=======================================================================
                     UNITED STATES
          SECURITIES AND EXCHANGE COMMISSION
                Washington, D.C. 20549


                       FORM 10-K
           FOR ANNUAL AND TRANSITION REPORTS
        PURSUANT TO SECTIONS 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934

   (Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2007
                                    OR

[ ]TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ACT OF 1934
For the transition period from ______________to _____________

                Commission file number 000-21430

                         RIVIERA HOLDINGS CORPORATION
            (Exact name of registrant as specified in its charter)

   Nevada                                                  88-0296885
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

2901 Las Vegas Boulevard South
Las Vegas, Nevada                                                   89109
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:  (702) 734-5110

Securities registered pursuant to Section 12(b) of the Act:

         Title of Each Class          Name of Each Exchange on Which Registered
Common Stock, $.001 par value         American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

                               Common Stock, $.001 par value
                                       (Title of class)

Indicate by check mark if the registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the  Securities  Act.
YES____ NO X

Indicate by check mark if the  registrant  is not required to file reports
pursuant to Section 13 or  Section 15(d)  of the Act.
YES____ NO X

Indicate by 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 check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference  in Part III of this Form 10-K or  amendment to this
Form 10-K. [ X ]

<PAGE>

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer.  See the definitions of "large
accelerated  filer,"  "accelerated  filer" and "small reporting company" in Rule
12b-2 of the Exchange Act.

           Large accelerated filer          Accelerated filer     X

           Non-accelerated filer            Smaller reporting company

                 (Do not check if a smaller reporting company)

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

Based on the closing sale price of the registrant's common stock on the American
Stock Exchange on June 30, 2007, the aggregate  market value of the common stock
held by non-affiliates of the registrant was $443,999,838.

As of February  22, 2008 the number of  outstanding  shares of the  registrant's
common stock was 12,456,555.

Documents   incorporated  by  reference:   Portions  of  the  registrant's  2008
definitive  annual meeting proxy statement on Schedule 14A (to be filed pursuant
to  Regulation  14A) are  incorporated  by reference  into Part III of this Form
10-K.
====================================================================
                                  Page 1 of 59 pages
                      Exhibit Index Appears on Page 51 hereof.
<PAGE>
<TABLE>
<CAPTION>
                    RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
                     ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
                           YEAR ENDED DECEMBER 31, 2007

                                 TABLE OF CONTENTS

<S>  <C>                                                                    <C>
Item 1.      Business........................................................4
             General ........................................................4
             Riviera Las Vegas...............................................4
             Riviera Black Hawk..............................................9
             Geographical Markets...........................................10
             Competition....................................................11
             Employees and Labor Relations..................................13
             Regulation and Licensing.......................................14
             Federal Registration...........................................22

Item 1A.     Risk Factors...................................................22

Item 2.      Properties.....................................................31

Item 3.      Legal Proceedings..............................................32

Item 4.      Submission of Matters to a Vote of Security Holders............32

Item 5.      Market for the Registrant's Common Equity, Related
             Stockholder Matters and Issuer Purchases of Equity Securities..32

Item 6.      Selected Financial Data........................................35

Item 7.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operation........................35
                Overall Outlook and Recent Developments.....................35
                Results of Operations.......................................36
                2007 Compared to 2006.......................................36
                2006 Compared to 2005.......................................38
                Liquidity and Capital Resources.............................39
                Critical Accounting Policies................................41
                Recently Issued Accounting Standards........................42
                Forward-Looking Statements..................................43

Item 7A.     Qualitative and Quantitative Disclosure About Market Risk......45

Item 8.      Financial Statements and Supplementary Data....................47

Item 9.      Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure............................47

Item 9A.     Controls and Procedures........................................47

Item 9B.     Other Information..............................................49

Item 10.     Directors, Executive Officers and Corporate Governance.........49

Item 11.     Executive Compensation.........................................52

Item 12.     Security Ownership of Certain Beneficial Owners
             and Management and Related Stockholder Matters.................52

Item 13.     Certain Relationships and Related Transactions
             and Director Independence......................................52

Item 14.     Principal Accountant Fees and Services.........................53

Item 15.  Exhibits, Financial Statement Schedules...........................53
</TABLE>

                                                3
<PAGE>

         PART I

Item 1.    Business

General

     Riviera Holdings Corporation, a Nevada corporation (the "Company"), through
its wholly-owned  subsidiary,  Riviera Operating Corporation,  owns and operates
the  Riviera  Hotel & Casino  ("Riviera  Las  Vegas")  located  on the Las Vegas
Boulevard  in Las Vegas,  Nevada.  Riviera Las Vegas  opened in 1955,  and has a
long-standing  reputation for delivering  traditional  Las  Vegas-style  gaming,
entertainment  and other  amenities.  The Company was  incorporated in Nevada on
January 27, 1993.

     The Company, through its wholly owned subsidiary, Riviera Black Hawk, Inc.,
owns and  operates  the Riviera  Black Hawk Casino  ("Riviera  Black  Hawk"),  a
limited-stakes casino in Black Hawk, Colorado, which opened on February 4, 2000.

     The Company  determines  segments based upon geographic  gaming markets and
also reviews corporate expenses  separately.  The Company has two segments:  the
Las Vegas,  Nevada  market and the Black  Hawk,  Colorado  market.  The  segment
information can be found in Note 18 of the Notes to the  Consolidated  Financial
Statements included in this document.

     The Company maintains an Internet website at www.rivierahotel.com and makes
available on the website,  free of charge,  the Company's Annual Reports on Form
10-K,  Quarterly  Reports on Form 10-Q,  Current Reports on Form 8-K and any and
all amendments to such reports,  filed or furnished pursuant to Section 13(a) or
15(d) of the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),
as soon as reasonably  practicable after the Company  electronically  files such
material  with,  or furnishes it to, the United States  Securities  and Exchange
Commission  (the "SEC").  The Company has  included its website  address in this
filing only as a textual reference. The information contained on that website is
not incorporated by reference into this Annual Report on Form 10-K.
Riviera Las Vegas

General

     Riviera  Las Vegas is  located  on the  corner of Las Vegas  Boulevard  and
Riviera  Boulevard in Clark  County,  Nevada,  across from Circus Circus and the
estimated $5.0 billion  Echelon  construction  project on the site of the former
Stardust  Hotel  &  Casino,  and  just  south  of  the  estimated  $2.9  billion
Fontainebleau  construction  project.  Riviera Las Vegas targets slot and low to
mid-level  table game  customers and various  convention  groups with a focus on
creating  repeat  customers and increasing our loyalty program  membership.  Key
elements of this  strategy  includes  offering a  value-oriented  experience  by
providing  a  variety  of  hotel  rooms,  restaurants  and  entertainment,  with
traditional Las Vegas shows, all at reasonable prices.

Gaming

     Riviera Las Vegas has  approximately  100,000  square feet of casino space.
The casino currently has  approximately  915 slot machines and 35 gaming tables,
including blackjack,  craps,  roulette,  pai gow poker, Caribbean Stud(R) Poker,
Three Card Poker,  Let It Ride(R),  3-5-7 Poker,  Texas  Hold'em Bonus Poker and
mini-baccarat. The casino also includes a poker room and a race and sports book,
which is operated by Leroy's, a subsidiary of American Wagering, Inc.

     We continually  update gaming operations at Riviera Las Vegas to respond to
both changing market  conditions and customer demand in an effort to attract new
customers and encourage  repeat  customer  business  through player tracking and
database  management.  We maintain a players club, through which members receive
special  promotions and targeted  mailings.  New and  innovative  slot and table
games continue to be introduced and evaluated  based on performance and customer
feedback.  We devote  substantial  time and attention to the type,  location and
player  activity of all of our slot machines.  We maintain a capital  investment
program for the upgrade of our general  casino area,  slot  machines and related
equipment.

                                                4
<PAGE>

     Our current  marketing  programs are directed at mid-level gaming customers
as opposed to high-stakes bettors. Mid-level gaming customers tend to provide us
with a less volatile, more consistent gaming revenue stream. Consistent with our
focus on  mid-level  gaming  customers is our tendency to offer lower table game
limits, stricter credit policies and more emphasis on slot machine play.

     During 2007, we continued a number of  initiatives  at Riviera Las Vegas to
increase  slot play,  including  the  upgrade of our entire  casino  floor,  the
completion  of our  ticket-in  ticket-out  ("TITO")  upgrade to 100% of our slot
machines  and the  transformation,  redevelopment  and upgrade of our Penny Town
area into Crazy  Leroy's  Race and Sports Book,  Bar & Cafe.  Our slot hosts are
located in a visible and accessible  area to improve  service and convenience to
our  customers.  Slot  hosts are our  employees  who  interact  with  patrons as
goodwill  ambassadors  to  generate  loyalty.  Our  strategy  is to  continue to
increase slot play through marketing programs and other improvements,  including
(1) our ongoing  slot upgrade  program,  (2)  operation  of our player  tracking
system, (3) a multi-tiered players club, called Club Riviera, (4) sponsorship of
slot tournaments, and (5) creation of promotional programs.

Hotel

Riviera Las Vegas' hotel is comprised of five towers with 2,075 guest rooms,
including 177 suites, as follows:
<TABLE>
<CAPTION>

                                                                     Latest
                             Year     Std.                           Remodel
 Tower Description          Built     Rooms    Suites    Total        Year

<S>                          <C>       <C>       <C>      <C>         <C>
 North Tower                 1955      379       11       390         2004
 South Tower                 1967      132       30       162         2007
 Monte Carlo                 1974      216       81       297         2005
 San Remo                    1977      241        6       247         2007
 Monaco                      1988      930       49       979         2004
                                     -----     ----      -----
      Total                          1,898      177     2,075
                                     =====     ====     ======
</TABLE>

     During 2007, we announced,  as part of our $25 million capital  improvement
plan,  a complete  remodel of all of our guest rooms at our Las Vegas  property.
Our plan  includes  upgrades  of between  $2,500 and  $14,500 per guest room and
upgrades to the hotel  elevators and corridors,  and is expected to be completed
by mid to late 2009.

     Despite  the  significant  increase  in rooms on the Las Vegas  Strip since
1997, we believe  Riviera Las Vegas has attained room  occupancy  rates that are
consistent with other properties on the Las Vegas Strip.  From 2004 to 2006, the
hotel occupancy  rate  on the Strip ranged from 91.8% to 93.2%, (based on
available  rooms). The average  hotel occupancy  rate on the Strip through
December  2007,  was  94.0% in 2007 according to the Las Vegas Convention and
Visitors Authority (the "LVCVA").

Restaurants

     The quality,  value and variety of food services are critical to attracting
Las Vegas  visitors.  Riviera Las Vegas offers six bars,  four  restaurants  and
serves an average of approximately  4,500 meals per day,  including banquets and
room service.  Riviera Las Vegas last  completely  remodeled its buffet in 2001,
upgrading  the ambiance and food  quality,  and  featuring  cuisine from various
countries  as well as a  carving  station.  In  2006,  Kady's  Coffee  Shop  was
remodeled with new carpet,  chairs and flat panel tv's.  The following  outlines
for each restaurant, the type of service provided and total seating capacity:

                                                5
<PAGE>
<TABLE>
<CAPTION>



Name                              Type                         Seating Capacity
----                              ----                         ----------------
<S>                                 <C>                              <C>
Kady's                            Coffee Shop                        290
Kristofer's                       Steak and Seafood                  162
Ristorante Italiano               Italian                            126
World's Fare Buffet               All-you-can-eat                    366
                                                                     ---
 Total                                                               944
                                                                     ===
</TABLE>

     In  addition,  Riviera Las Vegas  operates  two snack bars and  continental
breakfast,  and has a fast-food "food court" operated by a third party. The food
court  has 200  seats  and  several  fast-food  restaurants,  including  A&W/KFC
Express, Pizza Hut Express(R), Quiznos(R) and La Salsa(R). Riviera Las Vegas has
also contracted with a third party, who owns and operates The Banana Leaf, which
opened in the first  quarter of 2007.  Banana Leaf serves  breakfast,  lunch and
dinner, and features Asian cuisine.

Convention Center

     Riviera Las Vegas features  160,000 square feet of convention,  meeting and
banquet space. The convention  center is one of the larger ones in Las Vegas and
is  an  important  feature  that  attracts   customers.   The  facility  can  be
reconfigured for multiple  meetings of small groups or large gatherings of up to
5,000  people.  Riviera  Las Vegas  hosted 322  conventions  in 2007.  The hotel
currently has over 750,000  convention-related advance bookings of rooms through
2012,  consisting of over 386,000 definite  bookings and over 371,000  tentative
bookings.  In 2007  approximately  34% of the hotel's  rooms were  occupied  for
conventions. Based on current bookings we estimate that 35% of the rooms will be
occupied for conventions in 2008.

