830                   |  | $                                      | 8.05 |                                          | 4.5 years |                                 | $ | 25,353



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##### Table of Contents

As of June 30, 2006, there was no unrecognized compensation cost related to unvested stock options.
There were no options exercised in the first nine months of fiscal 2006. There were no unvested shares at June 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 fair
value of each option award granted is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the weighted average assumptions noted in the following table. The expected term of options granted is derived
from historical data on employee exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected
volatility is based on both the implied volatilities from traded options on our stock and historical volatility on our stock.



|                                                                     |  |                   |   |  |              |       |  
|-------------------------------------------------------------------- |  | ----------------- | - |  | ------------ | ----- | -
|                                                                     |  | Nine months ended |  
|                                                                     |  | June 30,2006      |   |  | June 30,2005 |      
|Weighted average assumptions:                                        |  |                   |   |  |              |       |  
|Expected stock price volatility                                      |  | 80.0              | % |  |              | 80.0  | %
|Risk-free interest rate                                              |  | 4.82              | % |  |              | 5.0   | %
|Expected option lives (in years)                                     |  | 2 yrs             |   |  |              | 2 yrs |  
|Expected dividend yield                                              |  | N/A               |   |  |              | N/A   |  
|Estimated fair value of options granted, net of tax effect           |  | N/A               |   |  | $            | 1,399 |  
|Estimated fair value of options granted per share, net of tax effect |  | N/A               |   |  | $            | 4.66  |  

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.

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



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##### Table of Contents

Recently Issued Accounting Standards

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.

SFAS 151. The FASB issued SFAS No. 151, Inventory Costs-an Amendment of ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage). SFAS No. 151 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 151 without any material impact on the
Companys financial position, results of operations or cash flows.

EITF 04-5. In June 2005, the EITF
reached a consensus on recently issued EITF No. 04- 5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,
which addresses when a general partner, or general partners as a group, control and should therefore, consolidate a limited partnership. Under EITF No. 04-5, a sole general partner is presumed to control a limited partnership when certain
conditions are met. We are currently evaluating if we will be required to consolidate the accounts of Santa Fe Mining Corp (SFMC) beginning in the fiscal year ending September 30, 2007.

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, and the Company plans to adopt this guidance
during its fiscal quarter ending December 31, 2006.



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##### Table of Contents

|2. | Comprehensive Loss
|-- | ------------------

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



|                                                |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                |  | 2006                       |        |   | 2005                      |   |        | 2006 |  |   | 2005   |  
|Net loss                                        |  | $                          | (1,152 | ) |                           | $ | (2,995 | )    |  | $ | (1,200 | ) |  | $ | (4,264 | )
|Unrealized gain/(loss) on marketable securities |  |                            | 202    |   |                           |   | (193   | )    |  |   | 941    |   |  |   | 475    |  
|                                                |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss                              |  | $                          | (950   | ) |                           | $ | (3,188 | )    |  | $ | (259   | ) |  | $ | (3,789 | )
|                                                |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  



|3. | Other Assets
|-- | ------------

Included in Other Assets
at June 30, 2006 and September 30, 2005 are unamortized loan issue costs and deferred rents of approximately $5.8 million and $4.7 million, respectively, which were incurred when the Company acquired certain rental property and debt
instruments. The unamortized loan issue costs are being amortized on a straight-line basis, which closely approximates the effective interest method, over the loan period, and the deferred rents are being amortized using the straight-line method
over the remaining lease periods.

Also included in Other Assets at June 30, 2006 and September 30, 2005 are
approximately $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 arrangement 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.

Miscellaneous investments in key man life insurance policies are also included in Other Assets and totaled approximately $0.7 million at
June 30, 2006 and September 30, 2005.

Other assets also include investments in unconsolidated entities of approximately $1.8
million and $1.7 million on June 30, 2006 and September 30, 2005, respectively. One of the unconsolidated entities is a 50% owned limited liability company (LLC) which has the following financial profile at June 30, 2006
and September 30, 2005: current and total assets of approximately $0.2 million and $1.0 million, respectively; current and total liabilities of approximately $0.1 million and $0.5 million, respectively, and total equity of approximately $0.6
million. The entity also had, during the three and nine months ended June 30, 2006, revenues of approximately $0.5 million and $1.5 million and pretax income of approximately $0.1 million and $0.3 million, respectively. In accordance with
accounting literature, the Company plans to consolidate the entity into its consolidated financial statements in fiscal 2007 because it is the general partner (controlling member) but presently accounts for this investment under the equity method.



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##### Table of Contents

|4. | Related Parties
|-- | ---------------

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

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



|5. | Debt
|-- | ----

The Company has a financial covenant related
to its outstanding debt, due December 2006, of approximately $11.7 million with a certain lender. This covenant requires the Company to maintain a minimum ratio of earnings before interest, taxes, depreciation and amortization, net of investment
properties, compared to current portions of long-term debt, excluding investment properties. At June 30, 2006, the Company was not in compliance with this covenant and, as such, was technically in default under the debt agreement. Management
believes it is not the intention of the lender to declare a default relative to this covenant. Management believes the Company has sufficient assets to meet any unforeseen demands on current operations or significant debt obligations.



|6. | Federal Income Tax
|-- | ------------------

The Company recorded federal
income tax benefits, based on statutory rates, of $0.6 million and $1.6 million for the quarters ended June 30, 2006 and 2005, respectively. The Company recorded federal income tax benefits, based on statutory rates, of $0.6 million and $2.3
million for the nine months ended June 30, 2006 and 2005, respectively.

