10-Q

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: March 31, 2006

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

For the transition period from                      to                     

Commission File Number: 1-9481

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)

3993 Howard Hughes Parkway, Suite 630, Las Vegas, Nevada, 89109

(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 May 12, 2006

ARCHON CORPORATION

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1	Unaudited Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2006 and September 30, 2005	1
	Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2006 and 2005	3
	Condensed Consolidated Statement of Stockholders’ Equity for the six months ended March 31, 2006	4
	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2006 and 2005	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4	Controls and Procedures	27
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	29
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3	Defaults Upon Senior Securities	30
Item 4	Submission of Matters to a Vote of Security Holders	30
Item 5	Other Information	30
Item 6	Exhibits and Reports on Form 8-K	31

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PART I – FINANCIAL INFORMATION

Item 1 Unaudited Condensed Consolidated Financial Statements

Archon Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

	March 31, 2006		September 30, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	3,209,391	$	2,116,708
Investment in marketable securities		7,051,650		6,803,967
Accounts receivable, net		1,082,674		1,051,998
Inventories		392,416		355,459
Prepaid expenses and other		1,187,309		761,307
Total current assets		12,923,440		11,089,439
Land held for development		21,504,400		21,504,400
Property held for investment, net		128,950,569		130,536,513
Property and equipment, net		27,641,481		28,713,752
Other assets		8,282,638		7,793,447
Total assets	$	199,302,528	$	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 Balance Sheets (continued)

	March 31, 2006		September 30, 2005
LIABILITIES and STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,275,538	$	2,096,606
Interest payable		1,317,880		1,255,096
Accrued and other liabilities		3,620,420		3,197,668
Current portion of debt		14,707,906		14,915,525
Current portion of non-recourse debt		2,051,633		1,915,478
Total current liabilities		23,973,377		23,380,373
Debt – less current portion		298,977		484,856
Non-recourse debt – less current portion		77,950,611		79,013,926
Deferred income taxes		27,726,022		27,353,693
Other liabilities		47,133,222		48,021,017
Stockholders’ equity		22,220,319		21,383,686
Total liabilities and stockholders’ equity	$	199,302,528	$	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 March 31,						Six Months Ended March 31,
	2006			2005			2006			2005
Revenues:
Casino	$	7,388,010		$	6,797,877		$	13,085,200		$	12,569,705
Hotel		773,747			705,397			1,332,129			1,235,529
Food and beverage		2,061,936			1,871,513			3,732,189			3,539,768
Investment properties		3,100,561			3,100,561			6,201,123			6,201,123
Other		877,930			1,109,742			1,706,239			1,660,690
Gross revenues		14,202,184			13,585,090			26,056,880			25,206,815
Less casino promotional allowances		(1,753,594	)		(1,542,888	)		(3,168,797	)		(2,989,249	)
Net operating revenues		12,448,590			12,042,202			22,888,083			22,217,566
Operating expenses:
Casino		3,631,031			3,435,319			6,954,494			6,734,896
Hotel		259,032			259,846			502,982			464,923
Food and beverage		987,984			1,026,691			1,920,655			2,055,905
Other		426,348			253,976			821,273			505,108
Selling, general and administrative		866,280			804,290			1,749,895			1,766,650
Corporate expenses		920,781			1,072,971			1,777,676			2,202,338
Utilities and property expenses		1,101,343			1,117,396			2,230,119			2,297,988
Depreciation and amortization		1,380,824			1,461,656			2,771,029			2,965,579
Loss (gain) on disposal of assets		0			(3,771	)		0			244,648
Total operating expenses		9,573,623			9,428,374			18,728,123			19,238,035
Operating income		2,874,967			2,613,828			4,159,960			2,979,531
Interest expense		(2,193,311	)		(2,837,911	)		(4,422,922	)		(5,742,330	)
Interest and other income		59,514			626,070			189,073			810,109
Income (loss) before income taxes		741,170			401,987			(73,889	)		(1,952,690	)
Federal income tax (expense) benefit		(259,410	)		(140,695	)		25,861			683,442
Net income (loss)		481,760			261,292			(48,028	)		(1,269,248	)
Dividends accrued on preferred shares		(377,820	)		(386,925	)		(755,639	)		(773,850	)
Net income (loss) applicable to common shares	$	103,940		$	(125,633	)	$	(803,667	)	$	(2,043,098	)
Average common shares outstanding		6,235,931			6,224,033			6,235,931			6,222,718
Average common and common equivalent shares outstanding		6,772,605			6,224,033			6,235,931			6,222,718
Income (loss) per common share:
Basic	$	0.02		$	(0.02	)	$	(0.13	)	$	(0.33	)
Diluted	$	0.02		$	(0.02	)	$	(0.13	)	$	(0.33	)

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 Six Months Ended March 31, 2006