     The Royal  Pavilion  portion  of the  convention  center,  which  opened in
February 1999 and comprises  approximately  60,000 square feet of our convention
facility, features convention, meeting and banquet facilities, teleconferencing,
wireless  Internet  and  satellite  uplink  capability,  and  12  skyboxes.  The
convention space at the Las Vegas,  Venetian and Mandalay convention centers and
others has enabled Las Vegas to attract and book new  conventions  that may have
had date and exhibit space  conflicts in the past.  Our  flexibility  of meeting
space and proximity to the Las Vegas Convention  Center continues to position us
to  increase  our  mix  of  small  meetings  and  conventions,  as  well  as new
multi-hotel conventions booked into the Las Vegas Convention Center.

Entertainment

     Riviera Las Vegas has one of the most extensive  entertainment  programs in
Las  Vegas,  offering  a  variety  of  regularly  scheduled  shows.  We  believe
entertainment  provides an effective  marketing  tool to attract our  customers.
Riviera Las Vegas' entertainment program includes such well received shows as An
Evening at La Cage(R) (a female  impersonation  show),  Crazy Girls(R) (an adult
revue),  and featured  comedians at the Riviera Comedy Club as well as a variety
of regularly  scheduled shows in our Le Bistro Theater.  In addition,  a new ice
show entitled  "ICE/Direct  From Moscow"  opened in our  Versailles  Showroom in
April 2007. We update our shows  continually in response to customer surveys and
to keep them fresh.  Tickets for the shows are offered at  reasonable  prices in
keeping with our emphasis on mid-level customers.

The following outlines for each entertainment center, the type of service
provided and total seating capacity:

   Name                         Type                         Seating Capacity
   ----                        -----                         ----------------
   ICE/Direct
       From Moscow              Variety                            875
   La Cage                      Female Impersonation               575
   Crazy Girls                  Adult Revue                        375
   Comedy Club                  Comedy                             350
   Le Bistro                    Variety                            190
                                                                   ----
                                                                 2,365
                                                                 ======

                                                6
<PAGE>

     A majority  of our shows are owned and  operated  by third  parties,  which
gives us financial flexibility in utilizing our marketing dollars. In most cases
we receive rent, ticket sales commissions, and a number of comp seats for use by
our marketing department.

Future Expansion Possibilities

     We continue to explore the possible  development of an approximately 60,000
square-foot  entertainment  complex that would be constructed  directly over the
casino,  and could contain  specialty-themed  entertainment that would appeal to
Riviera Las Vegas' main target audience, adults aged 45 to 65. The exit from the
complex would deliver patrons to the casino.

Marketing Strategies-Las Vegas

     Our tiered  marketing  program,  Club  Riviera,  is intended to develop and
retain  a loyal  following  of  repeat  slot  and low to  mid-level  table  game
customers.  We believe we have been able to  successfully  attract these patrons
using Riviera Las Vegas' restaurants, hotel accommodations and entertainment and
by focusing on customer  service.  We have  adopted a selective  approach to the
extension  of  credit  to  these  customers  in order to  reduce  volatility  of
operating results.  We use our research data to tailor promotional offers to the
specific tastes and level of play of our targeted customers.

     Riviera Las Vegas will continue to emphasize marketing programs that appeal
to slot and  mid-level  table game  customers  with a focus on  creating  repeat
customers and increasing walk-in traffic. In addition,  a key marketing focus is
expanding Riviera Las Vegas' core conventioneer  customer base. In developing an
overall marketing program, we conduct extensive,  ongoing research of our target
customers' preferences through surveys, one-on-one interviews and focus groups.

           Create Repeat Customers

     Generating  customer  loyalty  is a  critical  component  of  our  business
strategy,  as retaining customers is less expensive than attracting new ones. We
have developed a focused and coordinated multi-tiered marketing program intended
to develop a loyal customer base which  emphasizes (1) providing a high level of
service to our customers to ensure an enjoyable  experience while at the Riviera
Las Vegas, (2) focusing marketing efforts and promotional  programs on customers
with  positive  gaming  profiles  and  (3)  rewarding   loyalty  with  increased
incentives to our higher-tiered  members.  We believe our player tracking system
helps us retain customers and use our player data to tailor  promotional  offers
to the specific tastes and level of play of our targeted customers. All slot and
table players are  encouraged to join Club Riviera,  which tracks their level of
play and provides us with helpful information and personal preferences.  Members
of Club Riviera earn bonus points based upon their level of play, redeemable for
free gifts,  complimentary services or bonus credits. We make promotional offers
to qualifying customers through direct mail, telemarketing and e-mail. We design
promotional  offers  targeted  at  certain  mid-level  gaming  patrons  that are
expected to provide  significant  revenues  based upon their  historical  gaming
patterns.  We contact these  customers  through a combination of direct mail and
telemarketing  by an in-house  marketing staff and  independent  representatives
located in major cities.  We use a proprietary  database  which is linked to our
player tracking system to help identify customers' requirements and preferences,
thereby allowing us to customize promotions to attract repeat visitors. We offer
customers  personalized service,  credit availability and access to a variety of
complimentary or reduced-rate  room, dinner and  entertainment  reservations all
based on the customer's  profile.  We use a specialized  multi-tiered  marketing
approach to attract  customers in each of our major markets.  We design slot and
table game tournaments and special events for specific levels of play. Utilizing
our proprietary database,  our marketing department targets and invites the most
appropriate  customers for the customized events. In addition,  we host an array
of special  events,  including  slot and table  game  tournaments,  designed  to
attract  customers for an extended stay. We have found that this  individualized
marketing  approach has provided  significant  revenues  and  profitable  repeat
business.

                                                7
<PAGE>

           Provide Extensive Entertainment Options

     We also  focus  on  attracting  guests  through  a range  of  entertainment
options. We have one of the most extensive  entertainment  programs in Las Vegas
with a variety of  regularly  scheduled  shows and  special  limited  engagement
shows. The shows attract  additional gaming revenue as well as provide us rental
and commission revenue.

           Attract Walk-In Traffic

     We seek to  maximize  the number of people who  patronize  the  Riviera Las
Vegas but who are not guests in the hotel by  capitalizing on Riviera Las Vegas'
prime Las Vegas Strip location,  convention center proximity and several popular
in-house productions.  Riviera Las Vegas is well situated on the Las Vegas Strip
near Circus Circus,  Sahara,  Las Vegas Hilton, the Las Vegas Convention Center,
Wynn Las Vegas,  the estimated $5.0 billion  Echelon  project on the site of the
former Stardust and the estimated $2.9 billion Fontainebleau project just to our
north, as well as numerous non-gaming  condominium and time-share projects which
are either planned or under construction  within walking distance of our casino.
However,  recent  closures and  construction in our immediate area, has caused a
significant  reduction  in walk-in  traffic  and may  continue  to do so for the
foreseeable  future.  We  continue  to strive to  attract  customers  from those
facilities that are currently open, as well as capitalize on the visitors in Las
Vegas in  general,  with  the  goal of  increasing  walk-in  traffic  by (1) the
addition  of the 11,000  square  foot  Leroy's  Race & Sports Book in our former
Penny Town area,  which was opened in February,  2008 (2) providing a variety of
quality,  value-priced  entertainment  and dining options,  and (3) offering the
"$40 for $20" slot promotions.

           Focus on Convention Customers

     This  market  consists of two groups:  (1) those  trade  organizations  and
groups that hold their  events in the banquet  and meeting  space  provided by a
single hotel and (2) those attending  city-wide events,  usually held at the Las
Vegas  Convention  Center.  We target  convention  business because it typically
provides  patrons  willing to pay  higher  room rates and we are able to provide
certain advance planning  benefits,  because  conventions are usually booked two
years  in  advance  of the  event  date.  We  focus  our  marketing  efforts  on
conventions  whose  participants  have the most active gaming profile and higher
room rates,  banquet and  function  spending  habits.  We also  benefit from our
proximity  to the Las Vegas  Convention  Center,  which makes us  attractive  to
city-wide  conventioneers  looking to avoid the congestion  that occurs during a
major convention,  particularly at the south end of the Las Vegas Strip. In 2007
we  derived  34% of our  hotel  occupancy  and  41% of our  room  revenues  from
convention  customers  and we consider  them to be a critical  component  of our
customer  base. We believe that the  expansion of Riviera Las Vegas'  convention
facility in February 1999, from 100,000 to 160,000 square feet, has accommodated
the growth in the size and number of groups  that  presently  use the  facility,
attracted new  convention  groups and increased the percentage of rooms occupied
by conventioneers.

     We have found that our customers also use tour and travel "package" options
to reduce the cost of travel,  lodging and  entertainment.  These  packages  are
produced by wholesale  operators and travel agents and emphasize mid-week stays.
Tour and travel patrons often book at off-peak periods,  enabling us to maintain
occupancy  rates at the highest  levels  throughout  the year. We have developed
specialized  marketing  programs and  cultivated  relationships  with  wholesale
operators,  travel agents and major domestic air carriers to expand this market.
We make an effort to convert many tour and travel  customers who meet our target
customer gaming profile into repeat slot customers.  While we continue to pursue
the tour and travel market, we have allocated less room inventory to this market
due to the lower room rates.  As a result,  we are  placing  more  emphasis  and
dedicating  more rooms to our rated slot customers,  which we believe  generates
greater revenue.

           Internet

     The Internet  segment of our business  increased  during 2007. This segment
attracts  customers  in search of a bargain,  those  making  last-minute  travel
arrangements and those who have the confidence in and find it convenient to book
rooms  over  the  Internet.   In  2007,  our  Internet  bookings  accounted  for
approximately 15% of total occupied rooms.

                                                8
<PAGE>

Riviera Black Hawk

Business

     Riviera  Black Hawk  opened on  February  4, 2000.  Located in Black  Hawk,
Colorado,  approximately 40 miles west of Denver, our casino is the first casino
encountered by visitors arriving from Denver on Highway 119. Our casino features
the fourth largest number of gaming devices in the market with 885 slot machines
and 8 live gaming tables.  For Colorado  gaming and tax law purposes,  each slot
machine or table game is considered one gaming device.

      We also offer a variety of non-gaming amenities designed to help
differentiate our casino, including:

o   parking spaces for 520 vehicles, of which 92% are covered, with convenient
      and free self-park and valet options;
o   a 252-seat casual buffet-styled restaurant;
o   a delicatessen;
o   one casino bar; and
o   a ballroom with seating for approximately 300 people.

     The initial  participants in this market were small,  privately held gaming
facilities  whose  inability  to offer  convenient  parking  and a full range of
traditional  casino amenities  limited the growth of this market.  Subsequently,
larger  casinos  offering  such  amenities  have  entered the market,  have been
gaining  market  share  and have  contributed  to the  consistent  growth in the
overall  market.  As of December  31,  2007,  there were 26 casinos in the Black
Hawk/Central  City market,  with 11 casinos each  offering  more than 400 gaming
devices. The Isle of Capri, located across the street from our casino, has 1,375
gaming  machines,  18 gaming tables,  1,100 covered parking spaces and 238 hotel
rooms,  and it owns and is connected by inside walkways to the Colorado  Central
Station,  which has 640 gaming machines,  18 gaming tables, 1,200 parking spaces
and 164 hotel rooms.

Marketing strategy

     We attract customers to our casino by implementing marketing strategies and
promotions designed specifically for this market. In so doing, we hope to create
customer  loyalty and  benefit  from repeat  visits by our  customers.  Specific
marketing  programs to support  this  strategy  include  the Riviera  Black Hawk
Player's  Club and "V.I.P."  services  offered to repeat gaming  customers.  The
Riviera Black Hawk Player's Club is a loyalty  program that rewards  casino play
and repeat visits to the casino with various  privileges  and amenities  such as
free play, logo gift items and  invitations to special events,  such as parties,
concerts and  complimentary  accommodations  at our Las Vegas property.  We have
used the Player's  Club  promotion in Riviera Las Vegas and have tailored it for
the Black  Hawk/Central  City  market to  implement  it at Riviera  Black  Hawk.
"V.I.P."  services  are  available  to the highest  level of players and include
special valet and self-parking  services,  complimentary  food and entertainment
offerings and special events specifically designed for this group of customers.

     We benefit from strong  walk-in  traffic due to the proximity of our casino
to the Colorado  Central  Station and the Isle of Capri. We have and continue to
develop specific marketing programs designed to attract these walk-in customers.
We emphasize  quality food and beverage  amenities  with  friendly  service as a
marketing tool. In addition, we provide entertainment  programs designed to meet
the  tastes  of  the  Black  Hawk/Central  City  market,   such  as  live  music
performances by popular regional and national groups.

     We rely on database  marketing in order to best  identify  target  customer
segments of the population  and to tailor our casino's  promotions and amenities
to our core group of  customers.  We use the  database to identify  and stratify
slot  players  living   primarily  in  Colorado  for   appropriate   incentives.
Approximately  325,000 of these slot players have been identified as of December
31, 2007. In addition, we promote our casino by advertising in newspapers and on
the radio in the local areas.