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



12



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##### Table of Contents

|7. | Sale of Option for Strip Land
|-- | -----------------------------

On June 24,
2006, SLVC, a Nevada corporation and subsidiary of Archon Corporation entered into an Option Agreement (the Agreement) between SLVC and LVTI LLC, a Delaware limited liability company (LVTI). Pursuant to the Agreement, SLVC
granted to LVTI an option (the Option) to purchase an approximately 27 acre parcel of real property located on Las Vegas Boulevard South (the Property) or, alternatively, SLVCs membership interest in a limited liability
company that may be formed and into which the Property would be contributed. The purchase price to be paid by LVTI for purchase of the Property or the membership interest in LVT LLC is $450 million. LVTI paid an initial deposit of $5.0 million on
June 27, 2006, which was refundable to LVTI if it had terminated the Agreement within a 30-day due diligence period. The $5.0 million deposit was held in escrow by an unrelated third party until the end of the 30-day due diligence period. The
due diligence period ended on July 24, 2006. The Agreement also provides for a second deposit of $40.0 million due on or before the later of (1) September 22, 2006 and (2) the date Archon delivers a Notice of Archon Mailing
confirming that Archon has mailed an Information Statement related to the transactions contemplated by the Agreement to its stockholders, and additional monthly payments of approximately $2.2 million in each month commencing on the 13th calendar
month following the date the second deposit is paid until the closing of the exercise of the Option. The 30-day due diligence period has ended and LVTI did not terminate the Agreement. Upon exercise of the Option, the initial deposit and the second
deposit will be credited against the total purchase price. The Agreement provides for certain adjustments to the purchase price if certain easements are entered into with respect to the Property prior to the closing. The Option may be exercised by
LVTI at any time between the last day of the 12thcalendar month and the last day of the 18thcalendar month following the date on which the second deposit is paid; provided that the option term may be extended by up to
30 days if SLVC does not give written notice to LVTI of the option term expiration as required by the Agreement. The first and second deposits and any additional monthly payments paid to SLVC prior to termination of the Agreement will be retained by
SLVC upon a termination of the Agreement without exercise of the option, except under certain circumstances specified in the Agreement.

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

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

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



|8. | Preferred Stock
|-- | ---------------

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



13



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##### Table of Contents

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.

In October 2003, the dividend rate
increased to 16.0%. As of June 30, 2006, the aggregate liquidation preference of the preferred stock was approximately $21.0 million, or $4.76 per share.

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



|9. | Supplemental Statement of Cash Flows Information
|-- | ------------------------------------------------

Supplemental statement of cash flows information for the nine-month periods ended June 30, 2006 and 2005 is presented below:



|                                             |  |                        |       |      |   |      
|-------------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                             |  | 2006                   |       | 2005
|                                             |  | (amounts in thousands)
|Operating activities:                        |  |                        |       |      |   |      
|Cash paid during the period for interest     |  | $                      | 7,202 |      | $ | 9,988
|                                             |  |                        |       |      |   |      
|Cash paid during the period for income taxes |  | $                      | 0     |      | $ | 0    
|                                             |  |                        |       |      |   |      
|Investing and financing activities:          |  |                        |       |      |   |      
|Unrealized gain on marketable securities     |  | $                      | 941   |      | $ | 475  
|                                             |  |                        |       |      |   |      



14



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##### Table of Contents

|10. | Segment Information
|--- | -------------------

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

Set forth below is the financial information for the segments in which the Company operates for the three-month and nine-month periods ended
June 30, 2006 and 2005:



|                                      |  |                             |        |   |      |   |        |  
|------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                      |  | Three Months Ended June 30, |       
|                                      |  | 2006                        |        |   | 2005 |  
|                                      |  | (dollars in thousands)      |       
|Pioneer Hotel:                        |  |                             |        |   |      |   |        |  
|Net operating revenues                |  | $                           | 7,624  |   |      | $ | 7,574  |  
|                                      |  |                             |        |   |      |   |        |  
|Operating income (loss)               |  | $                           | (197   | ) |      | $ | 170    |  
|                                      |  |                             |        |   |      |   |        |  
|Depreciation and amortization         |  | $                           | 545    |   |      | $ | 609    |  
|                                      |  |                             |        |   |      |   |        |  
|Interest expense                      |  | $                           | 356    |   |      | $ | 333    |  
|                                      |  |                             |        |   |      |   |        |  
|Interest and other income             |  | $                           | 3      |   |      | $ | 3      |  
|                                      |  |                             |        |   |      |   |        |  
|Net loss before income taxes          |  | $                           | (550   | ) |      | $ | (160   | )
|                                      |  |                             |        |   |      |   |        |  
|Capital expenditures / transfers      |  | $                           | 75     |   |      | $ | 43     |  
|                                      |  |                             |        |   |      |   |        |  
|Investment Properties:                |  |                             |        |   |      |   |        |  
|Net operating revenues                |  | $                           | 3,101  |   |      | $ | 3,101  |  
|                                      |  |                             |        |   |      |   |        |  
|Operating income                      |  | $                           | 2,308  |   |      | $ | 2,308  |  
|                                      |  |                             |        |   |      |   |        |  
|Depreciation and amortization         |  | $                           | 793    |   |      | $ | 793    |  
|                                      |  |                             |        |   |      |   |        |  
|Interest expense                      |  | $                           | 1,870  |   |      | $ | 2,796  |  
|                                      |  |                             |        |   |      |   |        |  
|Interest and other income             |  | $                           | 1      |   |      | $ | 0      |  
|                                      |  |                             |        |   |      |   |        |  
|Net income (loss) before income taxes |  | $                           | 438    |   |      | $ | (488   | )
|                                      |  |                             |        |   |      |   |        |  
|Capital expenditures / transfers      |  | $                           | 0      |   |      | $ | 0      |  
|                                      |  |                             |        |   |      |   |        |  
|Other and Eliminations:               |  |                             |        |   |      |   |        |  
|Net operating revenues                |  | $                           | 401    |   |      | $ | 299    |  
|                                      |  |                             |        |   |      |   |        |  
|Operating loss                        |  | $                           | (1,677 | ) |      | $ | (4,365 | )
|                                      |  |                             |        |   |      |   |        |  
|Depreciation and amortization         |  | $                           | 31     |   |      | $ | 44     |  
|                                      |  |                             |        |   |      |   |        |  
|Interest expense                      |  | $                           | (12    | ) |      | $ | (34    | )
|                                      |  |                             |        |   |      |   |        |  
|Interest and other income             |  | $                           | 4      |   |      | $ | 371    |  
|                                      |  |                             |        |   |      |   |        |  
|Net loss before income taxes          |  | $                           | (1,660 | ) |      | $ | (3,960 | )
|                                      |  |                             |        |   |      |   |        |  
|Capital expenditures / transfers      |  | $                           | 0      |   |      | $ | 79     |  
|                                      |  |                             |        |   |      |   |        |  
|Total:                                |  |                             |        |   |      |   |        |  
|Net operating revenues                |  | $                           | 11,126 |   |      | $ | 10,974 |  
|                                      |  |                             |        |   |      |   |        |  
|Operating income (loss)               |  | $                           | 434    |   |      | $ | (1,887 | )
|                                      |  |                             |        |   |      |   |        |  
|Depreciation and amortization         |  | $                           | 1,369  |   |      | $ | 1,446  |  
|                                      |  |                             |        |   |      |   |        |  
|Interest expense                      |  | $                           | 2,214  |   |      | $ | 3,095  |  
|                                      |  |                             |        |   |      |   |        |  
|Interest and other income             |  | $                           | 8      |   |      | $ | 374    |  
|                                      |  |                             |        |   |      |   |        |  
|Net loss before income taxes          |  | $                           | (1,772 | ) |      | $ | (4,608 | )
|                                      |  |                             |        |   |      |   |        |  
|Capital expenditures / transfers      |  | $                           | 75     |   |      | $ | 122    |  
|                                      |  |                             |        |   |      |   |        |  