	Common Stock		Preferred Stock		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Treasury Stock			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								(48,028	)							(48,028	)
Stock-based compensation						145,168										145,168
Unrealized gain on marketable securities											739,493					739,493
Balances, March 31, 2006	$	62,359	$	9,445,483	$	58,488,101	$	(47,790,421	)	$	2,102,571	$	(87,774	)	$	22,220,319

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

	Six Months Ended March 31,
	2006			2005
Cash flows from operating activities:
Cash and cash equivalents provided by operations	$	3,057,686		$	2,313,008
Changes in assets and liabilities:
Accounts receivable, net		(30,676	)		(11,290,320	)
Inventories		(36,957	)		29,593
Prepaid expenses and other		(426,004	)		(258,564	)
Deferred income taxes		(25,861	)		(683,442	)
Other assets		(268,374	)		(209,395	)
Accounts payable		178,932			364,873
Interest payable		62,784			(59,259	)
Accrued and other liabilities		(465,043	)		14,885,970
Net cash provided by operating activities		2,046,487			5,092,464
Cash flows from investing activities:
Capital expenditures		(112,813	)		(299,164	)
Marketable securities purchased		0			(851,177	)
Marketable securities sold		890,000			0
Investments in partnerships		(410,333	)		(150,000	)
Net cash provided by (used in) investing activities		366,854			(1,300,341	)
Cash flows from financing activities:
Proceeds from debt		683,069			793,526
Paid on debt and obligation under lease		(2,003,727	)		(4,659,798	)
Stock options exercised		0			13,120
Preferred stock acquired		0			(534	)
Net cash used in financing activities		(1,320,658	)		(3,853,686	)
Increase (decrease) in cash and cash equivalents		1,092,683			(61,563	)
Cash and cash equivalents, beginning of period		2,116,708			3,442,418
Cash and cash equivalents, end of period	$	3,209,391		$	3,380,855

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.

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. 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 six-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 its per share results in accordance with Statement of Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” (“SFAS 128”). SFAS 128 requires the presentation of basic net loss per share and diluted net loss per share. Basic per share amounts are computed by dividing net loss by the weighted 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 and 500,000, respectively, were not included in diluted calculations during the six months ended March 31, 2006 and the three and six month periods ended March 31, 2005, as the Company incurred a net loss during these periods and the effect would be antidilutive. However, during the three months ended March 31, 2006, dilutive stock options of approximately 830,000 were included in calculating diluted earnings per share.

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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: a) 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 Statement 123, and b) 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 income or basic and diluted earning per share in applying the provisions of FAS 123R as compared to FAS 123 for the three and six months ended March 31, 2006.

Effective March 31, 2006, certain stock options were extended for an additional period of exercise and the Company recorded as part of corporate expenses the stock-based compensation expensed of approximately $0.15 million during the three months ended March 31, 2006. We have not recognized, and do not expect to recognize in the near future, any tax benefit related to employee stock-based compensation cost as a result of the full valuation allowance on our net deferred tax assets and our net operating loss carryforwards.

If the Company would have applied the fair value recognition provisions of FAS 123R for the three and six months ended March 31, 2005, stock-based compensation expense would have been $0.2 million as a result of the extension of certain options to a board member.

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

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

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	Three Months Ended March 31, 2005			Six Months Ended March 31, 2005
Net loss applicable to common shares	$	(126	)	$	(2,043	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		0			0
Pro forma net loss applicable to common shares	$	(126	)	$	(2,043	)
Loss per share:
Basic and diluted - as reported	$	(0.02	)	$	(0.33	)
Basic and diluted - pro forma	$	(0.02	)	$	(0.33	)

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 in March 2002. As of March 31, 2006, there were 25,000 options outstanding and exercisable under this plan. During the six months ended March 31, 2006, no options were exercised.

Subsidiary Stock Option Plans: SFHI, Inc., 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 March 31, 2006, no options had been granted under any of the Subsidiary Plans.

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

	Number of Shares (000’s)	Weighted Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value ($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
Expired	0		N/A	N/A		N/A
Options outstanding at March 31, 2006	830	$	8.05	4.5 years	$	25,353
Exercisable at March 31, 2006	830	$	8.05	4.5 years	$	25,353

As of March 31, 2006, there was no unrecognized compensation cost related to unvested stock options. There were no options exercised in the first six months of fiscal 2006. There were no unvested shares at March 31, 2006.

The fair value of each option award 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.

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.

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	Six months ended
	March 31, 2006			March 31, 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			2
Expected dividend yield		N/A			N/A
Estimated fair value of options, net of tax effect (000’s)	$	94		$	1,399
Estimated fair value of options per share, net of tax effect	$	0.02		$	0.22

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.

Recently Issued Accounting Standards.

SFAS 151. – The Financial Accounting Standards Board’s (the “FASB’s”) issued SFAS No. 151 (“SFAS 151”), “Inventory Costs-an Amendment of ARB No. 43, Chapter 4.” SFAS 151 amends 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 151 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company adopted SFAS 151 without any material impact on the Company’s financial position, results of operation 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.

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

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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.