                                                9
<PAGE>

Geographical Markets

The Las Vegas Market

     Las Vegas is one of the largest and fastest growing  entertainment  markets
in the country.  According to the LVCVA,  the number of visitors who traveled to
Las Vegas increased to approximately  39.2 million in 2007.  Approximately  37.4
million people visited Las Vegas in 2004, 38.6 million in 2005, and 38.9 million
in 2006.  Clark County  gaming  continues  to be a strong and growing  business.
Clark County gaming  revenues  were $8.7 billion in 2004,  $9.7 billion in 2005,
$10.6  billion in 2006,  and $10.9  Billion in 2007.  The  terrorist  attacks of
September 11, 2001 had an adverse effect on the number of visitors  traveling to
Las  Vegas.  Similar  events in the future  could have an adverse  effect on the
number of visitors traveling to Las Vegas

     Gaming and tourism are the major attractions of Las Vegas,  complemented by
warm weather and the  availability of many year-round  recreational  activities.
Although Las Vegas' principal market is the western region of the United States,
most significantly  southern California and Arizona,  Las Vegas also serves as a
destination resort for visitors from all over the world. Significant percentages
of visitors to Las Vegas are international visitors.

     Historically,  Las Vegas has had one of the strongest  hotel markets in the
country. The number of hotel and motel rooms in Las Vegas has increased by 98.4%
from  approximately  67,000  at the end of 1989 to  132,947  at the end of 2007,
giving Las Vegas the most hotel and motel rooms of any metropolitan  area in the
world.  Despite this significant  increase in the number of rooms, the Las Vegas
hotel  occupancy  rate equaled or exceeded 84% each year from 1993 through 2007,
with a hotel occupancy rate of 94.0% in 2007.

     We believe that the growth in the Las Vegas  market has been  enhanced as a
result  of:  (1)  a  dedicated   program  by  the  LVCVA  and  major  Las  Vegas
casino/hotels to promote Las Vegas as a major convention site, (2) the increased
capacity of McCarran  International  Airport and (3) the  introduction  of large
themed "must see" destination  resorts in Las Vegas. In 1988,  approximately 1.7
million people  attended  conventions  in Las Vegas and generated  approximately
$1.2 billion of economic  impact.  The number of convention  attendees was up to
approximately 6.2 million in 2007 with an economic impact of $8.4 billion.

     During  recent  years,  McCarran  International  Airport has  expanded  its
facilities to accommodate the increased number of airlines and passengers, which
it services.  The number of passengers traveling through McCarran  International
Airport has increased  from  approximately  22.5 million in 1993 to an estimated
47.7 million in 2007. Work continues on the nearly $4 billion capital  additions
planned for McCarran International Airport.

The Black Hawk/Central City Market

     Gaming was introduced to the Black Hawk/Central City market in October 1991
following a statewide  referendum  where Colorado voters approved limited stakes
gaming for three  historic  mining  towns,  namely Black Hawk,  Central City and
Cripple  Creek.  Limited  stakes  gaming is defined  as a maximum  single bet of
$5.00.  Black Hawk and Central City are contiguous cities located  approximately
40 miles west of Denver and about 10 miles north of  Interstate  Highway 70, the
main  east-west  artery  from  Denver.  Historically,   these  two  gold  mining
communities were popular tourist towns.  However,  since the inception of casino
gaming in October 1991, gaming  establishments have displaced many of the former
tourist-related businesses.

     The first casino in the Black  Hawk/Central  City market  opened in October
1991,  with 13  casinos  open by the end of that  year.  The  pace of  expansion
increased  in 1992 with the  number of  casinos  in the  market  peaking  at 42.
However,  due to a trend of  consolidation in the market and the displacement of
small casinos by the entry of larger,  better-capitalized  operators, the number
of casinos is 26 as of December 31, 2007.

     The Black Hawk/Central City market primarily caters to "day-trip" customers
from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,  Wyoming. The
United  States  Census  Bureau  estimates  that in 2006  the  population  of the
Denver-Aurora-Boulder Combined Statistical area was 1.4 million. Since 1992, the
number of  gaming  devices  in the  Black  Hawk/Central  City  market  has grown
approximately 64.5% from 7,252 in 1992 to 11,932 in 2007. Gaming revenues in the
Black  Hawk/Central  City market  increased by  approximately  4.8% in 2007 over
2006.

                                                10
<PAGE>

     The City of Black Hawk has experienced  more  significant  growth in gaming
revenues than Central City from 1992 through 2004.  The popularity of Black Hawk
in comparison to Central City was due primarily to Black Hawk's  superior access
to major  highways,  as patrons had to first pass  through  Black Hawk to access
Central City from Denver.  However,  a new road opened in November  2004,  which
links Central City directly with  Interstate  70, and allows  customers to reach
Central City without  driving through Black Hawk. As a result of this new access
road, Central City gaming revenues grew by 36% in 2005, 2.7% in 2006 and 7.4% in
2007, as compared to 2.6%, 4.3% and 4.4% growth for Black Hawk in 2005, 2006 and
2007,  respectively.  Despite the impressive growth  experienced by Central City
casinos from 2005 to 2007,  gaming revenues in Central City still represent only
12% of the  total  gaming  revenues  for the  Central  City/Black  Hawk  market.
Although  the new road allows  customers  direct  access to Central  City,  most
customers  continue  to  frequent  Black Hawk  casinos  because of the  superior
amenities Black Hawk casinos offer. Due to this superior  location,  most of the
larger  casino  operators  have focused on building in Black Hawk.  As a result,
casinos in Black Hawk now generally  feature a larger  average  number of gaming
devices, a wider variety of amenities and convenient free parking for patrons.

Competition

Las Vegas, Nevada

     Intense competition exists among companies in the gaming industry,  many of
which have  significantly  greater resources than we do. Riviera Las Vegas faces
competition  from all other casinos and hotels in the Las Vegas area. We believe
that our most direct competition comes from certain large casino/hotels  located
on or near the Las Vegas Strip,  which offer  amenities and  marketing  programs
similar to those offered by Riviera Las Vegas.

     Las Vegas gaming square  footage and room  capacity are  continuing to grow
and are expected to continue to increase during the next several years.

     As of December 31, 2007,  there were  approximately  48,000 Las Vegas rooms
slated for  completion  by 2012,  including  the  development  or  expansion  of
existing casino/hotels and timeshare facilities.  Current and future expansions,
additions  and  enhancements  to existing  properties  and  construction  of new
properties by our competitors  could divert business from our facilities.  There
can be no assurance that we will compete successfully in the Las Vegas market in
the future.

     During  2007,  room  inventory  in Las  Vegas  increased  less  than 1%, to
132,947.  Room nights occupied increased 1.1%, to approximately 44.0 million. At
the Riviera Las Vegas, room occupancy  increased slightly from 92.2% in 2006 to
92.9% in 2007. The average room rate increased by $4.40 or 5.6%, from $78.47 in
2006 to $82.87 in 2007.  Revenue per available room ("Rev/Par")  increased $4.68
or 6.5%, from $72.37 in 2006 to $77.05 in 2007.

     We also compete to some extent with casinos in other states,  riverboat and
Native American gaming ventures,  state-sponsored  lotteries,  on- and off-track
wagering, card parlors and other forms of legalized gaming in the United States.
To a lesser  extent we also  compete  with gaming on cruise  ships and gaming in
other parts of the world. In addition, certain states have recently legalized or
are considering  legalizing casino gaming in specific  geographical areas within
those states and internationally.  Any future development of casinos,  lotteries
or other  forms of gaming in other  states  and  internationally,  could  have a
material adverse effect on our results of operations.

     The number of  casinos on Native  American  lands has  increased  since the
enactment  of the  Indian  Gaming  Regulatory  Act of  1988.  California  voters
addressed  this issue on March 7, 2000 when they voted in favor of an  amendment
to the California  Constitution  that allows Las Vegas-style  gambling on Native
American  lands in that state.  Additionally,  California  voters just  recently
passed  Propositions  94, 95, 96 and 97 which allow two tribes near San Diego to
each increase  their slot machine  volume from 2,000 slot machines to 7,500 slot
machines  and two tribes near Palm Springs to each  increase  their slot machine
volume  from  2,000  slot  machines  to 5,000  slot  machines.  While new gaming
jurisdictions generally have not materially impacted Las Vegas, the expansion of
gaming in California  poses a more serious threat to the continued growth of Las
Vegas.

                                                11
<PAGE>

     Our current  business is highly  dependent on gaming in Las Vegas.  Riviera
Las Vegas  derives a  substantial  percentage  of its  business  from  tourists,
including customers from southern California and the southwestern United States.
Weakness in the economy of southern California has in the past, and could in the
future, adversely affect our financial results. The events of September 11, 2001
had the most serious  effect on our  financial  results.  Similar  events in the
future could also have a material adverse effect on our financial results.

Black Hawk, Colorado

     The Black  Hawk/Central  City  gaming  market is  characterized  by intense
competition.  The  primary  competitive  factors  in the  market  are  location,
availability  and  convenience  of parking,  number of slot  machines and gaming
tables,  promotional  incentives,  hotel rooms,  types and pricing of non-gaming
amenities, name recognition and overall atmosphere. Our main competitors are the
larger gaming facilities,  particularly those with considerable on-site parking,
hotel rooms and established  reputations in the local market. As of December 31,
2007, there were 26 gaming facilities in the Black Hawk/Central City market with
11 casinos each offering more than 400 gaming positions. Additional construction
projects are in progress in the Black Hawk/Central City market.

     The  gaming  facilities  near the  intersection  of Main  and Mill  Streets
provide significant competition to our casino. Colorado Central Station which is
wholly owned by Isle of Capri and is connected  via inside  walkways to the Isle
of  Capri,  is  located  across  the  street  from our  casino  and has 640 slot
machines,  18 gaming  tables,  approximately  1,200 parking spaces and 164 hotel
rooms.  The Isle of Capri,  one of the most successful  casinos in Colorado,  is
located  directly  across the street  from our  casino and  features  1,375 slot
machines,  18 table  games,  1,100  parking  spaces,  and 238  hotel  rooms.  An
expansion and  renovation of Main Street was completed in the second  quarter of
2006. As a result of the Main Street expansion,  Riviera Black Hawk is the first
property on Main Street accessible to all customers traveling to Black Hawk from
the Denver Metro area via State Route 119.  Our parking  garage is the first and
most easily accessible parking garage directly from Main Street.

     The number of hotel rooms currently in the Black  Hawk/Central  City market
is 596, with only 5 gaming  facilities  providing  hotel  accommodations.  These
include Fortune Valley with 118 rooms,  Century Casino with 26 rooms,  the Lodge
at Black  Hawk with 50  rooms,  the Isle of Capri  with 238  rooms and  Colorado
Central  Station  with 164 rooms.  Casinos  offering  hotel  accommodations  for
overnight stay have a competitive advantage over our casino. However, we believe
that  self-parking  is a  more  effective  utilization  of our  available  space
providing  hotel  accommodations  is not a  cost-effective  use  of our  capital
resources at this time.

     The Ameristar  Black Hawk property was  re-branded in the Ameristar name on
April 1, 2006, and received significant increased traffic to the property in the
second  half of 2006.  Ameristar  is  adding  a hotel  tower as part of its $260
million  capital  expansion,  with the first phase  completed in November  2005,
which  included an  expansion  of the parking  garage to 1,550  parking  spaces.
Ameristar has  approximately  1,600 gaming machines,  12 blackjack tables and 14
live poker tables.  Hotel  construction  has commenced  with 536 rooms slated to
open in the first quarter of 2009.

     Historically,  the City of Black Hawk has enjoyed an advantage over Central
City because  customers  have to drive through Black Hawk to reach Central City.
However,  there is a new road that opened in November 2004,  which links Central
City  directly  with  Interstate  70 and allows  customers to reach Central City
without  driving  through  Black Hawk.  Although  this road allows  customers to
directly  access  Central City, we believe that most  customers will continue to
frequent Black Hawk casinos because of the superior amenities Black Hawk casinos
offer. This new road provides  additional access to the Black  Hawk/Central City
market,  which is  especially  important on weekends when the  traditional  road
system is  overburdened.  We believe  the new access road is  important  for the
continued growth of the market. The new access road proved valuable between June
21st and September  13th of 2005 when a major  rockslide  closed  Highway 6, the
major route customers from the Denver area take to the Black  Hawk/Central  City
market.

                                                12

<PAGE>

     Limited stakes gaming in Colorado is constitutionally authorized in Central
City,  Black  Hawk,  Cripple  Creek  and two  Native  American  reservations  in
southwest  Colorado.  However,  gaming  could  be  approved  in  other  Colorado
communities  in the future.  The  legalization  of gaming closer to Denver would
likely  have a material  adverse  effect on our results of  operations.  We also
compete with other forms of gaming in Colorado,  including  lottery gaming,  and
horse and dog racing, as well as other forms of entertainment.