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##### Table of Contents

|                                      |  |                            |         |   |      |   |         |  
|------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                      |  | Nine Months Ended June 30, |        
|                                      |  | 2006                       |         |   | 2005 |  
|                                      |  | (dollars in thousands)     |        
|Pioneer Hotel:                        |  |                            |         |   |      |   |         |  
|Net operating revenues                |  | $                          | 23,500  |   |      | $ | 22,607  |  
|                                      |  |                            |         |   |      |   |         |  
|Operating income (loss)               |  | $                          | 375     |   |      | $ | (231    | )
|                                      |  |                            |         |   |      |   |         |  
|Depreciation and amortization         |  | $                          | 1,660   |   |      | $ | 1,886   |  
|                                      |  |                            |         |   |      |   |         |  
|Interest expense                      |  | $                          | 1,051   |   |      | $ | 950     |  
|                                      |  |                            |         |   |      |   |         |  
|Interest and other income             |  | $                          | 9       |   |      | $ | 8       |  
|                                      |  |                            |         |   |      |   |         |  
|Net loss before income taxes          |  | $                          | (667    | ) |      | $ | (1,173  | )
|                                      |  |                            |         |   |      |   |         |  
|Capital expenditures / transfers      |  | $                          | 178     |   |      | $ | 141     |  
|                                      |  |                            |         |   |      |   |         |  
|Identifiable assets(1)                |  | $                          | 30,660  |   |      | $ | 32,705  |  
|                                      |  |                            |         |   |      |   |         |  
|Investment Properties:                |  |                            |         |   |      |   |         |  
|Net operating revenues                |  | $                          | 9,302   |   |      | $ | 9,302   |  
|                                      |  |                            |         |   |      |   |         |  
|Operating income                      |  | $                          | 6,923   |   |      | $ | 6,923   |  
|                                      |  |                            |         |   |      |   |         |  
|Depreciation and amortization         |  | $                          | 2,379   |   |      | $ | 2,379   |  
|                                      |  |                            |         |   |      |   |         |  
|Interest expense                      |  | $                          | 5,627   |   |      | $ | 7,995   |  
|                                      |  |                            |         |   |      |   |         |  
|Interest and other income             |  | $                          | 2       |   |      | $ | 1       |  
|                                      |  |                            |         |   |      |   |         |  
|Net income (loss) before income taxes |  | $                          | 1,298   |   |      | $ | (1,071  | )
|                                      |  |                            |         |   |      |   |         |  
|Capital expenditures / transfers      |  | $                          | 0       |   |      | $ | 0       |  
|                                      |  |                            |         |   |      |   |         |  
|Identifiable assets(1)                |  | $                          | 133,916 |   |      | $ | 135,890 |  
|                                      |  |                            |         |   |      |   |         |  
|Other and Eliminations:               |  |                            |         |   |      |   |         |  
|Net operating revenues                |  | $                          | 1,212   |   |      | $ | 1,282   |  
|                                      |  |                            |         |   |      |   |         |  
|Operating loss                        |  | $                          | (2,704  | ) |      | $ | (5,599  | )
|                                      |  |                            |         |   |      |   |         |  
|Depreciation and amortization         |  | $                          | 101     |   |      | $ | 146     |  
|                                      |  |                            |         |   |      |   |         |  
|Interest expense                      |  | $                          | (42     | ) |      | $ | (108    | )
|                                      |  |                            |         |   |      |   |         |  
|Interest and other income             |  | $                          | 186     |   |      | $ | 1,175   |  
|                                      |  |                            |         |   |      |   |         |  
|Net loss before income taxes          |  | $                          | (2,476  | ) |      | $ | (4,316  | )
|                                      |  |                            |         |   |      |   |         |  
|Capital expenditures / transfers      |  | $                          | 10      |   |      | $ | 280     |  
|                                      |  |                            |         |   |      |   |         |  
|Identifiable assets(1)                |  | $                          | 31,858  |   |      | $ | 31,422  |  
|                                      |  |                            |         |   |      |   |         |  
|Total:                                |  |                            |         |   |      |   |         |  
|Net operating revenues                |  | $                          | 34,014  |   |      | $ | 33,191  |  
|                                      |  |                            |         |   |      |   |         |  
|Operating income                      |  | $                          | 4,594   |   |      | $ | 1,093   |  
|                                      |  |                            |         |   |      |   |         |  
|Depreciation and amortization         |  | $                          | 4,140   |   |      | $ | 4,411   |  
|                                      |  |                            |         |   |      |   |         |  
|Interest expense                      |  | $                          | 6,636   |   |      | $ | 8,837   |  
|                                      |  |                            |         |   |      |   |         |  
|Interest and other income             |  | $                          | 197     |   |      | $ | 1,184   |  
|                                      |  |                            |         |   |      |   |         |  
|Net loss before income taxes          |  | $                          | (1,845  | ) |      | $ | (6,560  | )
|                                      |  |                            |         |   |      |   |         |  
|Capital expenditures / transfers      |  | $                          | 188     |   |      | $ | 421     |  
|                                      |  |                            |         |   |      |   |         |  
|Identifiable assets(1)                |  | $                          | 196,434 |   |      | $ | 200,017 |  
|                                      |  |                            |         |   |      |   |         |  