2. Comprehensive Income (Loss)

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

	Three Months Ended March 31,				Six Months Ended March 31,
	2006		2005		2006			2005
Net income (loss)	$	482	$	261	$	(48	)	$	(1,269	)
Unrealized gain on marketable securities		640		74		739			668
Comprehensive income / (loss)	$	1,122	$	335	$	691		$	(601	)

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3. Other Assets

Included in “Other Assets” at March 31, 2006 and September 30, 2005 are unamortized loan issue costs and deferred rents of approximately $5.3 million and $4.7 million, respectively. The loan issue costs 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 March 31, 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 total approximately $0.7 million at March 31, 2006 and September 30, 2005.

Other assets also include investments in unconsolidated entities of approximately $1.9 million and $1.7 million on March 31, 2006 and September 30, 2005, respectively. One of the unconsolidated entities is a 50% owned LLC which has the following financial profile at and as of March 31, 2006: current and total assets of approximately $0.2 million and $1.0 million, respectively; current and total liabilities of approximately $0.1 million and $0.4 million and total equity of approximately $0.6 million. The entity also had, during the three and six months ended March 31, 2006, revenues of approximately $0.5 million and $1.0 million and pretax income of approximately $0.1 million and $0.2 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.

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 March 31, 2006, the Company had expensed approximately $0.4 million for commercial development of the technology, including approximately $30,000 which has been expensed in the six months ended March 31, 2006.

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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 $11.8 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 March 31, 2006, the Company was not in compliance with this covenant and, as such, was technically in default under the debt agreement classified as current as a result of the default. 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 provisions, based on statutory rates, of $0.3 million and $0.1 million for the quarters ended March 31, 2006 and March 31, 2005, respectively. The Company recorded a federal income tax benefit, based on statutory rates, of approximately $26,000 for the six months ended March 31, 2006 and $0.7 million for the six months ended March 31, 2005.

The Company has recorded deferred tax assets related to net operating losses, as the Company believes it is more likely than not that the Company will realize these deferred tax assets. 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 not generate profits from the sale of long-lived assets in the future, a valuation allowance would need to be recorded, which would impact the Company’s future results of operations.

7. Supplemental Statement of Cash Flows Information

Supplemental statement of cash flows information for the six-month periods ended March 31, 2006 and 2005 is presented below:

	2006		2005
	(amounts in thousands)
Operating activities:
Cash paid during the period for interest	$	4,137	$	5,612
Cash paid during the period for income taxes	$	0	$	0
Investing and financing activities:
Unrealized gain on marketable securities	$	739	$	668

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8. 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 principally financial information for the Company’s corporate operations, 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 six-month periods ended March 31, 2006 and 2005:

	Three Months Ended March 31,
	2006			2005
	(dollars in thousands)
Pioneer Hotel:
Net operating revenues	$	8,940		$	8,157
Operating income	$	1,114		$	606
Depreciation and amortization	$	553		$	616
Interest expense	$	339		$	318
Interest and other income	$	3		$	3
Net income before income taxes	$	778		$	291
Capital expenditures / transfers	$	72		$	43
Investment Properties:
Net operating revenues	$	3,101		$	3,101
Operating income	$	2,308		$	2,308
Depreciation and amortization	$	793		$	793
Interest expense	$	1,866		$	2,553
Interest and other income	$	1		$	0
Net income (loss) before income taxes	$	442		$	(245	)
Capital expenditures / transfers	$	0		$	0
Other and Eliminations:
Net operating revenues	$	408		$	784
Operating loss	$	(547	)	$	(300	)
Depreciation and amortization	$	35		$	53
Interest expense	$	(12	)	$	(33	)
Interest and other income	$	56		$	623

14

	Three Months Ended March 31,
	2006			2005
	(dollars in thousands)
Net income (loss) before income taxes	$	(479	)	$	356
Capital expenditures / transfers	$	10		$	1
Total:
Net operating revenues	$	12,449		$	12,042
Operating income	$	2,875		$	2,614
Depreciation and amortization	$	1,381		$	1,462
Interest expense	$	2,193		$	2,838
Interest and other income	$	60		$	626
Net income (loss) before income taxes	$	741		$	402
Capital expenditures / transfers	$	82		$	44
	Six Months Ended March 31,
	2006			2005
	(dollars in thousands)
Pioneer Hotel:
Net operating revenues	$	15,876		$	15,032
Operating income (loss)	$	572		$	(400	)
Depreciation and amortization	$	1,115		$	1,276
Interest expense	$	695		$	617
Interest and other income	$	6		$	5
Net loss before income taxes	$	(117	)	$	(1,012	)
Capital expenditures / transfers	$	103		$	97
Identifiable assets (1)	$	31,971		$	34,104
Investment Properties:
Net operating revenues	$	6,201		$	6,201
Operating income (loss)	$	4,615		$	4,615
Depreciation and amortization	$	1,586		$	1,586
Interest expense	$	3,756		$	5,199
Interest and other income	$	1		$	0
Net loss before income taxes	$	860		$	(584	)
Capital expenditures / transfers	$	0		$	0
Identifiable assets (1)	$	135,113		$	151,351
Other and Eliminations:
Net operating revenues	$	811		$	985
Operating income (loss)	$	(1,027	)	$	(1,235	)
Depreciation and amortization	$	70		$	104