     It is also possible that new forms of gaming could compete with our casino.
Currently,  Colorado law does not authorize  video lottery  terminals.  However,
Colorado law permits the legislature,  with executive approval, to authorize new
types  of  lottery  gaming,  such as  video  lottery  terminals.  Video  lottery
terminals  are games of chance,  similar to slot  machines,  in which the player
pushes a  button  that  causes  a random  set of  numbers  or  characters  to be
displayed on a video  screen.  The player may be awarded a ticket,  which can be
exchanged  for cash or credit play.  This form of gaming could compete with slot
machine  gaming.  Voters in the State of  Colorado  have in the past  rejected a
proposal which would have authorized video lottery  terminals in five racetracks
in Colorado.  However, there is no guarantee that such a proposal or similar one
will not be approved now or in the future and we understand  that  proponents of
video  lottery  terminals  and/or slot  machines at racetrack  are again seeking
approval to put a new initiative  before the Colorado  voters in 2008. If either
of these types of  initiatives  were to be pursued  further in Colorado and gain
the necessary approvals,  then our Colorado operations would likely be adversely
affected.

     In  addition,  Colorado  enacted a smoking  ban in 2006,  which at the time
excluded casinos.  That smoking ban was subsequently  amended to include casinos
effective January 1, 2008. Although we have constructed outdoor smoking areas to
permit smoking in those areas, the amended smoking ban could  nonetheless have a
material adverse effect on our long term results of operations.

     Pursuant  to a license  agreement,  Riviera Las Vegas  licenses  the use at
Riviera  Black Hawk of all of the  trademarks,  service  marks and logos used by
Riviera Las Vegas. The license  agreement  provides that additional  trademarks,
service  marks  and  logos  acquired  or  developed  by us and used at our other
facilities will be subject to the license agreement.

Employees and Labor Relations

Riviera Las Vegas

     As of December 31, 2007,  Riviera Las Vegas had 1,248 full-time  equivalent
employees and had collective  bargaining  contracts  with eight unions  covering
approximately  700 of such  employees,  including  food and beverage  employees,
rooms  department  employees,  carpenters,   engineers,  stagehands,  musicians,
electricians,  painters and  teamsters.  Riviera Las Vegas'  agreement  with the
Painters Union expires on May 31, 2010. The Carpenters'  Union agreement expired
on July 31, 2005, and an initial one-year and subsequent  open-ended  extensions
were  agreed to by us and the Union and in 2007,  we and the  Carpenters'  Union
entered into an agreement  that  expires on July 31, 2011.  Agreements  with the
Southern  Nevada  Culinary and  Bartenders  Union,  covering the majority of our
unionized employees, were renewed in 2007 and expire in 2012. Our agreement with
the Stagehands Union expired in 2007. Negotiations with the Stagehands Union for
a new multiyear agreement commenced in 2007 and are ongoing.  Our agreement with
the  Teamsters  Union  expires  in 2008 and the  Operating  Engineers  Union and
Electrician Union agreements expire in 2009. Our collective bargaining agreement
with the  Musicians  Union  expired in 1999 and we continue to operate under the
terms of that agreement.  Although unions have been active in Las Vegas, Riviera
Las Vegas considers its employee  relations to be satisfactory.  There can be no
assurance,  however, that new agreements will be reached without union action or
on terms satisfactory to Riviera Las Vegas.

Riviera Black Hawk

     As of December 31, 2007,  Riviera Black Hawk had 233  full-time  equivalent
employees,  none of whom are covered by collective  bargaining  agreements.  The
Black  Hawk/Central  City labor market is very  competitive.  Riviera Black Hawk
believes that it will be able to maintain its current employee level.  There can
be no assurance,  however, that new and existing casinos will not affect Riviera
Black Hawk's ability to maintain its current employee level.

                                                13
<PAGE>

     Although  there  are no  collective  bargaining  agreements  in Black  Hawk
casinos,  we became  aware in 2006 of  organization  activity  by Local 7 of the
United Food & Commercial Workers International Union. This activity is targeting
casino  employees in Black Hawk and Central City. There can be no assurance that
the union will not succeed in its organization  effort, and if successful,  that
an agreement will be reached  without union action or on terms  satisfactory  to

Riviera Black Hawk.
Regulation and Licensing

Nevada

Nevada Gaming Authorities

     The  ownership  and  operation of casino  gaming  facilities  in Nevada are
subject to: (1) The Nevada Gaming  Control Act and the  regulations  promulgated
thereunder (collectively, the "Nevada Act") and (2) various local ordinances and
regulations.  Our gaming  operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"),  the State of
Nevada Gaming  Control  Board (the "Nevada  Board"),  the Clark County  Business
Department and the Clark County  liquor/gaming  authorities  (collectively,  the
"Clark County Board"), all of which are collectively  referred to as the "Nevada
Gaming Authorities."

     The laws,  regulations  and  supervisory  procedures  of the Nevada  Gaming
Authorities  are based upon  declarations  of public  policy which are concerned
with, among other things:  (1) the prevention of unsavory or unsuitable  persons
from having a direct or indirect  involvement with gaming at any time and in any
capacity;  (2) the  establishment  and  maintenance  of  responsible  accounting
practices and  procedures;  (3) the  maintenance of effective  controls over the
financial  practices  of  licensees,  including  the  establishment  of  minimum
procedures  for  internal  fiscal  affairs  and the  safeguarding  of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming  Authorities;  (4) the prevention of cheating and
fraudulent  practices;  and (5)  providing a source of state and local  revenues
through  taxation and  licensing  fees.  Changes in such laws,  regulations  and
procedures could have an adverse effect on our operations.

     Riviera  Operating  Corporation  is  required  to be and is licensed by the
Nevada Gaming Authorities (a "Corporate  Licensee").  The gaming license held by
Riviera  Operating  Corporation  requires the periodic payment of fees and taxes
and is not  transferable.  Riviera  Operating  Corporation is also licensed as a
manufacturer  and  distributor  of gaming  devices.  Such  licenses  require the
periodic  payment of fees and are not  transferable.  We are  registered  by the
Nevada Commission as a publicly traded corporation (a "Registered  Corporation")
and have been found suitable to own the stock of Riviera Operating  Corporation.
As a Registered  Corporation,  we are required  periodically  to submit detailed
financial  and  operating  reports to the Nevada  Commission  and to furnish any
other information, which the Nevada Commission may require. No person may become
a stockholder of, or receive any percentage of profits from,  Riviera  Operating
Corporation  without  first  obtaining  licenses and  approvals  from the Nevada
Gaming Authorities. We and Riviera Operating Corporation have obtained, from the
Nevada  Gaming  Authorities,  the  various  registrations,  approvals,  permits,
findings  of  suitability  and  licenses  required  in order to engage in gaming
activities and manufacturing and distribution activities in Nevada.

     The Nevada Gaming  Authorities  may  investigate  any  individual who has a
material  relationship to, or material involvement with, us or Riviera Operating
Corporation in order to determine  whether such individual is suitable or should
be licensed as a business  associate of a gaming licensee.  Officers,  directors
and  certain  key  employees  of  Riviera   Operating   Corporation   must  file
applications  with the  Nevada  Gaming  Authorities  and may be  required  to be
licensed  or found  suitable by the Nevada  Gaming  Authorities.  Our  officers,
directors and key employees who are actively and directly involved in the gaming
activities of Riviera  Operating  Corporation  may be required to be licensed or
found suitable by the Nevada Gaming  Authorities.  The Nevada Gaming Authorities
may deny an application for licensing for any cause, which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of  detailed  personal  and  financial   information   followed  by  a  thorough
investigation.  The applicant for licensing or a finding of suitability must pay
all the costs of the  investigation.  Any change in a  corporate  position  by a
licensed person must be reported to the Nevada Gaming  Authorities.  In addition
to their  authority  to deny an  application  for a finding  of  suitability  or
licensure,  the Nevada  Gaming  Authorities  have  jurisdiction  to disapprove a
change in a corporate position.

                                                14
<PAGE>

     If the Nevada Gaming  Authorities were to find an officer,  director or key
employee   unsuitable   for  licensing  or  unsuitable  to  continue   having  a
relationship  with Riviera  Operating  Corporation or us, we would have to sever
all  relationships  with such person.  In addition,  the Nevada  Commission  may
require us or Riviera  Operating  Corporation to terminate the employment of any
person  who  refuses  to  file  appropriate   applications.   Determinations  of
suitability  or questions  pertaining  to licensing  are not subject to judicial
review in Nevada.

     We and  Riviera  Operating  Corporation  are  required  to submit  detailed
financial  and operating  reports to the Nevada  Commission.  Substantially  all
material loans, leases,  sales of securities and similar financing  transactions
by Riviera  Operating  Corporation must be reported to or approved by the Nevada
Commission.

     If it were determined that the Nevada Act was violated by Riviera Operating
Corporation,  the  gaming  license  it  holds  could  be  limited,  conditioned,
suspended  or  revoked,   subject  to  compliance  with  certain  statutory  and
regulatory procedures.  In addition, we or Riviera Operating Corporation and the
persons involved could be subject to substantial fines for each violation of the
Nevada Act, at the discretion of the Nevada  Commission.  Further,  a supervisor
could be appointed  by the Nevada  Commission  to operate our casino and,  under
certain  circumstances,  earnings generated during the supervisor's  appointment
(except for  reasonable  rental  value of the casino)  could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming license of
Riviera  Operating  Corporation or the  appointment  of a supervisor  could (and
revocation of any gaming license would)  materially  adversely affect our gaming
operations.

     Any beneficial holder of our voting securities, regardless of the number of
shares owned, may be required to file an application, be investigated,  and have
its suitability as a beneficial  holder of our voting  securities  determined if
the Nevada  Commission has reason to believe that such ownership would otherwise
be inconsistent with the declared policies of the State of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities in
conducting any such investigation.

     The  Nevada  Act  requires  any  person  who  acquires  more  than  5% of a
Registered  Corporation's  voting  securities to report the  acquisition  to the
Nevada  Commission.  The Nevada Act requires that beneficial owners of more than
10% of our voting  securities  apply to the Nevada  Commission  for a finding of
suitability  within thirty days after the Chairman of the Nevada Board mails the
written  notice  requiring  such  filing.   Under  certain   circumstances,   an
"institutional investor," as defined in the Nevada Act, which acquires more than
10%,  but not more than 15%,  of our voting  securities  may apply to the Nevada
Commission  for a waiver of such finding of  suitability  if such  institutional
investor  holds  our  voting   securities  for  investment   purposes  only.  An
institutional investor that has obtained a waiver may, in certain circumstances,
hold up to 19% of our voting  securities  and  maintain its waiver for a limited
period of time. An institutional investor shall not be deemed to hold our voting
securities for investment  purposes  unless the voting  securities were acquired
and are held in the ordinary course of business as an institutional investor and
not for the  purpose of  causing,  directly  or  indirectly,  the  election of a
majority of the members of our board of  directors,  any change in our corporate
charter,  bylaws,  management,  policies  or  operations,  or any of our  gaming
affiliates,  or any  other  action  which  the  Nevada  Commission  finds  to be
inconsistent  with holding our voting  securities for investment  purposes only.
Activities  which are deemed  consistent with holding our voting  securities for
investment  purposes  only  include:  (1)  voting  on all  matters  voted  on by
stockholders; (2) making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes and not to cause
a change in management, policies or operations; and (3) such other activities as
the Nevada  Commission  may  determine  to be  consistent  with such  investment
intent.  If the  beneficial  holder of our voting  securities  who must be found
suitable is a business  entity or trust,  it must submit  detailed  business and
financial  information  including a list of beneficial  owners. The applicant is
required to pay all costs of investigation.

     Any person who fails or refuses to apply for a finding of  suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or  the  Chairman  of the  Nevada  Board  may  be  found  unsuitable.  The  same
restrictions  apply to a  record  owner of  stock  if the  record  owner,  after
request,  fails to identify the beneficial  owner.  Any stockholder who is found
unsuitable and who holds,  directly or indirectly,  any beneficial  ownership of
stock  beyond such period of time  prescribed  by the Nevada  Commission  may be
guilty of a criminal offense. We are subject to disciplinary action if, after we
receive  notice that a person is unsuitable  to be a stockholder  or to have any

                                                15
<PAGE>

other  relationship  with us or Riviera Operating  Corporation,  we (1) pay that
person any  dividend or  interest  upon  voting our  securities,  (2) allow that
person to exercise,  directly or indirectly,  any voting right conferred through
securities held by that person,  (3) pay remuneration in any form to that person
for services rendered or otherwise,  or (4) fail to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities including, if
necessary,  the immediate  purchase of said voting  securities  for cash at fair
market value. Additionally,  the Clark County Board has the authority to approve
all persons owning or  controlling  the stock of any  corporation  controlling a
gaming licensee.