---

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



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##### Table of Contents

ARCHON CORPORATION



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

This discussion is intended to further the readers understanding of the consolidated financial condition and results of operations of Archon
Corporation (the Company or Archon). It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and the Companys annual report on Form 10-K for the year ended
September 30, 2005. These historical financial statements may not be indicative of the Companys future performance.

General

Overview of Business Operations and Trends

The Company historically has owned, managed and operated hotel/casino properties through a number of acquisitions or developments, and it has subsequently divested certain of these properties. Presently, the Company
operates a hotel/casino in Laughlin, Nevada, known as the Pioneer Hotel and Gambling Hall (the Pioneer). It also owns land in Las Vegas, Nevada on the Las Vegas Strip (the Strip Property). In June 2006, the Company announced
that it had entered into an option agreement for the sale of the Strip Property for $450 million subject to the terms of the agreement.

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

Management believes the recent revenue and expense trends in its Laughlin hotel/casino property may not change significantly over the next few years.

During the nine-month periods ended June 30, 2006 and 2005, the Company incurred a net loss applicable to common shareholders of approximately $2.3
million and $5.4 million, respectively. In the nine-month periods ended June 30, 2006 and 2005, the Company incurred stock-based compensation expense of approximately $1.4 million and $3.9 million, respectively. The $3.1 million improvement in
results of the 2006 period was due to this decline in stock-based compensation, reduced interest costs associated with its investment properties and improved operating results at the Pioneer. Management continues to pursue additional strategies to
regain or increase market share at the Pioneer but can give no assurance that this will occur.



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##### Table of Contents

Investment Properties

During fiscal year 2001, the Company acquired certain investment properties as part of a Section 1031 exchange. The investment properties are located in Gaithersburg, MD and Dorchester, MA. The Company acquired
the properties and nonrecourse debt associated with the properties which are subject to long-term leases. Tenants remit payments to banks according to the terms of the leases and notes. The payments are used to liquidate the nonrecourse debt
obligations. Rental income is recorded by the Company on a straight-line basis and totals approximately $12.4 million annually and will remain at this level until approximately 2020. The buildings are also being depreciated on a straight-line basis
and the depreciation expense is approximately $3.2 million annually and will remain at this level until approximately 2020 or until the assets are sold, otherwise disposed of or become impaired. Interest expense is also recorded based on the
outstanding nonrecourse debt remaining to be paid based on unamortized loan issue costs and remaining debt amortization timetables. At any time during the life of the leases and debt amortization, the fair market values of the properties may be
different than its book values. Interest is presently being expensed at approximately $7.5 million annually and will decrease in relation to debt principal reductions through 2020.

Critical Accounting Policies and Estimates

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

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

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

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



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impairment charge. The Company reviews useful lives and obsolescence and assesses commercial viability of these assets periodically.

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

Results of Operations  Nine Months Ended June 30, 2006 and 2005

Consolidated

Net Operating Revenues. Consolidated net operating revenues for the nine months ended June 30, 2006 were $34.0 million, a $0.8
million, or 2.5%, increase from $33.2 million for the nine months ended June 30, 2005. Income from the investment properties was $9.3 million in each of the nine months ended June 30, 2006 and 2005. Net revenues increased $0.9 million
to $23.5 million at the Pioneer for the nine months ended June 30, 2006 compared to the nine months ended June 30, 2005. Sahara Las Vegas Corp (SLVC) had net revenues of approximately $1.0 million and $1.1 million during
the nine months ended June 30, 2006 and 2005, respectively.

Operating Expenses. Total operating expenses decreased $2.7
million, or 8.3%, to $29.4 million for the nine months ended June 30, 2006 from $32.1 million for the nine months ended June 30, 2005. Total operating expenses as a percentage of revenue decreased to 86.5% in the current year
period from 96.7% in the prior year period. Operating expenses increased by $0.3 million, or 1.3%, at the Pioneer. Operating expenses decreased by $3.0 million in general corporate and other expenses, primarily due to a decrease in stock-based
compensation expense.

Operating Income. Consolidated operating income for the nine months ended June 30, 2006 was
$4.6 million, an increase of $3.5 million, or 320.5%, from $1.1 million for the nine months ended June 30, 2005. The increase was due to the aforementioned change in net operating revenues and operating expenses. Operating income of
$6.9 million for each of the nine-month periods ended June 30, 2006 and 2005 is attributable to the investment properties. Operating income improved by $0.6 million at the Pioneer to $0.4 million. The operating losses at corporate and SLVC
improved by $2.9 million principally due to the aforementioned decrease in stock-based compensation expense.