15

	Six Months Ended March 31,
	2006			2005
	(dollars in thousands)
Interest expense	$	(28	)	$	(74	)
Interest and other income	$	182		$	805
Net loss before income taxes	$	(817	)	$	(356	)
Capital expenditures / transfers	$	10		$	202
Identifiable assets (1)	$	32,219		$	32,073
Total:
Net operating revenues	$	22,888		$	22,218
Operating income (loss)	$	4,160		$	2,980
Depreciation and amortization	$	2,771		$	2,966
Interest expense	$	4,423		$	5,742
Interest and other income	$	189		$	810
Net loss before income taxes	$	(74	)	$	(1,952	)
Capital expenditures / transfers	$	113		$	299
Identifiable assets (1)	$	199,303		$	217,528

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

16

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 that it may develop in the future (the “Strip Property”). Management may develop the Strip Property, as it believes that the trend of continued development in Las Vegas, Nevada of themed resorts, which attract visitors, will continue in the foreseeable future.

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 caused the Company to focus on market definition and development in Laughlin to maintain profitability. Management believes Laughlin has now become a mature market with marginal, 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 six-month periods ended March 31, 2006 and 2005, the Company incurred a net loss applicable to common shareholders of approximately $0.8 million and $2.0 million, respectively. The $1.2 million improvement in results of the 2006 period was due to 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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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 condensed 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

18

useful life of a class of assets differ from the estimated useful life, the Company would record an impairment charge. The Company reviews useful lives and obsolescence and assesses commercial viability of these assets periodically.

Income Taxes. The Company has recorded deferred tax assets related to net operating losses, as the Company believes it is more likely than not that the Company will realize these deferred tax assets. 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 not generate profits from the sale of long-lived assets in the future, a valuation allowance would need to be recorded, which would impact the Company’s future results of operations.

Results of Operations – Six Months Ended March 31, 2006 and 2005

Consolidated

Net Operating Revenues. Consolidated net operating revenues for the six months ended March 31, 2006 were $22.9 million, a $0.7 million, or 3.0%, increase from $22.2 million for the six months ended March 31, 2005. Income from the investment properties was $6.2 million in each of the six months ended March 31, 2006 and 2005. Net revenues increased approximately $0.9 million, or 5.6%, to $15.9 million at the Pioneer for the six months ended March 31, 2006 compared to the six months ended March 31, 2005. Management believes improved marketing strategies contributed significantly to the increased revenues. Sahara Las Vegas Corp. (“SLVC”) had net revenues of $0.6 million and $0.8 million during the six months ended March 31, 2006 and 2005, respectively.

Operating Expenses. Total operating expenses decreased $0.5 million, or 2.7%, to $18.7 million for the six months ended March 31, 2006 from $19.2 million for the six months ended March 31, 2005. Total operating expenses as a percentage of revenue decreased to 81.8% in the current year period from 86.6% in the prior year period. Operating expenses decreased by $0.1 million, or 0.8%, to $15.3 million at the Pioneer. In the prior year period, the Pioneer recorded a loss of $0.2 million on the disposal of older slot machines. No such charge was recorded in the current year period. Operating expenses decreased by approximately $0.4 million in general corporate expenses, primarily due to decreased legal and other outside services.

Operating Income. Consolidated operating income for the six months ended March 31, 2006 was $4.2 million, an increase of $1.2 million, or 39.6%, from $3.0 million for the six months ended March 31, 2005. The increase was due to the aforementioned change in net operating revenues and operating expenses. Operating income of $4.6 million for each of the six-month periods ended March 31, 2006 and 2005 is attributable to the investment properties. Operating income improved by $1.0 million to $0.6 million at the Pioneer. The operating losses at corporate and SLVC improved by $0.2 million to $1.0 million.

Interest Expense. Consolidated interest expense for the six months ended March 31, 2006 was $4.4 million, a $1.3 million, or 24.0%, decrease compared to $5.7 million for the six months ended March 31, 2005. The decrease was primarily due to the reduction of non-recourse debt associated with the investment properties.

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Interest and Other Income. Consolidated interest and other income for the six months ended March 31, 2006, decreased $0.6 million to $0.2 million compared to approximately $0.8 million for the six months ended March 31, 2005, due principally to a sale of certain utility rights and proceeds from a legal settlement in the 2005 period.

Loss Before Income Tax. Consolidated loss before income tax for the six months ended March 31, 2006 was approximately $74,000, a $1.9 million improvement compared to a loss of $2.0 million for the six months ended March 31, 2005.