     The Nevada  Commission  may, in its  discretion,  require any holder of our
debt securities to file  applications,  be investigated and be found suitable to
own such  securities,  if it has reason to believe that such ownership  would be
inconsistent  with the declared  policies of the State of Nevada.  If the Nevada
Commission determines that a person is unsuitable to own such security,  then we
can be sanctioned  (which may include the loss of our approvals) if, without the
prior approval of the Nevada Commission, we (1) pay to the unsuitable person any
dividend,  interest,  or any distribution  whatsoever,  (2) recognize any voting
right by such unsuitable person in connection with such securities,  (3) pay the
unsuitable  person  remuneration  in any  form or (4) make  any  payment  to the
unsuitable  person  by  way  of  principal,  redemption,  conversion,  exchange,
liquidation, or similar transaction.

     We are required to maintain a current stock ledger in Nevada,  which may be
examined by the Nevada Gaming  Authorities  at any time. If any  securities  are
held in trust by an agent or by a nominee,  the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming  Authorities.
A failure to make such  disclosure  may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
our stock  certificates  to bear a legend  indicating  that the  securities  are
subject to the Nevada Act. However, the Nevada Commission has not imposed such a
requirement on us.

     We may not make a public  offering  of our  securities  without  the  prior
approval of the Nevada  Commission if the  securities or proceeds  therefrom are
intended  to be used to  construct,  acquire or  finance  gaming  facilities  in
Nevada,  or to retire or  extend  obligations  incurred  for such  purposes.  On
September  20, 2007,  the Nevada  Commission  granted us prior  approval to make
public offerings for a period of two years,  subject to certain  conditions (the
"Shelf  Approval").  The Shelf Approval also applies to any  affiliated  company
wholly  owned by us which is a  publicly  traded  corporation  or would  thereby
become a publicly traded  corporation  pursuant to a public offering.  The Shelf
Approval may be rescinded  for good cause without prior notice upon the issuance
of an  interlocutory  stop order by the Chairman of the Nevada Board.  The Shelf
Approval does not constitute a finding, recommendation or approval by any of the
Nevada  Gaming  Authorities  as to the  accuracy  or  adequacy  of the  offering
memorandum or the investment merits of the securities. Any representation to the
contrary is unlawful.

     Changes  in   control  of  a   Registered   Corporation   through   merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person  whereby  he  obtains  control,  may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered  Corporation must meet a variety of stringent  standards
of the Nevada Board and Nevada Commission prior to assuming control.  The Nevada
Commission may also require controlling  stockholders,  officers,  directors and
other persons  having a material  relationship  or  involvement  with the entity
proposing to acquire  control,  to be  investigated  and licensed as part of the
approval process relating to the transaction.

     The  Nevada  legislature  has  declared  that some  corporate  acquisitions
opposed by management,  repurchases of voting securities and corporate defensive
tactics affecting Nevada corporate gaming licensees and Registered  Corporations
that are  affiliated  with  those  operations  may be  injurious  to stable  and
productive  corporate gaming. The Nevada Commission has established  regulations
to ameliorate the potentially  adverse effects of these business  practices upon
Nevada's  gaming  industry  and to  further  Nevada's  policy to: (1) assure the
financial  stability of corporate  gaming  licensees and their  affiliates;  (2)
preserve the beneficial  aspects of conducting  business in the corporate  form;
and (3) promote a neutral  environment  for the orderly  governance of corporate
affairs.  Approvals  are,  in certain  circumstances,  required  from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting  securities  above  the  current  market  price  and  before a  corporate
acquisition  opposed  by  management  can be  consummated.  The  Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's  board of directors in response to a tender offer made directly to
the Registered Corporation's  stockholders for the purposes of acquiring control
of the Registered Corporation.

                                                16
<PAGE>

     License fees and taxes,  computed in various ways  depending on the type of
gaming or  activity  involved,  are  payable  to the State of Nevada  and to the
county  in which  Riviera  Operating  Corporation's  operations  are  conducted.
Depending  upon the  particular  fee or tax  involved,  these fees and taxes are
payable  monthly,  quarterly or annually and are based upon: (1) a percentage of
the gross revenues received;  (2) the number of gaming devices operated;  or (3)
the number of table games  operated.  A live  entertainment  tax is also paid by
casinos  where live  entertainment  is furnished in  connection  with  admission
charges,  the  serving  or  selling  of food,  refreshments  or the  selling  of
merchandise.  Nevada licensees that hold a license to manufacture and distribute
slot machines and gaming devices,  such as Riviera Operating  Corporation,  also
pay certain fees and taxes to the State of Nevada.

     Any  person  who is  licensed,  required  to be  licensed,  registered,  or
required to be  registered,  or a person who is under common control with any of
such persons (collectively, "Licensees"), and who proposes to become involved in
a gaming  venture  outside of Nevada,  is  required  to deposit  with the Nevada
Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay
the expenses of investigation by the Nevada Board of such person's participation
in such foreign gaming. The revolving fund is subject to increase or decrease in
the discretion of the Nevada Commission.  Thereafter,  Licensees are required to
comply with certain reporting  requirements imposed by the Nevada Act. Licensees
are also  subject  to  disciplinary  action  by the  Nevada  Commission  if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming  operation,  fail to conduct the foreign  gaming  operation in accordance
with  the  standards  of  honesty  and  integrity   required  of  Nevada  gaming
operations,  engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect  gaming taxes and fees, or employ,
have contact with or associate  with a person in the foreign  operation  who has
been  denied a license  or  finding  of  suitability  in Nevada on the ground of
personal unsuitability.

Other Nevada Regulation

     The  sale of  alcoholic  beverages  at  Riviera  Las  Vegas is  subject  to
licensing,  control and regulation by the Clark County Board.  All such licenses
are revocable and none of them are transferable. The Clark County Board has full
power to limit,  condition,  suspend  or revoke any such  license,  and any such
disciplinary  action could (and revocation would) have a material adverse effect
on our operations.

Colorado

Colorado Gaming and Liquor Regulation

Summary

     In general,  Riviera Black Hawk, its principal executive officers and those
of Riviera  Holdings  Corporation,  and any Riviera Black Hawk employees who are
involved in Colorado  gaming  operations  are required to be found  suitable for
licensure  by  the  Colorado  Gaming  Commission  (the  "Colorado  Commission").
Colorado also requires that persons owning,  directly or indirectly,  5% or more
of our stock be  certified  as suitable  for  licensure.  Riviera  Black  Hawk's
original  retail  gaming  license was  approved by the  Colorado  Commission  on
November 18, 1999, and has been renewed each subsequent year.

Background

     Pursuant  to an  amendment  to the  Colorado  Constitution  (the  "Colorado
Amendment"),  limited stakes gaming became lawful in the cities of Central City,
Black Hawk and Cripple Creek on October 1, 1991.  Limited  stakes gaming means a
maximum  single bet of five  dollars on slot  machines  and in the card games of
blackjack and poker.

                                                17
<PAGE>

     Limited stakes gaming is confined to the commercial district of Black Hawk,
as defined by Black Hawk on May 4, 1978.  In addition,  the  Colorado  Amendment
restricts  limited stakes gaming to structures that conform to the architectural
styles and designs that were common to the areas prior to World War I, and which
conform to the requirements of applicable city ordinances  regardless of the age
of the structures.  Under the Colorado Amendment, no more than 35% of the square
footage of any  building  and no more than 50% of any one floor of any  building
may be used for  limited  stakes  gaming.  Persons  under  the age of 21  cannot
participate  in limited  stakes  gaming.  The Colorado  Amendment also prohibits
limited  stakes gaming  between the hours of 2:00 a.m. and 8:00 a.m., and allows
limited stakes gaming in establishments licensed to sell alcoholic beverages.

     Further,  the  Colorado  Limited  Gaming Act of 1991 (the  "Colorado  Act")
provides that, in addition to any applicable license fees, a gaming tax shall be
imposed  upon retail  gaming  licensees  (casinos) up to a maximum of 40% of the
adjusted gross  proceeds  ("AGP")  derived from limited  stakes  gaming.  AGP is
generally  defined as the total amounts wagered less payouts to players,  except
for poker in which AGP means the monies  retained by the casino as  compensation
(the "rake"). The tax rates are set by the Colorado Commission annually.

     The Colorado  Act declares  public  policy on limited  stakes  gaming to be
that:  (1) the  success  of  limited  stakes  gaming is  dependent  upon  public
confidence and trust that licensed  limited stakes gaming is conducted  honestly
and  competitively;  the rights of the  creditors  of licensees  are  protected;
gaming is free from criminal and corruptive elements;  (2) public confidence and
trust can be maintained  only by strict  regulation  of all persons,  locations,
practices,  associations  and  activities  related to the  operation of licensed
gaming  establishments and the manufacture or distribution of gaming devices and
equipment;  (3) all  establishments  where limited gaming is conducted and where
gambling devices are operated,  and all manufacturers,  sellers and distributors
of certain gambling devices and equipment must therefore be licensed, controlled
and assisted to protect the public  health,  safety,  good order and the general
welfare of the  inhabitants  of the state to foster the stability and success of
limited stakes gaming and to preserve the economy, policies and free competition
in Colorado;  and (4) no applicant for a license or other  affirmative  Colorado
Commission  approval  has any  right  to a  license  or to the  granting  of the
approval  sought.  Any  license  issued or other  Colorado  Commission  approval
granted pursuant to the provisions of the Colorado Act is a revocable privilege,
and no holder acquires any vested rights therein.

Regulatory Structure

     The Colorado Act subjects the  ownership  and  operation of limited  stakes
gaming  facilities  in Colorado to extensive  licensing  and  regulation  by the
Colorado Commission. The Colorado Commission has full and exclusive authority to
promulgate, and has promulgated,  rules and regulations governing the licensing,
conduct and operation of limited  stakes  gaming.  The Colorado Act also created
the  Colorado  Division of Gaming  within the  Colorado  Revenue  Department  to
license,  regulate  and  supervise  the  conduct  of  limited  stakes  gaming in
Colorado.  The division is supervised  and  administered  by the Director of the
Division of Gaming.

Gaming Licenses

The Colorado Commission may issue the following licenses applicable to the
operation of Riviera Black Hawk:

o        operator;
o        retail gaming;
o        support; and
o        key employee.

     The first two licenses  require annual renewal by the Colorado  Commission.
Support  and key  employee  licenses  are issued for  two-year  periods  and are
renewable by the Division of Gaming Director.  The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.

     An applicant for a gaming license must complete  comprehensive  application
forms,  pay required fees and provide all  information  required by the Colorado
Commission  and the  Division of Gaming.  Prior to  licensure,  applicants  must
satisfy the Colorado Commission that they are suitable for licensing. Applicants
have the burden of proving  their  qualifications  and must pay the full cost of
any background investigations.  There is no limit on the cost of, or the time it
takes to complete, such background investigations.

                                                18
<PAGE>

     Gaming employees must hold either a support or key employee license.  Every
large  retail  gaming  licensee,  such as Riviera  Black  Hawk,  must have a key
employee  licensee  on  premises  and in charge  of all  limited  stakes  gaming
activities  when  limited  stakes  gaming  is  being  conducted.   The  Colorado
Commission  may determine  that a gaming  employee is a key employee and require
that such person apply for a key employee license.

     A retail  gaming  license is required  for all persons  conducting  limited
stakes gaming on their premises.  In addition,  an operator  license is required
for all  persons  who engage in the  business  of  placing  and  operating  slot
machines on the premises of a retailer.  However,  a retailer is not required to
hold an operator license.  No person may have an ownership interest in more than
three retail  gaming  licenses.  The  definition  of  "ownership  interest"  for
purposes of the multiple license  prohibition,  however, has numerous exclusions
based on percentages of ownership interest or voting rights.

     A slot  machine  manufacturer  or  distributor  license is required for all
persons who  manufacture,  import and distribute  slot machines in Colorado.  No
manufacturer  or  distributor  of slot  machines  or  associated  equipment  may
knowingly,  without  notification being provided to the Colorado Division within
ten days, have any interest in any casino operator, allow any of its officers or
any other person with a  substantial  interest in such  business to have such an
interest,  employ any person employed by a casino operator,  or allow any casino
operator  or any  person  having a  substantial  interest  therein,  to have any
interest in such business.

     The Colorado Act and regulations  thereunder  (the "Colorado  Regulations")
require that every officer,  director,  and stockholder of private corporations,
or equivalent  office or ownership  holders for  non-corporate  applicants,  and
every  officer,  director  or  stockholder  holding a 5% or greater  interest or
controlling interest in a publicly traded corporation, or owners of an applicant
or  licensee,  shall be a person of good  moral  character  and submit to a full
background  investigation  conducted  by the Division of Gaming and the Colorado
Commission.  The Colorado  Commission may require any person having an interest,
of any kind, in a license to undergo a full background investigation and pay the
cost of investigation in the same manner as an applicant.