Interest
Expense. Consolidated interest expense for the nine months ended June 30, 2006 was $6.6 million, a $2.2 million, or 24.9%, decrease compared to $8.8 million for the nine months ended June 30, 2005. The decrease was
primarily due to the reduction of non-recourse debt associated with the investment properties.

Interest and Other Income.
Consolidated interest and other income for the nine months ended June 30, 2006, was $0.2 million, a $1.0 million decrease compared to $1.2 million for the nine months ended June 30, 2005, due to a sale of certain utility rights, proceeds
from a legal settlement and gains in investments in the 2005 period.



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Loss Before Income Tax. Consolidated loss before income tax for the nine months ended
June 30, 2006 was $1.8 million, a $4.8 million improvement compared to a loss of $6.6 million for the nine months ended June 30, 2005.

Federal Income Tax. The Company recorded a federal income tax benefit of $0.6 million for the nine months ended June 30, 2006, compared to a $2.3 million benefit for the nine months ended
June 30, 2005 based on statutory income tax rates.

Preferred Share Dividends. Undeclared preferred share dividends are
not recorded in the stockholders equity section of the balance sheet as the Company may elect at its sole discretion whether to redeem its preferred stock. However, dividends of approximately $1.1 million for each of the nine-month periods
ended June 30, 2006 and 2005 accrued on the preferred stock for purposes of calculating net loss applicable to common shares.

Net Loss. Consolidated net loss attributable to common shares was $2.3 million, or $0.37 per common share, for the nine months ended June 30, 2006 compared to net loss attributable to common shares of
$5.4 million, or $0.87 per common share, for the nine months ended June 30, 2005.

Pioneer

Net Operating Revenues. Net operating revenues at the Pioneer increased $0.9 million, or 4.0%, to $23.5 million in the nine months
ended June 30, 2006 from $22.6 million in the nine months ended June 30, 2005.

Casino revenues increased $0.5 million, or 2.5%,
to $18.9 million in the nine months ended June 30, 2006 from $18.4 million in the nine months ended June 30, 2005. Slot and video poker revenues increased $0.5 million, or 2.7%, to $17.1 million in the nine months ended
June 30, 2006 from $16.6 million in the nine months ended June 30, 2005. Management believes this increase was a result of improved marketing strategies to attract local customers. Other gaming revenues, including table games, were
unchanged at $1.8 million in the nine months ended June 30, 2006 and 2005. Casino promotional allowances increased $0.3 million, or 8.1%, to $4.6 million in the nine months ended June 30, 2006 from $4.3 million in the nine months
ended June 30, 2005 primarily due to the aforementioned increase in slot and video poker revenues and certain changes in marketing strategies.

Hotel revenues increased $0.1 million, or 4.4%, to $2.2 million for the nine months ended June 30, 2006 from $2.1 million for the nine months ended June 30, 2005, caused by an increase in occupancy. Food and beverage revenues
increased $0.3 million, or 6.3%, to $5.6 million for the nine months ended June 30, 2006 compared to $5.3 million in the nine months ended June 30, 2005, primarily due to the increase in casino promotional allowances. Other
revenues increased $0.3 million, or 32.6%, to $1.4 million for the nine months ended June 30, 2006 compared to $1.1 million for the nine months ended June 30, 2005, due to increased retail sales.

Operating Expenses. Operating expenses increased $0.3 million, or 1.3%, to $23.1 million in the nine months ended June 30, 2006
from $22.8 million in the nine months ended June 30, 2005. Operating expenses as a percentage of revenue decreased to 98.4% in the current year period from 101.0% in the prior year period.

Casino expenses increased approximately $0.5 million, or 6.0%, to $10.3 million in the nine months ended June 30, 2006 from $9.8 million
in the nine months ended June 30, 2005, primarily due to



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the increase in casino promotional allowances. Casino expenses as a percentage of casino revenues increased to 54.8% in the current year period from 53.0% in
the prior year period.

Hotel expenses were unchanged at $0.8 million in the nine months ended June 30, 2006 and 2005. Food and
beverage expenses decreased $0.2 million, or 5.5%, to $3.0 million in the nine months ended June 30, 2006 from $3.2 million in the nine months ended June 30, 2005, primarily due to a decrease in the cost of food sales associated with
a change in food promotions. Food and beverage expenses as a percentage of food and beverage revenues decreased to 53.4% in the current year period from 60.1% in the prior year period. Other expenses increased $0.4 million, or 50.7% to $1.2 million
for the nine months ended June 30, 2006 compared to $0.8 million for the nine months ended June 30, 2005, due to the increase in retail sales. Other expenses as a percentage of other revenues increased to 85.6% in the current year
period from 75.3% in the prior year period.

Selling, general and administrative expenses decreased $0.1 million, or 1.7%, to $3.3 million
for the nine months ended June 30, 2006 from $3.4 million for the nine months ended June 30, 2005. Selling, general and administrative expenses as a percentage of revenues decreased to 14.1% in the current year period from 14.9% in
the prior year period. Utilities and property expenses were unchanged at approximately $2.8 million in the nine months ended June 30, 2006 and 2005. Utilities and property expenses as a percentage of revenues decreased to 11.8% in the current
year period from 12.5% in the prior year period. Depreciation and amortization expenses decreased $0.2 million, or 12.0%, to $1.7 million in the nine months ended June 30, 2006 from $1.9 million in the nine months ended June 30,
2005. The Pioneer recorded a loss of $0.2 million on the disposal of older slot machines in the prior year period compared to $20,000 in the current year period.