Federal Income Tax. The Company recorded a federal income tax benefit of approximately $26,000 for the six months ended March 31, 2006, compared to an approximately $0.7 million benefit for the six months ended March 31, 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 $0.8 million for each of the six-month periods ended March 31, 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 approximately $0.8 million, or $0.13 per common share, for the six months ended March 31, 2006 compared to net loss attributable to common shares of approximately $2.0 million, or $0.33 per common share, for the six months ended March 31, 2005.

Pioneer

Net Operating Revenues. Net operating revenues at the Pioneer increased approximately $0.9 million, or 5.6%, to approximately $15.9 million in the six months ended March 31, 2006 from approximately $15.0 million in the six months ended March 31, 2005.

Casino revenues increased approximately $0.5 million, or 4.1%, to approximately $13.1 million in the six months ended March 31, 2006 from approximately $12.6 million in the six months ended March 31, 2005. Slot and video poker revenues increased approximately $0.5 million, or 4.7%, to approximately $11.9 million in the six months ended March 31, 2006 from approximately $11.4 million in the six months ended March 31, 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 approximately $1.2 million in the six months ended March 31, 2006 and 2005. Casino promotional allowances increased approximately $0.2 million, or 6.0%, to approximately $3.2 million in the six months ended March 31, 2006 from approximately $3.0 million in the six months ended March 31, 2005 primarily due to the aforementioned increase in slot revenues.

Hotel revenues increased approximately $0.1 million, or 7.8%, to approximately $1.3 million for the six months ended March 31, 2006 from approximately $1.2 million for the six months ended March 31, 2005 caused by an increase in occupancy rate. Food and beverage revenues increased approximately $0.2 million, or 5.4%, to approximately $3.7 million for the six months ended March 31, 2006 compared to approximately $3.5 million in the six months ended March 31, 2005, primarily due to the increase in casino promotional allowances. Other revenues increased approximately $0.2 million, or 32.3%, to approximately $0.9 million for the six months ended March 31, 2006 compared to approximately $0.7 million for the six months ended March 31, 2005, due to increased retail sales.

20

Operating Expenses. Operating expenses decreased approximately $0.1 million, or 0.8%, to approximately $15.3 million in the six months ended March 31, 2006 from approximately $15.4 million in the six months ended March 31, 2005. Operating expenses as a percentage of revenue decreased to 96.4% in the current year period from 102.7% in the prior year period.

Casino expenses increased approximately $0.3 million, or 3.3%, to approximately $7.0 million in the six months ended March 31, 2006 from approximately $6.7 million in the six months ended March 31, 2005, primarily due to the increase in casino promotional allowances. Casino expenses as a percentage of casino revenues decreased to 53.1% in the current year period from 53.6% in the prior year period.

Hotel expenses were unchanged at approximately $0.5 million in the six months ended March 31, 2006 and 2005. Food and beverage expenses decreased approximately $0.2 million, or 6.6%, to approximately $1.9 million in the six months ended March 31, 2006 from approximately $2.1 million in the six months ended March 31, 2005, primarily due to a decrease in the cost of food sales. Food and beverage expenses as a percentage of food and beverage revenues decreased to 51.5% in the current year period from 58.1% in the prior year period. Other expenses increased approximately $0.3 million, or 69.2% to approximately $0.8 million for the six months ended March 31, 2006 compared to approximately $0.5 million for the six months ended March 31, 2005, due to the increase in retail sales. Other expenses as a percentage of other revenues increased to 90.4% in the current year period from 70.7% in the prior year period.

Selling, general and administrative expenses decreased $0.1 million, or 2.4%, to $2.2 million for the six months ended March 31, 2006 from $2.3 million for the six months ended March 31, 2005. Selling, general and administrative expenses as a percentage of revenues decreased to 13.9% in the current year period from 15.1% in the prior year period. Utilities and property expenses decreased $0.1 million, or 6.1%, to $1.8 million in the six months ended March 31, 2006 from $1.9 million in the six months ended March 31, 2005, due to a decrease in rent expense. Utilities and property expenses as a percentage of revenues decreased to 11.3% in the current year period from 12.7% in the prior year period. Depreciation and amortization expenses decreased $0.2 million, or 12.6%, to $1.1 million in the six months ended March 31, 2006 from $1.3 million in the six months ended March 31, 2005. In the prior year period, the Pioneer recorded a loss of $0.2 million on the disposal of older slot machines. No such charge was recorded in the current year period.

Results of Operations – Three Months Ended March 31, 2006 and 2005

Consolidated

Net Operating Revenues. Consolidated net operating revenues for the quarter ended March 31, 2006 were approximately $12.4 million, a $0.4 million, or 3.4%, increase from approximately $12.0 million for the quarter ended March 31, 2005. Income from the investment properties was approximately $3.1 million in each of the quarters ended March 31, 2006 and 2005. Net revenues increased approximately $0.7 million, or 9.6%, to approximately $8.9 million at the Pioneer for the three months ended March 31, 2006 compared to the three months ended March 31, 2005. SLVC had net revenues of approximately $0.3 million and $0.7 million during the three months ended March 31, 2006 and 2005, respectively.