     Persons  found  unsuitable  by the  Colorado  Commission  may  be  required
immediately  to terminate  any  interest,  association,  or agreement  with,  or
relationship  to, a licensee.  A finding of  unsuitability  with  respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant  also may  jeopardize  the  licensee's  license or the  applicant's
application.  A license  approval may be conditioned upon the termination of any
relationship with unsuitable  persons.  A person may be found unsuitable because
of prior acts,  associations or financial conditions.  Acts that would lead to a
finding of  unsuitability  include,  among others,  those that would violate the
Colorado Act or the Colorado  Regulations  or that  contravene  the  legislative
purpose of the Colorado Act.

Duties of Licensees

     A  licensee  must keep the  Division  of  Gaming  advised  of its  business
operations including, but not limited to, gaming contracts and leases. All rules
for the conduct of gaming activity  pursuant to the Colorado Act or the Colorado
Regulations must be strictly followed.

     Licensees,  such as Riviera  Black Hawk,  have a continuing  duty to report
immediately  to the  Division  of  Gaming  the name,  date of birth  and  social
security  number of each person who obtains an  ownership,  financial  or equity
interest in the  licensee  of 5% or greater,  who has the ability to control the
licensee,  who has the  ability  to  exercise  significant  influence  over  the
licensee  or who  loans  any  money  or other  thing  of value to the  licensee.
Licensees  must report to the  Division of Gaming all gaming  licenses,  and all
applications for gaming licenses, in foreign jurisdictions.

     With limited  exceptions  applicable to licensees that are publicly  traded
entities, no person may sell, lease, purchase, convey or acquire any interest in
a retail gaming or operator  license or business  without the prior  approval of
the Colorado Commission.

                                                19
<PAGE>

     All  agreements,  contracts,  leases,  or  arrangements in violation of the
Colorado  Amendment,  the Colorado Act or the Colorado  Regulations are void and
unenforceable.

     A licensee must comply with  Colorado's  Gambling  Payment  Intercept  Act,
which governs the collection of unpaid child support costs on cash winnings from
limited gaming.

Taxes, Fees and Fines

     The  Colorado  Amendment  requires  each retail  gaming  licensee to pay in
monthly  increments  an annual tax of up to 40% of its AGP derived  from limited
stakes gaming. Annually during April, May, and June, the Colorado Commission, as
mandated by the Colorado  Regulations,  conducts rule-making hearings concerning
the  gaming tax rate and device fee rate for the  subsequent  gaming  year.  The
gaming year begins on July 1st. However, during such hearings rigid adherence to
addressing only specific, designated subjects related to the gaming taxes is not
required,  and there is not a limit to the time or practical  restriction on the
subject  matters which the Colorado  Commission may consider in determining  the
various tax rates. Currently, the gaming tax is:

o 0.25% on the first $2 million of these amounts;
o 2% on amounts from $2 million to $4 million;
o 4% on amounts from $4 million to $5 million;
o 11% on amounts from $5 million to $10 million;
o 16% on amounts from $10 million to $15 million;  and
o 20% on amounts over $15 million.

     The City of Black Hawk  assesses an annual device fee of $750.00 per device
on all gaming devices exceeding 50. There is no statutory limit on state or city
device fees, which may be increased at the discretion of the Colorado Commission
or the city.  In addition,  a business  improvement  fee of as much as $7.42 per
device  and a monthly  transportation  authority  device fee of $6.41 per device
also may apply  depending  upon the location of the  licensed  premises in Black
Hawk.

     Black Hawk also imposes taxes and fees on other  aspects of the  businesses
of retail gaming  licensees,  such as parking,  alcoholic  beverage licenses and
other municipal taxes and fees.  Significant  increases in these fees and taxes,
or the  imposition of new taxes and fees,  may occur.

     Violation  of  the  Colorado  Act  or the  Colorado  Regulations  generally
constitutes  a class  1  misdemeanor,  except  as may be  specifically  provided
otherwise  in the  Colorado  Act,  which may  subject  the  violator to fines or
incarceration  or both.  A licensee  who  violates  the Colorado Act or Colorado
Regulations  or Gambling  Payment  Intercept Act is subject to suspension of the
license  for a  period  of up to  six  months,  fines  or  both,  or to  license
revocation.

Requirements for Publicly Traded Corporations

     The Colorado Commission has enacted Rule 4.5, which imposes requirements on
publicly traded  corporations  holding gaming licenses in Colorado and on gaming
licenses owned directly or indirectly by a publicly traded corporation,  whether
through  a  subsidiary  or  intermediary  company.  The  term  "publicly  traded
corporation" includes corporations,  firms, limited liability companies, trusts,
partnerships  and  other  forms of  business  organizations.  Such  requirements
automatically  apply  to  any  ownership  interest  held  by a  publicly  traded
corporation,   holding  company  or  intermediary  company  thereof,  where  the
ownership  interest  directly or indirectly  is, or will be upon approval of the
Colorado  Commission,  5% or more of the entire  licensee.  In any event, if the
Colorado  Commission  determines  that  a  publicly  traded  corporation,  or  a
subsidiary,  intermediary  company or holding company, has the actual ability to
exercise  influence  over a licensee,  regardless of the percentage of ownership
possessed by said  entity,  the  Colorado  Commission  may require the entity to
comply with the disclosure regulations contained in Rule 4.5.

                                                20
<PAGE>

     Under Rule 4.5,  gaming  licensees,  affiliated  companies and  controlling
persons  commencing  a public  offering  of voting  securities  must  notify the
Colorado  Commission no later than ten business days after the initial filing of
a registration  statement with the SEC. Licensed,  publicly traded  corporations
are also required to send proxy statements to the Division of Gaming within five
days after their  distribution.  Licensees to whom Rule 4.5 applies must include
in their charter documents provisions that: restrict the rights of the licensees
to issue voting  interests or securities  except in accordance with the Colorado
Act and the Colorado Regulations; limit the rights of persons to transfer voting
interests or securities of licensees  except in accordance with the Colorado Act
and the Colorado  Regulations;  and provide that holders of voting  interests or
securities of licensees found unsuitable by the Colorado  Commission may, within
60 days of such finding of unsuitability, be required to sell their interests or
securities  back to the  issuer  at the  lesser  of the cash  equivalent  of the
holders'  investment  or the  market  price  as of the  date of the  finding  of
unsuitability.  Alternatively, the holders may, within 60 days after the finding
of  unsuitability,  transfer the voting  interests or  securities  to a suitable
person, as determined by the Colorado Commission.  Until the voting interests or
securities  are held by suitable  persons,  the issuer may not pay  dividends or
interest,  the  securities  may not be voted,  they may not be  included  in the
voting or securities of the issuer,  and the issuer may not pay any remuneration
in any form to the holders of the securities.

     Pursuant to Rule 4.5,  persons who  acquire  direct or indirect  beneficial
ownership  of  either  (1) 5% or more of any  class of  voting  securities  of a
publicly  traded  corporation  that is  required  to include in its  articles of
organization the Rule 4.5 charter provisions,  or (2) a 5% or greater beneficial
interest  in a gaming  licensee,  directly  or  indirectly  through any class of
voting  securities of any holding company or intermediary  company of a licensee
(collectively  such  persons  are  hereinafter  referred  to as the  "qualifying
persons"),   must  notify  the  Division  of  Gaming  within  10  days  of  such
acquisition, must submit all requested information, and are subject to a finding
of suitability as required by the Division of Gaming or the Colorado Commission.
Licensees  also must  notify any  qualifying  persons of these  requirements.  A
qualifying person other than an institutional investor whose interest equals 10%
or more must  apply to the  Colorado  Commission  for a finding  of  suitability
within 45 days after acquiring such  securities.  Licensees must also notify any
qualifying persons of these  requirements.  Whether or not notified,  qualifying
persons are responsible for complying with these requirements.

     A qualifying  person who is an  institutional  investor  under Rule 4.5 and
who,  individually  or  in  association  with  others,  acquires,   directly  or
indirectly,  the  beneficial  ownership  of 15% or more of any  class of  voting
securities  must apply to the Colorado  Commission  for a finding of suitability
within 45 days after acquiring such interests.

     The Colorado  Regulations  also provide for exemption from the requirements
for a finding of suitability  when the Colorado  Commission finds such action to
be consistent with the purposes of the Colorado Act.

     Pursuant to Rule 4.5, persons found  unsuitable by the Colorado  Commission
must be removed  from any  position  as an officer,  director,  or employee of a
licensee,  or from a holding or intermediary  company.  Such unsuitable  persons
also are prohibited  from any beneficial  ownership of the voting  securities of
any such entities.  Licensees, or affiliated entities of licensees,  are subject
to sanctions for paying  dividends or  distributions to persons found unsuitable
by the Colorado  Commission,  or for  recognizing  voting rights of, or paying a
salary or any remuneration  for services to,  unsuitable  persons.  Licensees or
their  affiliated  entities also may be sanctioned for failing to pursue efforts
to require  unsuitable  persons  to  relinquish  their  interest.  The  Colorado
Commission  may  determine  that  anyone  with a  material  relationship  to, or
material  involvement with, a licensee or an affiliated company must apply for a
finding of suitability or must apply for a key employee license.

Alcoholic Beverage Licenses

     The sale of  alcoholic  beverages  in gaming  establishments  is subject to
strict  licensing,  control  and  regulation  by state  and  local  authorities.
Alcoholic beverage licenses are revocable and  nontransferable.  State and local
licensing authorities have full power to limit,  condition,  suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal  offense  resulting in  incarceration,  fines, or
both.

                                                21

<PAGE>

     There are various  classes of retail liquor  licenses,  which may be issued
under the  Colorado  Liquor Code.  A gaming  licensee  may sell malt,  vinous or
spirituous liquors only by the individual drink for consumption on the premises.
Even though a retail gaming licensee may be issued one of the various classes of
retail liquor licenses,  such gaming licensee,  and persons affiliated with that
licensee,  are  subject to  restrictions  concerning  what other types of liquor
licenses  they may hold. An  application  for an alcoholic  beverage  license in
Colorado  requires notice,  posting and a public hearing before the local liquor
licensing  authority  (e.g.,  the City of Black  Hawk)  prior to approval of the
same. The Colorado Department of Revenue's Liquor Enforcement Division must also
approve the application.  Riviera Black Hawk's hotel and restaurant  license has
been approved by both the local  licensing  authority and the State  Division of
Liquor  Enforcement.  Such license must be, and has been, renewed annually since
its issuance.

Federal Registration

     Riviera  Operating  Corporation  is  required  to  annually  file  with the
Attorney   General  of  the  United  States  in   connection   with  the  sales,
distribution,  or operations of slot  machines.  All requisite  filings for 2007
have been made.

Item 1A.  Risk Factors

     An investment in our securities  involves a high degree of risk. We operate
in a highly  competitive,  dynamic and rapidly  changing  industry that involves
numerous  risks  and  uncertainties.   Moreover,  our  debt  instruments  impose
restrictions on us that are for the benefit of certain of our creditors, but not
necessarily  for our  stockholders  or us.  Anyone  who is making an  investment
decision  regarding our securities should carefully  consider the following risk
factors, as well as the other information contained or incorporated by reference
in this report.  The risks and  uncertainties  described below are those that we
currently  believe may materially  affect our company or your investment.  Other
risks and uncertainties that we do not presently consider to be material,  or of
which we are not presently aware,  may become  important  factors that adversely
affect our security  holders or us in the future.  If any of the risks discussed
below actually materialize,  then our business,  financial condition,  operating
results, cash flows and future prospects,  or your investment in our securities,
could be materially and adversely  affected,  resulting in a loss of all or part
of your investment.

     Risks Relating To Our Business And Our Capital Structure

         We Face Intense Competition In The Two Markets Where We Operate

     In Las Vegas,  intense  competition has resulted from,  among other things,
significant  increases in new hotel rooms,  casino sizes and  convention,  trade
show and meeting  facilities.  Our success depends on the success of Riviera Las
Vegas  and  its  ability  to  attract   visitors   and  to  continue   operating
successfully.  Riviera Las Vegas competes with high-end, middle market and other
casinos resort properties and hotels, including those located on or near the Las
Vegas Strip or in downtown Las Vegas, on the basis of overall atmosphere,  range
of amenities, level of service, price, location, entertainment offered, shopping
and restaurant facilities, theme and size. Currently, there are approximately 30
major gaming  properties  located on or near the Las Vegas Strip,  approximately
ten additional major gaming  properties in the downtown area and many additional
gaming properties located in other areas of Las Vegas.  Companies that have more
than one hotel/casino  facility operate many of these properties,  and many have
greater name  recognition  and financial and marketing  resources than we do and
market to the same target demographic groups as we do.  Furthermore,  additional
major hotel/casino  openings and significant  expansion of existing  properties,
containing a large number of hotel rooms and attractions,  are expected to occur
in Las Vegas in the coming years,  which will put even further pressure on us to
remain competitive.