Results of Operations  Three Months Ended June 30, 2006 and 2005

Consolidated

Net Operating Revenues. Consolidated net operating revenues for the quarter ended June 30, 2006 were $11.1 million, an
approximately $0.1 million, or 1.4%, increase from $11.0 million for the quarter ended June 30, 2005. Income from the investment properties was $3.1 million in each of the quarters ended June 30, 2006 and 2005. Revenues were unchanged
at the Pioneer. SLVC had net revenues of approximately $0.3 million during the three months ended June 30, 2006 and 2005.

Operating Expenses. Total operating expenses decreased approximately $2.2 million, or 16.9%, to $10.7 million for the quarter ended June 30, 2006 from $12.9 million for the quarter ended June 30, 2005. Total
operating expenses as a percentage of revenue decreased to 96.1% for the current year quarter from 117.2% for the prior year quarter. Operating expenses increased by $0.4 million, or 5.6%, at the Pioneer, primarily due to promotional and marketing
expenses. Operating expenses decreased by $2.6 million in general corporate and other expenses, primarily due to a decrease in stock-based compensation expense.

Operating Income (Loss). Consolidated operating income for the quarter ended June 30, 2006 was $0.4 million, an improvement of $2.3 million from a loss of $1.9 million for the quarter
ended June 30, 2005. The increase was due to the aforementioned change in net operating revenues and operating expenses. Operating income of $2.3 million for each of the three-month periods ended June 30, 2006 and 2005 is attributable to
the investment properties. Operating income decreased by $0.4 million at the Pioneer to an operating loss of $0.2 million. The operating losses at corporate and SLVC improved by



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$2.7 million due principally to the decrease of stock-based compensation expense of approximately $2.5 million from the prior year quarter.

Interest Expense. Consolidated interest expense for the three months ended June 30, 2006 was $2.2 million, a $0.9 million
decrease compared to $3.1 million for the three months ended June 30, 2005. The decrease was primarily due to the reduction of non-recourse debt associated with the investment properties.

Interest and Other Income. Consolidated interest and other income for the three months ended June 30, 2006, was $8,000, a $0.4 million
decrease compared to $0.4 million for the three months ended June 30, 2005, due principally to gains on investments in the prior year quarter.

Loss Before Income Tax. Consolidated loss before income tax for the quarter ended June 30, 2006 was $1.8 million, a $2.8 million improvement compared to $4.6 million for the quarter ended June 30, 2005.

Federal Income Tax. The Company recorded a federal income tax benefit of $0.6 million for the quarter ended June 30, 2006 compared
to $1.6 million for the quarter ended June 30, 2005 based on statutory income tax rates.

Preferred Share Dividends.
Undeclared preferred share dividends are not recorded in the stockholders equity section of the balance sheet as the Company may elect at its sole discretion whether to redeem its preferred stock. However, dividends of approximately $0.4
million for each of the three-month periods ended June 30, 2006 and 2005 accrued on the preferred stock for purposes of calculating net loss applicable to common shares.

Net Loss. Consolidated net loss attributable to common shares was $1.5 million, or $0.25 per common share, for the
quarter ended June 30, 2006 compared to $3.4 million, or $0.54 per common share, for the quarter ended June 30, 2005.

Pioneer

Net Operating Revenues. Net operating revenues at the Pioneer were unchanged at $7.6 million in the three months
ended June 30, 2006 and 2005.

Casino revenues were relatively unchanged at $5.8 million in the three months ended June 30,
2006 and 2005. Slot and video poker revenues were relatively unchanged at $5.2 million in the three months ended June 30, 2006 and 2005. Other gaming revenues, including table games, were relatively unchanged at $0.6 million in the
three months ended June 30, 2006 and 2005. Casino promotional allowances increased approximately $0.1 million, or 13.1%, to $1.4 million in the three months ended June 30, 2006, from $1.3 million in the three months ended
June 30, 2005 primarily due to changes in marketing strategies to attract local customers.

Hotel revenues were unchanged at
$0.8 million for the three months ended June 30, 2006 and 2005. A small increase in occupancy was offset by a decrease in the average room rate. Food and beverage revenues increased $0.1 million, or 8.0%, to $1.9 million for the three
months ended June 30, 2006 compared to $1.8 million in the three months ended June 30, 2005, primarily due to the increase in casino promotional allowances. Other revenues increased $0.1 million, or 33.1%, to $0.5 million for the
three months ended June 30, 2006 compared to $0.4 million for the three months ended June 30, 2005, due to increased retail sales.



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Operating Expenses. Operating expenses increased $0.4 million, or 5.6%, to
$7.8 million in the three months ended June 30, 2006 from $7.4 million in the three months ended June 30, 2005. Operating expenses as a percentage of revenue increased to 102.6% in the current year period from 97.8% in the prior
year period.

Casino expenses increased $0.4 million, or 12.2%, to $3.4 million in the three months ended June 30, 2006 from
$3.0 million in the three months ended June 30, 2005, primarily due to the increase in casino promotional and marketing expenses. Casino expenses as a percentage of casino revenues increased to 58.4% in the current year period from 51.6%
in the prior year period.

Hotel expenses were unchanged at $0.3 million in the three months ended June 30, 2006 and 2005. Food and
beverage expenses were unchanged at $1.1 million in the three months ended June 30, 2006 and 2005. Food and beverage expenses as a percentage of food and beverage revenues decreased to 57.3% in the current year period from 64.2% in the
prior year period. Other expenses increased $0.1 million, or 23.4% to $0.4 million for the three months ended June 30, 2006 compared to $0.3 million for the three months ended June 30, 2005. Other expenses as a percentage of other
revenues decreased to 77.3% in the current year period from 83.3% in the prior year period.