Operating Expenses. Total operating expenses were $9.6 million for the quarter ended March 31, 2006, an increase of approximately $0.2 million, or 1.5%, from $9.4 million for the quarter ended

21

March 31, 2005. Total operating expenses as a percentage of revenue decreased to 76.9% for the current year quarter from 78.3% for the prior year quarter. Operating expenses increased by approximately $0.2 million, or 3.6%, to approximately $7.8 million at the Pioneer. Operating expenses decreased by approximately $0.2 million in general corporate expenses, primarily due to decreased legal and other outside services.

Operating Income. Consolidated operating income for the quarter ended March 31, 2006 was approximately $2.9 million, an increase of $0.3 million, or 10.0%, from approximately $2.6 million for the quarter ended March 31, 2005. The increase was due to the aforementioned change in net operating revenues and operating expenses. Operating income of approximately $2.3 million for each of the three-month periods ended March 31, 2006 and 2005 is attributable to the investment properties. Operating income increased by approximately $0.5 million, or 83.7%, to $1.1 million at the Pioneer. The operating losses at corporate and SLVC increased by approximately $0.2 million to $0.5 million.

Interest Expense. Consolidated interest expense for the three months ended March 31, 2006 was approximately $2.2 million, a $0.6 million, or 22.7%, decrease compared to approximately $2.8 million for the six months ended March 31, 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 March 31, 2006, was approximately $0.1 million, an approximately $0.5 million decrease compared to $0.6 million for the three months ended March 31, 2005, due principally to a sale of certain utility rights and a legal settlement in the 2005 period.

Income (Loss) Before Income Tax. Consolidated income before income tax for the quarter ended March 31, 2006 was approximately $0.7 million, a $0.3 million improvement compared to approximately $0.4 million for the quarter ended March 31, 2005.

Federal Income Tax. The Company recorded a federal income tax expense of approximately $0.3 million for the quarter ended March 31, 2006 compared to approximately $0.1 million for the quarter ended March 31, 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 March 31, 2006 and 2005 accrued on the preferred stock for purposes of calculating net loss applicable to common shares.

Net Income (Loss). Consolidated net income attributable to common shares was approximately $0.1 million, or $0.02 per common share, for the quarter ended March 31, 2006 compared to net loss attributable to common shares of approximately $0.1 million, or $0.02 per common share, for the quarter ended March 31, 2005.

Pioneer

Net Operating Revenues. Net operating revenues at the Pioneer increased approximately $0.7 million, or 9.6%, to approximately $8.9 million in the three months ended March 31, 2006 from approximately $8.2 million in the three months ended March 31, 2005.

Casino revenues increased approximately $0.6 million, or 8.7%, to $7.4 million in the three months ended March 31, 2006 from $6.8 million in the three months ended March 31, 2005. Slot and

22

video poker revenues increased approximately $0.6 million, or 8.6%, to $6.7 million in the three months ended March 31, 2006 from $6.1 million in the three months ended March 31, 2005. Management believes this increase was a result of new marketing strategies implemented to attract local customers. Other gaming revenues, including table games, increased approximately $0.1 million, or 9.6%, to $0.7 million in the three months ended March 31, 2006 from $0.6 million in the three months ended March 31, 2005. Casino promotional allowances increased approximately $0.3 million, or 13.7%, to $1.8 million in the three months ended March 31, 2006 from $1.5 million in the three months ended March 31, 2005 primarily due to the aforementioned increase in slot revenues.

Hotel revenues increased $0.1 million, or 9.7%, to $0.8 million for the three months ended March 31, 2006 from $0.7 million for the three months ended March 31, 2005. An increase in occupancy rate to 71% from 49% was partially offset by a decrease in the average room rate. Food and beverage revenues increased $0.2 million, or 10.2%, to $2.1 million for the three months ended March 31, 2006 compared to $1.9 million in the three months ended March 31, 2005, primarily due to the increase in casino promotional allowances. Other revenues increased approximately $0.2 million, or 44.6%, to $0.5 million for the three months ended March 31, 2006 from $0.3 million for the three months ended March 31, 2005, due to increased retail sales.

Operating Expenses. Operating expenses increased by approximately $0.2 million, or 3.6%, to $7.8 million in the three months ended March 31, 2006 from $7.6 million in the three months ended March 31, 2005. Operating expenses as a percentage of revenue decreased to 87.5% in the current year period from 92.6% in the prior year period.

Casino expenses increased $0.2 million, or 5.7%, to $3.6 million in the three months ended March 31, 2006 from $3.4 million in the three months ended March 31, 2005, primarily due to the increase in casino promotional allowances. Casino expenses as a percentage of casino revenues decreased to 49.1% in the current year period from 50.5% in the prior year period.