     In Black Hawk/Central City, the primary  competitive  factors are location,
availability  and  convenience  of parking,  number of slot  machines and gaming
tables,  promotional  incentives,  hotel rooms,  types and pricing of non-gaming
amenities, name recognition and overall atmosphere. Our main competitors are the
larger gaming facilities, particularly those with considerable on-site or nearby
parking,  hotel,  rooms and established  reputations in the local market. Two of
the most successful  casinos in Colorado are located across the street from, and
are  considerably  larger than,  Riviera Black Hawk.  Three other casinos in our
market offer hotel accommodations as well as gaming facilities, and thereby have
some competitive  advantages over us. Also, a road which opened in November 2004
and which enables drivers to bypass Black Hawk on their way to Central City, has
led to significant  recent growth in the Central City gaming market and may give
our Central City competitors an advantage over us.

                                                        22
<PAGE>

     There  have also been  efforts in  Colorado  by Native  American  tribes to
acquire land to use for  construction of a casino that would operate without the
limitations  imposed  on the  Colorado  casino  industry,  and  efforts by other
parties  to amend  the  Colorado  Constitution  to permit  installation  of slot
machines at five racetracks. Thus far, the Native American casino initiatives in
Colorado have either been rejected or have failed to win support from government
authorities,  and in 2003 a race track/slot  machine  initiative was rejected by
Colorado  voters.  However,  we  understand  that  proponents  of video  lottery
terminals  and/or slot machines at racetrack are again seeking approval to put a
new initiative  before the Colorado  voters in 2008. If either of these types of
initiatives  were to be  pursued  further  in  Colorado  and gain the  necessary
approvals, then our Colorado operations could be adversely affected.

     In addition to the  competition  that we face from our  competitors  in Las
Vegas and Colorado, we face substantial  competition from other companies in the
gaming  industry  generally,  such  as  land-based  casinos,  dockside  casinos,
riverboat  casinos,  casinos  located on Native  American land in California and
elsewhere,  and other forms of legalized gambling. If other casinos operate more
successfully,  if other existing  gaming  properties  continue to be enhanced or
expanded,  or if additional  hotels and casinos are established in or around the
locations where we conduct business, we may lose market share.

     The  number  of  casinos  on Native  American  lands  has  increased  since
enactment of the Indian Gaming Regulatory Act of 1988. In 2000 California voters
approved an amendment to the California Constitution that allows Las Vegas-style
gaming on Native America lands in that state.  Additionally,  California  voters
just recently passed  Propositions 94, 95, 96 and 97 which allow two tribes near
San Diego to each increase their slot machine volume from 2,000 slot machines to
7,500 slot machines and two tribes near Palm Springs to each increase their slot
machine volume from 2,000 slot machines to 5,000 slot machines. While new gaming
jurisdictions  generally have not materially  impacted Las Vegas,  the continued
expansion of gaming in California  poses a more serious  threat to the continued
growth of Las Vegas.

     We also compete, to some extent, with other forms of gaming on both a local
and national level, including  state-sponsored  lotteries,  Internet gaming, on-
and off-track wagering and card parlors.

     In  particular,  the  legalization  of gaming or the expansion of legalized
gaming in or near any geographic area from which we attract or expect to attract
a significant number of our customers could have a significant adverse effect on
our business, financial condition, results of operations and future prospects.

     Increased  competition  may also  require  us to make  substantial  capital
expenditures  to  maintain  or  enhance  the  competitive  positions  of our two
properties.  Because we are highly  leveraged,  after we satisfy our obligations
under our outstanding  indebtedness  we might not have  sufficient  financing to
make  such  expenditures.  If we are  unable  to  make  such  expenditures,  our
competitive  position,  results  of  operations  and future  prospects  could be
materially and adversely affected.

Our Company Operates In Only Two Markets, Las Vegas And Black Hawk, Which
         Exposes Us To Greater Risks Than Gaming Companies
    With More Operating Properties Or A Presence In More Markets

     We do not have material  assets or operations  other than Riviera Las Vegas
and Riviera  Black Hawk.  Therefore,  we are entirely  dependent  upon these two
properties  for our cash  flow.  This  makes us more  sensitive  to  events  and
conditions affecting the markets in which we operate, including the following:

           o      local economic and competitive conditions,

           o      inaccessibility due to weather conditions, road construction
                  or closure of primary access routes;

           o      decline in air passenger traffic due to higher ticket costs or
                  fears concerning air travel;

           o      a decline in automobile traffic due to higher gasoline prices;

           o      changes in state and local laws and regulations, including
                  those affecting gaming;

                                                        23

<PAGE>

           o      an increase in the cost of electrical power for Riviera Las
                  Vegas as a result of, among other things,  power shortages
                  in California or other western states with which Nevada shares
                  a single regional power grid;

           o      a decline in the number of visitors to Las Vegas or the number
                  of Colorado residents who visit Black Hawk; and

           o      a potential increase in the gaming tax rate in any
                  jurisdiction in which we operate,  specifically in Nevada,
                  where various initiatives are being pursued to place a
                  referendum on the November, 2008, ballot to increase gaming
                  taxes.

  Our Significant Indebtedness Could Adversely Affect Our Financial Health And
         Prevent Us From Fulfilling Our Obligations
             Under Our Outstanding Indebtedness

     We  have  a  significant   amount  of  debt,  which  could  have  important
consequences to our stockholders and significant effects on our business and our
ability to satisfy our debt obligations. For example, it could:

           o      increase our vulnerability to adverse economic or industry
                  conditions or a downturn in our business;

           o      limit our ability to repay the new credit  facility  entered
                  into on June 8, 2007,  if we are  required to do so as a
                  result of a change in control of our company or regulatory
                  requirements;

           o      result in an event of default if we fail to comply  with the
                  restrictive  covenants  in our  Credit  Facility  or our
                  senior secured credit  facility,  which could result in all
                  of our indebtedness  becoming  immediately due and payable
                  and would permit certain lenders to foreclose on our assets
                  securing that indebtedness;

           o      limit our ability to fund or obtain additional  financing for
                  future working capital needs,  capital  expenditures and
                  other general financial requirements;

           o      require us to  dedicate a  substantial  portion of our cash
                  flow from  operations  to  payments  on our  indebtedness,
                  thereby reducing the availability of our cash flow to fund
                  working capital needs,  capital  expenditures,  development
                  projects, acquisitions and other general corporate purposes;

           o      limit our flexibility in planning for, or reacting to, changes
                  in our business and industry; and

            o     place us at a disadvantage compared to our competitors that
                  have less debt.

      We Are Dependent On Key Personnel Whom We Might Have Difficulty Replacing,
        Due To A  Shortage Of Management-Level Personnel In Our Industry And
        Market Perceptions About Our Prospects

     Our  ability  to  operate  successfully  is  dependent,  in part,  upon the
continued  services of certain of our  executive  personnel.  Our loss of any of
them or our  inability  to attract or retain key  employees  in the future could
have a  material  adverse  effect on us. We have an  employment  agreement  with
William L. Westerman,  our Chairman of the Board,  President and Chief Executive
Officer ("CEO") who has been with us or our predecessor  company since 1991. Mr.


                                                24
<PAGE>

Westerman is employed for calendar year periods which renew automatically unless
he provides 180 days written  notice or we provide 90 days written notice of our
respective  intention not to renew. Mr. Westerman's  contract is also subject to
earlier  termination upon the occurrence of certain events. We cannot assure you
that we would find a suitable replacement for Mr. Westerman if he retires or his
employment  terminates  for any other  reason.  There is a  shortage  of skilled
management-level employees in the gaming industry. This shortage,  combined with
our relatively limited financial and marketing  resources,  competitive position
and  market  perceptions  about  our  future  prospects,  together  with (a) the
termination  of our March 7, 2008  announcement,  that we had (i)  completed our
strategic  review  process  that we  commenced  in May  2007  when  we  retained
Jefferies & Company,  Inc. as our financial  advisor to assist us in exploring a
range of potential  strategic  and  financial  alternatives  in order to enhance
shareholder  value, and (ii) that we would continue to review all  opportunities
and consider all proposals  that we receive,  as well as other  possible ways in
which we can maximize shareholder value; would likely add to our difficulties in
finding suitable replacements if we lose the services of our executives or other
key personnel,  which in turn might make it more difficult for us to attract and
retain qualified personnel at that high level.

 Regulations Issued By Gaming Or Other Governmental Authorities Could Adversely
Affect Our Operations

     As owners and operators of gaming  facilities,  we are subject to extensive
governmental  regulation.  The  ownership,  management  and  operation of gaming
facilities are subject to extensive laws, regulations and ordinances,  which are
administered  by  various  federal,  state and  local  government  entities  and
agencies.  The gaming  authorities in the jurisdictions in which we operate have
broad  authority  and  discretion  to  require us and our  officers,  directors,
managers,  employees and certain  security  holders to obtain various  licenses,
registrations,  permits,  findings of suitability or other approvals. To enforce
applicable  gaming  regulations,  gaming  authorities  may,  among other things,
limit,  suspend or revoke the licenses of any gaming entity or  individual,  and
may levy fines against us or  individuals  or may cause us to forfeit our assets
for violations of gaming laws or regulations.  Any of these actions would have a
material adverse effect on us.

     Nevada and Colorado state and local  government  authorities  require us to
obtain gaming licenses and require our officers and key employees to demonstrate
suitability to be involved in gaming  operations.  Those  authorities may limit,
condition, suspend or revoke a license for any cause they deem reasonable. Also,
if we  violate  any  gaming  laws or  regulations,  those  authorities  may levy
substantial fines against us or the individuals involved in the violations.  The
occurrence  of any of these events could have a material  adverse  effect on our
business, financial condition, results of operations and future prospects.

     We can not assure you that any new  licenses,  registrations,  findings  of
suitability,  permits and approvals, including for any proposed expansion of our
properties  or our entry into new  markets,  will be given or that our  existing
ones will be renewed  when they  expire.  Any failure to renew or  maintain  our
licenses or receive new licenses when  necessary  would have a material  adverse
effect on us.

     We are subject to a variety of other laws, rules and regulations, including
those pertaining to zoning,  environmental matters,  construction,  land use and
the serving of alcoholic  beverages.  We also pay substantial  taxes and fees in
connection  with our  operations as a gaming  company,  which taxes and fees are
subject to increase or other change at any time. Any changes to these laws could
have a material adverse effect on our business,  financial condition, results of
operations and future prospects.

     Our compliance costs  associated with these laws,  regulations and licenses
are significant.  A change in the laws,  regulations and licenses  applicable to
our  business or a violation  of any of them could  require us to make  material
expenditures  or could  otherwise  materially  adversely  affect  our  business,
financial condition, results of operations and future prospects.

                                                25
<PAGE>

     In Black Hawk and in other  jurisdictions  from which we attract customers,
gaming is subject to local referendum.  If the results of a referendum held in a
jurisdiction  in which we operate were to restrict gaming in whole or in part or
if the  results of a  referendum  in a nearby  non-gaming  jurisdiction  were to
permit gaming, especially video lottery terminals or slot machines in racetracks
in and around the Denver area,  our results of  operations  could be  negatively
impacted.

         We Are Subject To Potential Exposure To Environmental Liabilities

     Generally,  we are subject to various federal, state and local governmental
laws and  regulations  relating to the use,  storage,  discharge,  emission  and
disposal  of  hazardous  materials.  Failure  to  comply  could  result  in  the
imposition of severe penalties or restrictions on our operations by governmental
agencies or courts.  We are not aware of any such  exposure  at our  properties.
Riviera  Black Hawk is located  within a  400-square  mile area that in 1983 was
designated as the Clear Creek Central/City  National  Priorities List Site Study
Area under the Comprehensive Environmental Response,  Compensation and Liability
Act of 1980,  as amended.  Although  Riviera Black Hawk is not within any of the
specific areas currently  identified for investigation or remediation under that
statute,  environmental  problems may  subsequently be discovered,  including in
connection  with  any  future   construction   on  our  property.   Furthermore,
governmental  authorities could broaden their  investigations and identify areas
of concern within the site, we could be identified as a "potentially responsible
party" and any related  liability could have a material adverse effect on us. We
do not have insurance to cover environmental liabilities, if we incur any.

  Energy Price Increases May Adversely Affect Our Costs Of Operations And Our
Revenues

     Our casino properties use significant  amounts of electricity,  natural gas
and  other  forms  of  energy.  Recent  substantial  increases  in the  cost  of
electricity in the United States have negatively  affected our operating results
and are likely to  continue to do so. The extent of the impact is subject to the
magnitude  and  duration of energy  price  increases,  but this impact  could be
material.  In  addition,  energy  price  increases  in cities that  constitute a
significant  source of customers for our properties could result in a decline in
disposable  income  of  potential  customers  and a  corresponding  decrease  in
visitation to our properties, which could negatively impact our revenues.