Selling, general and administrative expenses
were unchanged at $1.1 million for the three months ended June 30, 2006 and 2005. Selling, general and administrative expenses as a percentage of revenues were relatively unchanged at 14.4% in the current year period compared to 14.5% for
the prior year period. Utilities and property expenses increased $0.1 million, or 6.7%, to $1.0 million in the three months ended June 30, 2006 from $0.9 million in the three months ended June 30, 2005. Utilities and property expenses
as a percentage of revenues increased to 12.7% in the current year period from 12.0% in the prior year period. Depreciation and amortization expenses were relatively unchanged at $0.6 million in the three months ended June 30, 2006 and 2005.



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

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



|                    |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|------------------- |  | --------------------------- | ----- | ---- | - | ------ |  | ---- | ----- | ---- | - | ----- |  | ------------------ | ----- | ----- | - | ----- |  | - | ------ |  | - | -------
|                    |  | Payments Due By Periods (1)
|                    |  | 2006                        |       | 2007 |   | 2008   |  | 2009 |       | 2010 |   | 2011  |  | 2012 andThereafter |       | Total
|                    |  | (dollars in thousands)     
|Non-recourse debt:  |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Gaithersburg        |  | $                           | 506   |      | $ | 2,195  |  | $    | 2,490 |      | $ | 2,828 |  | $                  | 3,186 |       | $ | 3,573 |  | $ | 33,541 |  | $ | 48,319 
|Sovereign           |  |                             | 0     |      |   | 0      |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 31,199 |  |   | 31,199 
|Debt:               |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Building            |  |                             | 35    |      |   | 14     |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 49     
|Equipment           |  |                             | 784   |      |   | 413    |  |      | 85    |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 1,282  
|Mortgage obligation |  |                             | 94    |      |   | 11,643 |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 11,737 
|Other               |  |                             | 1,231 |      |   | 0      |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 1,231  
|Operating leases:   |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Ground lease        |  |                             | 89    |      |   | 364    |  |      | 364   |      |   | 364   |  |                    | 364   |       |   | 364   |  |   | 24,460 |  |   | 26,369 
|Corporate offices   |  |                             | 11    |      |   | 22     |  |      | 0     |      |   | 0     |  |                    | 0     |       |   | 0     |  |   | 0      |  |   | 33     
|                    |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        
|Total               |  | $                           | 2,750 |      | $ | 14,651 |  | $    | 2,939 |      | $ | 3,192 |  | $                  | 3,550 |       | $ | 3,937 |  | $ | 89,200 |  | $ | 120,219
|                    |  |                             |       |      |   |        |  |      |       |      |   |       |  |                    |       |       |   |       |  |   |        |  |   |        

---

|(1) | The Company is required to make the following cash interest payments related to the above debt obligations: (i) Non-recourse debt  $0.9 million (2006), $7.1 million
(2007), $7.0 million (2008), $6.8 million (2009), $6.6 million (2010), $6.3 million (2011) and $39.9 million (2012 and thereafter)), and (ii) Long-term debt$0.4 million (2006), $0.3 million (2007), $0 (2008), $0 (2009), $0 (2010), $0
(2011) and $0 (2012 and thereafter).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

Under an existing debt agreement with a bank, the Company is obligated to make a balloon payment of approximately $11.5 million in December 2006. In
August 2006, the Company paid an additional $1.0 million towards its outstanding principal balance on this obligation, thereby causing the expected balloon payment in December 2006 to be reduced to approximately $10.5 million. The Company will
either have to sell certain assets, including the strip property, or will have to refinance this



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debt as current cash balances and projected cash flows from operations are not expected to be sufficient to satisfy this debt obligation. Although the
Company believes one of these alternatives will occur, the Company can give no assurance that assets can be sold or that the debt can be refinanced at terms acceptable to the Company. The debt is guaranteed by the Companys primary shareholder,
who is also the CEO and Chairman of the Board.

Liquidity. As of June 30, 2006 and September 30, 2005, the Company
held cash and cash equivalents of approximately $2.8 million and $2.1 million, respectively. The Company had $6.6 million in investment in marketable securities at June 30, 2006 compared to $6.8 million at September 30, 2005. The
investment properties are structured such that future tenants payments cover future required mortgage payments including balloon payments. Management believes that the Company will be able to generate sufficient cash by selling or borrowing
against its assets in order to meet its cash requirements for a reasonable period of time.

Cash Flows from Operating
Activities. The Companys cash provided by operating activities was $2.1 million for the nine months ended June 30, 2006 as compared to $30.6 million for the nine months ended June 30, 2005. The decrease was primarily due
to changes in operating assets and liabilities related to a significant payment of nonrecourse debt of an investment property offset by improved financial performance in the 2006 period.

Cash Flows from Investing Activities. Cash provided by investing activities was approximately $1.1 million for the nine months ended
June 30, 2006, as compared to cash used in investing activities of $1.4 million for the nine months ended June 30, 2005. In the current year period, the Company sold $1.9 million of marketable securities, which was offset by purchases of
marketable securities of $0.2 million, investments of $0.4 million in a partnership and $0.2 million in capital equipment. In the prior year period, the Company invested $0.9 million in marketable securities, $0.1 million in a partnership and
approximately $0.4 million in capital equipment and sold $0.1 million of marketable securities.

Cash Used in Financing
Activities. Cash used in financing activities was $2.5 million for the nine months ended June 30, 2006 as compared to $30.3 million for the nine months ended June 30, 2005. For the nine months ended June 30, 2006 and 2005,
the Company repaid $3.2 million and $31.1 million, respectively, of principally non-recourse debt and borrowed $0.7 million and $1.2 million, respectively. In the 2005 period, the Company expended $0.3 million to repurchase its preferred stock.