Hotel expenses were unchanged at $0.3 million in the three months ended March 31, 2006 and 2005. Food and beverage expenses were unchanged at $1.0 million in the three months ended March 31, 2006 and 2005. Food and beverage expenses as a percentage of food and beverage revenues decreased to 47.9% in the current year period from 54.9% in the prior year period. Other expenses increased $0.2 million, or 69.7% to $0.4 million for the six months ended March 31, 2006 compared to $0.2 million for the three months ended March 31, 2005, due to the increase in retail sales. Other expenses as a percentage of other revenues increased to 89.6% in the current year period from 76.3% in the prior year period.

Selling, general and administrative expenses increased $0.1 million, or 5.1%, to $1.1 million for the three months ended March 31, 2006 from $1.0 million for the three months ended March 31, 2005. Selling, general and administrative expenses as a percentage of revenues decreased to 12.2% in the current year period from 12.8% in the prior year period. Utilities and property expenses were unchanged at $0.9 million in the three months ended March 31, 2006 and 2005. A decrease in rent expense was offset by increases in other property expenses. Utilities and property expenses as a percentage of revenues decreased to 9.9% in the current year period from 11.3% in the prior year period. Depreciation and amortization expenses were unchanged at $0.6 million in the three months ended March 31, 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 March 31, 2006 (for the six-month period ending September 30, 2006 and for the fiscal years ending September 30, 2007, 2008, 2009, 2010, 2011, and 2012 and thereafter.)

			Payments Due By Periods (1)
	2006		2007		2008		2009		2010		2011		2012 and Thereafter		Total
	(dollars in thousands)
Non-recourse debt:
Gaithersburg	$	990	$	2,195	$	2,490	$	2,828	$	3,186	$	3,573	$	33,541	$	48,803
Sovereign		0		0		0		0		0		0		31,199		31,199
Debt:
Building		42		14		0		0		0		0		0		56
Equipment		789		413		89		0		0		0		0		1,291
Mortgage obligation		214		11,618		0		0		0		0		0		11,832
Other		1,828		0		0		0		0		0		0		1,828
Operating leases:
Ground lease		153		364		364		364		364		364		24,460		26,433
Corp. offices		22		22		0		0		0		0		0		44
Total	$	4,038	$	14,626	$	2,943	$	3,192	$	3,550	$	3,937	$	89,200	$	121,486

(1) The Company is required to make the following cash interest payments related to the above debt obligations: (i) Non-recourse debt – $3.6 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 - $0.6 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. The Company will either have to sell certain assets or will have to refinance this debt as current cash balances and projected cash flow from operations is not expected to be sufficient to satisfy this debt obligation. Although the Company believes one of

24

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 March 31, 2006 and September 30, 2005, the Company held cash and cash equivalents of approximately $3.2 million and $2.1 million, respectively. The Company had $7.1 million in investment in marketable securities at March 31, 2006 compared to $6.8 million at September 30, 2005. Approximately $0.8 million of additional marketable securities were acquired during the six months ended March 31, 2005 by incurring new debt of approximately $0.8 million. The investment properties are structured such that future tenants’ payments cover future required mortgage payments including balloon payments. Management believes that the Company will have sufficient available cash and cash resources to meet its cash requirements for a reasonable period of time.

Cash Flows from Operating Activities. The Company’s cash provided by operating activities was $2.0 million for the six months ended March 31, 2006 as compared to $5.1 million for the six months ended March 31, 2005. The decrease was primarily due to changes in operating assets and liabilities related to the investment properties offset by improved financial performance in the 2006 period.

Cash Flows from Investing Activities. Cash provided by investing activities was approximately $0.4 million for the six months ended March 31, 2006, as compared to cash used in investing activities of $1.3 million for the six months ended March 31, 2005. In the current year period, the Company sold $0.9 million of marketable securities, which was offset by investments of $0.4 million in a partnership and $0.1 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 $0.3 million in capital equipment.

Cash Used in Financing Activities. Cash used in financing activities was $1.3 million for the six months ended March 31, 2006 as compared to $3.9 million for the six months ended March 31, 2005. For the six months ended March 31, 2006 and 2005, the Company repaid $2.0 million and $4.7 million, respectively, of debt and obligations under lease and borrowed $0.7 million and $0.8 million, respectively.

The Company’s primary source of operating cash is from Pioneer operations and from interest income on available cash and cash equivalents and investments in marketable securities. 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 a lease with a condominium developer. SLVC generates approximately $0.5 million of cash from the lease agreement after payment of property taxes.

Pioneer

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

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There were no payments of obligations under lease for the six months ended March 31, 2006 and 2005, and rent expense was approximately $0.0 million and $0.2 million for the six months ended March 31, 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. The dividend rate per annum was equal to 8% of $2.14 for each share of preferred stock until September 30, 1998, at which date the dividend rate increased to 11%; the dividend rate continued to increase by an additional 50 basis points on each succeeding semiannual dividend payment date up to a maximum of 16% per annum. In October 2003, the dividend rate increased to 16.0%. As of March 31, 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 of Preferred Stock, dividends are payable only when, as and if declared by the Board of Directors and the liquidation preference is payable only upon a liquidation, dissolution or winding up of the Company. Because dividends in an amount equal to dividend payments for one dividend period have accrued and remain unpaid for at least two years, the preferred stockholders, voting as a separate class, are entitled to elect two directors. As such, two of the Company’s six directors have been elected by the preferred shareholders.

The Board of Directors of the Company authorized an increase in the amount of cash that may be used to purchase preferred stock to $2.5 million. As of May 12, 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 six months ended March 31, 2006, the Company has not purchased any additional shares.

Recently Issued Accounting Standards

The Company keeps abreast of new generally accepted accounting principles and disclosure reporting requirements issued by the U.S. Securities and Exchange Commission (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.

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Private Securities Litigation Reform Act

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity process. Excluding its non-recourse debt, the Company has total interest-bearing debt at March 31, 2006 of approximately $15.0 million, of which approximately $13.7 million bears interest at a variable rate (approximately 8.5% at March 31, 2006). Therefore, the Company maintains certain market rate risk related to this debt. A change in the interest rates of 1% would cause an approximate $137,000 change in the amount of interest the Company would incur based on the amount of variable-interest rate debt outstanding for any current or future year in which this debt is outstanding. Future borrowings related to this debt will be exposed to this same market rate risk.

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

It em 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

27

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. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth information regarding repurchases of Archon preferred stock during the six months ended March 31, 2006.

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 2005:
October 1, 2005 through October 31, 2005	0	$	0.00	709,305	$	1,129,958
November 2005:
November 1, 2005 through November 30, 2005	0	$	0.00	709,305	$	1,129,958
December 2005:
December 1, 2005 through December 31, 2005	0	$	0.00	709,305	$	1,129,958
January 2006:
January 1, 2006 through January 31, 2006	0	$	0.00	709,305	$	1,129,958
February 2006:
February 1, 2006 through February 28, 2006	0	$	0.00	709,305	$	1,129,958
March 2006:
March 1, 2006 through March 31, 2006	0	$	0.00	709,305	$	1,129,958

All shares of preferred stock were purchased pursuant to a $2,500,000 stock repurchase program, which was previously approved by our Board of Directors. Funds are available until expended or until the program is suspended by the Chief Executive Officer or by the Board of Directors.

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Item 3. Defaults Upon Senior Securities

The Company has outstanding redeemable exchangeable cumulative 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. Pursuant to the terms of the Certificate of Designation with respect to the Preferred Stock, dividends that are not declared are cumulative and accrue. The dividend rate per annum was equal to 8% of $2.14 for each share of preferred stock until September 30, 1998, at which date the dividend rate increased to 11% and the dividend continued to increase by an additional 50 basis points on each succeeding semi-annual dividend payment date up to a maximum of 16% per annum. The dividend rate is 16% effective October 1, 2003. The accrued stock dividends have not been recorded as an increase to the Preferred Stock account. As of March 31, 2006, the aggregate liquidation preference of the Preferred Stock was approximately $21.0 million, or $4.76 per share.

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

None

Item 5. Other Information

None

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I tem 6. Exhibits and Reports on Form 8-K

Exhibits.

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of 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.
Reports on Form 8-K.
10.30	On March 15, 2006, the Company filed a Form 8-K announcing the relocation of its corporate headquarters to 4336 Losee Road, Suite 5, North Las Vegas, Nevada 89030 from 3993 Howard Hughes Parkway, Suite 630, Las Vegas, Nevada 89109.

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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, Registrant
By:	/s/ Paul W. Lowden
	Paul W. Lowden Chairman of the Board and Chief Executive Officer

By:	/s/ John M. Garner
	John M. Garner, Chief Financial Officer

Date: May 12, 2006

32

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a – 14(a) OF THE EXCHANGE ACT

As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

I, Paul W. Lowden, certify that:

1. I have reviewed this report on Form 10-Q of Archon Corporation;

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

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of and the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 12, 2006

/s/ Paul W. Lowden

Paul W. Lowden

Chairman of the Board and

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a – 14(a) OF THE EXCHANGE ACT

As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

I, John M. Garner, certify that:

1. I have reviewed this report on Form 10-Q of Archon Corporation;

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

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of and the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 12, 2006

/s/ John M. Garner

John M. Garner

Chief Financial Officer

(Principal Accounting and Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Archon Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Paul W. Lowden, Chief Executive Officer of the Company, and John M. Garner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2003, that to our knowledge:

(i) the Report fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 12, 2006

/s/ Paul W. Lowden

Paul W. Lowden

Chairman of the Board and President

(Principal Executive Officer)

/s/ John M. Garner

John M. Garner

Chief Financial Officer

(Principal Accounting and Financial Officer)

This certification accompanies the above-described Report on Form 10-Q pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by

such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.