The Companys primary source of operating cash is from Pioneer operations, from interest income on available cash and cash
equivalents and investments in marketable securities and from the leasing of the Companys strip property. Rental income from the Companys two investment properties is contractually committed to reducing the non-recourse indebtedness
issued or assumed in connection with the acquisition of the investment properties. Under the two leases, the tenants are responsible for substantially all obligations related to the property. SLVC, an indirect wholly-owned subsidiary of the Company,
owns an approximately 27-acre parcel of real property on Las Vegas Boulevard South, which is subject to, among others, a lease with a condominium developer. SLVC generates approximately $1.0 million of cash from its lease agreements after payment of
property taxes.

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



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Rent expense at the Pioneer was approximately $0.1 million and $0.2 million for the nine months ended
June 30, 2006 and 2005, respectively. Capital expenditures to maintain the facility in fiscal 2006 are expected to be less than $1.0 million.

Preferred Stock

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

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

In October 2003, the dividend rate increased to 16.0%. As of June 30, 2006, the
aggregate liquidation preference of the preferred stock was approximately $21.0 million, or $4.76 per share.

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

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 August 11, 2006, the Company had purchased 709,305 shares of preferred stock for approximately $1.4 million under this program. Previously, the Company had purchased 276,627 shares for
$452,232. During the nine months ended June 30, 2006, the Company has not purchased any additional shares.



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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.

Recently Issued Accounting Standards

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

Effects of Inflation

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

Private Securities Litigation Reform Act

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



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

Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity process. Excluding its non-recourse debt, the Company has total
interest-bearing debt at June 30, 2006 of approximately $14.3 million, of which approximately $13.0 million bears interest at a variable rate (approximately 9.0% at June 30, 2006). Therefore, the Company maintains certain market rate risk
related to this debt. A change in the interest rates of 1% would cause an approximate $130,000 change in the amount of interest the Company would incur based



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on the amount of variable-interest rate debt outstanding for any current or future year in which this debt is outstanding. Future borrowings related to this
debt will be exposed to this same market rate risk.

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



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

Evaluation of
Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and 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 the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded that Archons disclosure controls and procedures are effective.

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



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ARCHON CORPORATION

PART II  OTHER INFORMATION



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

None



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

None



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

The Company
has outstanding cumulative exchangeable redeemable preferred stock (Preferred Stock). Prior to fiscal 1997, the Company satisfied the semi-annual dividend payments on its Preferred Stock through the issuance of paid in kind dividends.
Commencing in fiscal 1997, dividends paid on the Preferred Stock, to the extent declared, must be paid in cash. No dividends have been declared on the Preferred Stock since October 1, 1996. As originally drafted, the Certificate of
Designation of the Exchangeable Redeemable Preferred Stock provides in part that:

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



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or the Exchangeable Preferred Stock is redeemed or exchanged by the Company. In no circumstances will the Dividend Rate exceed 16% per annum per
share.

In October 2003, the dividend rate increased to 16.0%. As of June 30, 2006, the aggregate liquidation preference of the
Preferred Stock was approximately $21.0 million, or $4.76 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.



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

The holders of more than 75% of the Companys outstanding shares of common stock, including Paul W. Lowden, President and Chief Executive Office of the Company and holder of more than 74% of the outstanding common tock, have approved
the Option Agreement and the transactions contemplated thereby. No other stockholder approval is required in connection with the transaction. The Company will file an information statement with respect to the transactions contemplated by the
Agreement with the SEC and will mail the information statement to its stockholders. Stockholders and investors are urged to read the information statement regarding the transaction when it becomes available because it will contain important
information. Stockholders and investors may obtain a free copy of the information statement (when available) and other related documents filed by the Company with the SEC at its website at www.sec.gov.

At the Annual Meeting of Stockholders held on May 23, 2006, common stockholders elected two directors and voted on a proposal to ratify the
selection of Ernst & Young LLP as the Companys public accountants. Preferred stockholders elected one special director.

The
Directors whose terms in office continued after the meeting are as follows:



|                  |  |             
|----------------- |  | ------------
|                  |  | Term Expires
|Paul W. Lowden    |  | 2008        
|William J. Raggio |  | 2008        
|John W. Delaney   |  | 2009        
|Suzanne Lowden    |  | 2007        

There were 6,235,931shares of Common Stock entitled to vote at the meeting. A total of
6,148,510 votes (98.6%) were represented at the meeting. The result of the vote taken on the election of Directors elected by the common stockholders to hold office until the 2009 Annual Meeting of Stockholders and until their successors
are elected and have qualified are as follows:



|                |  |           |  |         
|--------------- |  | --------- |  | --------
|                |  | For       |  | Withheld
|John W. Delaney |  | 6,145,180 |  | 3,330   



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The result of the vote taken for ratification of the selection of Ernst & Young LLP as the
Companys independent registered public accounting firm are as follows:



|          |  |         |  |         |  |                
|--------- |  | ------- |  | ------- |  | ---------------
|For       |  | Against |  | Abstain |  | Broker Non-Vote
|6,146,878 |  | 375     |  | 1,257   |  | 0              

The special director elected by the preferred stockholders whose term in office continued after
the meeting is as follows:



|                 |  |             
|---------------- |  | ------------
|                 |  | Term Expires
|Howard E. Foster |  | 2009        
|Jay Parthemore   |  | 2007        

There were 5,246,781 shares of Preferred Stock entitled to vote at the meeting. A total of
4,803,240 votes (91.5%) were represented at the meeting. The result of the vote taken of the election of the special director by the preferred stockholders was as follows:



|                 |  |           |  |         
|---------------- |  | --------- |  | --------
|                 |  | For       |  | Withheld
|Howard E. Foster |  | 4,781,116 |  | 22,124  



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

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.



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



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



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SIGNATURES

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



ARCHON CORPORATION, RegistrantBy:

/s/ Paul W. LowdenPaul W. Lowden Chairman of the Board and Chief Executive OfficerBy:

/s/ John M. GarnerJohn M. Garner, Chief Financial Officer


Date: August 16, 2006



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