                                                26
<PAGE>


 Our Business, Financial Condition, Results Of Operations And Future Prospects
 Are Dependent On Many Factors That Are Beyond Our Control

   The economic health of our business is generally affected by a number of
factors that are beyond our control, including:

   o      decline in tourism and travel due to concerns about homeland security,
          terrorism or other destabilizing events;

   o      decline in the Las Vegas convention business;

   o      intense  competitive  conditions in the gaming  industry,  especially
          the possibility of the approval of video lottery terminals  and/or
          slot machines at racetracks in and around the Denver area,  including
          the effect of such  conditions on the pricing of our games and
          products;

   o      general economic  conditions,  specifically  current credit issues
          which have recently arisin, and economic conditions specific to our
          primary markets;

   o      changes in the regulatory regimes affecting  our business, including
          changes to  applicable  gaming,  employment, environmental or tax
          regulations;

   o      inaccessibility to our property due to construction on adjoining or
          nearby properties, streets or walkways;

   o      substantial increases in the cost of electricity, natural gas and
          other forms of energy;

   o      local conditions in key gaming markets, including seasonal and
          weather-related factors;

   o      increased transportation costs;

   o      levels of disposable income of casino customers;

   o      continued increases in health care costs;

   o      increases in gaming taxes or fees;

   o      the relative popularity of entertainment alternatives to casino
          gaming that compete for the leisure dollar;

   o      an outbreak or suspicion of an outbreak of an infectious communicable
          disease; and

   o      the smoking  ban in  Colorado  on our Riviera  Black Hawk  property
          which  became  effective  January 1, 2008 and the
          possible adoption of additional anti-smoking regulations.

     Any of these  factors  could  negatively  impact our property or the casino
industry  generally,  and as a result,  our  business,  financial  condition and
results of operations.

         We May Incur Losses That Are Not Adequately Covered By Insurance

     Insurance  may not be available in the future or adequate to cover all loss
or damage to which our  business  or our assets  might be  subjected.  Since the
terrorist attacks of September 11, 2001, insurance coverage for certain types of
damages or occurrences has diminished  substantially  and is no longer available
at reasonable commercial rates. The lack of adequate insurance for certain types
or levels of risk could  expose us to  significant  losses if a  catastrophe  or
lawsuit occurs for which we do not have insurance coverage.  Any losses we incur
that are not adequately  covered by insurance may decrease our future  operating
income, require us to pay the costs of replacing or repairing destroyed property
and reduce the funds available for payment of our debt obligations.


                                                27
<PAGE>

  We Are Subject To Litigation, Which, If Adversely Determined, Could Cause Us
To Incur Substantial Losses

     From time to time during the normal course of operating  our  business,  we
are subject to various  litigation claims and other legal disputes.  Some of the
litigation  claims  may not be  covered  under  our  insurance  policies  or our
insurance carriers may seek to deny coverage.  As a result, we might be required
to incur significant legal fees, which may have a material adverse effect on us.
In addition,  because we cannot  predict the outcome of any legal action,  it is
possible that as a result of litigation, we will be subject to adverse judgments
or settlements that could significantly reduce our earnings or result in losses.

         Homeland Security, Terrorism And War Concerns, As Well As Other Factors
          Affecting Discretionary Consumer Spending, May Harm
           Our Operating Results

     The strength and  profitability  of our business  depend on consumer demand
for hotel/casino resorts, gaming in general and the types of amenities we offer.
A general downturn in economic conditions and changes in consumer preferences or
discretionary  consumer spending could harm our business.  The terrorist attacks
of September 11, 2001,  ongoing war activities and concerns about  terrorism and
homeland security have had a negative impact on travel and leisure expenditures,
including lodging, gaming (in some jurisdictions) and tourism. We cannot predict
the  extent to which  those  events  may  continue  to affect  us,  directly  or
indirectly,  in the future. An extended period of reduced discretionary spending
or disruptions or declines in travel could significantly harm our operations.

     In addition to concerns about war, homeland  security and terrorism,  other
factors affecting discretionary consumer spending, including general or regional
economic conditions, disposable consumer income, fears of recession and consumer
confidence in the economy, may negatively impact our business.  Negative changes
in factors affecting discretionary spending could reduce customer demand for the
products and services we offer,  thus imposing  practical  limits on our pricing
and harming our operations.

Risks Relating To Our Common Stock

         Our Stock Price Has Been Volatile, Which Could Result In Substantial
Losses For Our Shareholders.

     Our common stock is traded on the American  Stock  Exchange  ("AMEX").  Our
stock's  average daily trading  volume for the 52-week period ended February 22,
2008 was 59,633 shares.  The daily closing sale prices of our stock, as reported
by AMEX, have ranged from $16.76 to $39.12 for the 52-week period ended February
22, 2008.  The volatility of the trading price of our stock could be due to many
factors including, but not limited to:

            .    the relatively low trading volume for our stock;

            .    the effect of our  announcement  that we had terminated our
                 strategic  process to explore  alternatives for maximizing
                 shareholder value and the effect that fluctuations in our stock
                 price will have on other parties'  willingness to make
                 a proposal to acquire us;

            .    requirement in our Articles of  Incorporation of an affirmative
                 vote of 60% of all of our shares entitled to vote in order for
                 a merger proposal succeed;

            .    ownership of 19.5% of our  outstanding  shares by a group which
                 previously  attempted to acquire us, coupled with our 60%
                 affirmative vote requirement to effectuate a successful merger,
                 may inhibit other parties from engaging in merger
                 negotiations with us;

            .    fluctuations in Las Vegas real estate values, particularly as
                 they affect property on the Las Vegas Strip;

                                                        28
<PAGE>

            .    the current credit market;

            .    quarterly fluctuations in our financial results;

            .    changes in analysts' estimates of our financial performance or
                 future prospects;

            .    announcements of new services or programs;

            .    additions or departures of key personnel;

            .    general conditions in our industry and in the financial
                 markets; and

            .    a variety of other risk factors including the ones described
                 elsewhere in this report.

         The Volatility Of The Las Vegas Real Estate Market Might Result In A
Substantial Decline In Our Stock Price

     Over the past three years,  the market  value of real estate  located on or
near the Las Vegas Strip has  increased  substantially.  Over that same  period,
there has been a substantial increase in the trading price of our stock. Our Las
Vegas  property,  which is located  near the northern end of the Las Vegas Strip
and consists of  approximately  26 acres,  is valued on our balance sheet at its
1993 historical  cost of $21 million.  We believe that the increase in the value
of real  estate on the Las  Vegas  Strip  has been a  significant  factor in the
increase in our stock price over the past three years. Likewise, we believe that
any future  downward trend in those real estate values could cause a significant
drop in the price of our stock.

         There Are Limitations On Changes In Control Of Our Company That Could
Reduce Your Ability To Sell Our Shares In Excess Of Current Market Prices

     Our  current  debt which  consists of a seven year $225  million  term loan
which  matures on June 8, 2014 (the "Term  Loan")  and a $20  million  five year
revolving  credit facility (the "Revolving  Credit  Facility"  together with the
"Term  Loan" the,  "New  Credit  Facility")  restricts  the ability of anyone to
effect a change in control of our company. If anyone acquires 35% or more of our
outstanding  stock, or if other events occur that constitute a change in control
according to our New Credit Facility,  then we would have to make a prompt offer
to repay the New Credit Facility. It is unlikely that we would have the funds to
repay the New Credit  Facility within the required time frame unless we obtained
the necessary funding as part of the change in control  transaction,  which adds
significantly to the funding that a buyer would need to acquire our company. Our
New Credit  Facility also would require us to obtain the consent of holders of a
majority of the outstanding principal amount of the New Credit Facility in order
for us to be a party to a  merger  or to sell  all or  substantially  all of our
assets unless, after giving effect to the transaction, we meet certain net worth
or financial ratio tests, which might be difficult or impossible for us to meet.

     We entered into a swap agreement "Swap Agreement",  in conjunction with our
New Credit Facility, which could require a substantial payment if the New Credit
Facility were to be refinanced  and interest  rates were below the interest rate
in effect at the time we entered into the Swap Agreement.

     Besides  our New  Credit  Facility  and Swap  Agreement,  our  articles  of
incorporation and bylaws contain  provisions that could reduce the likelihood of
a change in  control or  acquisition  of our  company.  These  could  limit your
ability to sell your  shares at a premium or  otherwise  affect the price of our
common stock. These provisions:

            .   limit the voting power of persons who acquire more than 10% of
                our outstanding stock without our prior approval.

            .   permit us to issue up to 60 million shares of common stock;

            .   permit  us to  increase  the  size of our  board  of  directors
                and fill the  resulting  vacancies  without  a vote by
                shareholders; and

                                                29
<PAGE>

            .   limit the persons who may call special meetings of shareholders.

     In addition,  Nevada law contains provisions governing the acquisition of a
substantial   or   controlling   interest   in  certain   publicly-held   Nevada
corporations,  including  our  company.  Those laws provide  generally  that any
person who acquires more than a specified  percentage of our  outstanding  stock
must obtain certain  approvals  from us before the  acquisition or they might be
denied voting rights or the ability to engage in various  transactions  with us,
unless  our  disinterested  stockholders  vote  to  restore  those  rights.  The
ownership  percentage  that  triggers  some of these  restrictions  is 10%,  and
further  restrictions  can be triggered at the 20%,  33-1/3% or 50.1%  ownership
level.

     Also, a person that seeks to acquire  control  must  satisfy the  licensing
requirements  of  the  Nevada  and  Colorado  gaming  authorities.   The  gaming
authorities may also require controlling stockholders,  officers,  directors and
other  persons  having a  material  relationship  or  involvement  with a person
proposing  to acquire  control to be  investigated  and  licensed as part of the
approval process relating to the transaction.

     Nevada law also provides that we may resist a change or potential change in
control if our board of directors  determines that the change is not in the best
interest of our company.

         We Have Never Paid Dividends, Do Not Intend To Pay Dividends In The
Foreseeable Future And Cannot Pay Dividends To Any Unsuitable Person

     We have never paid  dividends  on our stock,  nor do we  anticipate  paying
dividends  in the  foreseeable  future.  We intend  to  retain  our cash flow or
earnings,  if any, to use in our growth and  ongoing  operations.  Also,  due to
gaming law considerations, our articles of incorporation prohibit the payment of
dividends to anyone who is deemed an  "unsuitable  person" or is an affiliate of
an "unsuitable person."


         Certain Owners Of Our Stock May Have To File An Application With, And
         Be Investigated By, The Nevada And/Or Colorado Gaming Authorities.  If
         That Owner Is Deemed "Unsuitable," It Could Result In That Shareholder
         Loosing Most Of The Attributes Of Being A Stockholder As Well As
         Detrimental Effects On US.

     Any person who acquires beneficial ownership of more than 10% of our voting
securities  must apply to the  Nevada  Commission  for a finding of  suitability
within 30 days after the  Chairman of the Nevada  Board  mails a written  notice
requiring such application.  Under certain  circumstances,  if an "institutional
investor"  (as  defined  in  Nevada  gaming  regulations)   acquires  beneficial
ownership  of more than 10% but not more than 15% of our voting  securities  and
holds the securities only for investment purposes,  it may apply for a waiver of
such finding of suitability  requirement.  In addition,  any beneficial owner of
our  voting  securities,  regardless  of the  number  of  shares  owned,  may be
required, at the discretion of the Nevada Commission,  to apply for a finding of
suitability.  A finding of  suitability  is  comparable  to  licensing,  and the
applicant  must pay all costs of  investigation  incurred  by the Nevada  gaming
authorities in conducting the investigation.

     Any such person who fails to apply for a finding of  suitability  within 30
days after being  ordered to do so by the Nevada  Commission  may be found to be
unsuitable. Any person who is found by the Nevada Commission to be unsuitable to
be a beneficial  owner of our voting  securities but continues  such  beneficial
ownership  beyond the period of time prescribed by the Nevada  Commission may be
guilty of a criminal  offense.  We will be subject  to  disciplinary  action if,
after we receive notice that a person is unsuitable to be a beneficial  owner of
our voting securities or to have any other relationship with us, we:

    .    pay that person any dividend or interest on our voting securities;

    .    allow that person to exercise,  directly or indirectly,  any voting
         right conferred  through our voting securities held by that person;

    .    pay that person any remuneration in any form for services rendered or
         otherwise; or

                                                30

<PAGE>

    .    fail to pursue all lawful  efforts to require that person to relinquish
         our voting  securities for cash at fair market value.

     Colorado requires that persons owning,  directly or indirectly,  5% or more
of our stock be certified as suitable for licensure.  Persons found  unsuitable
by the Colorado  Commission may be required  immediately to terminate any direct
or  indirect  beneficial  interest  in our  voting  securities.  A  finding  of
unsuitability  with  respect to any  beneficial  owner also may  jeopardize  our
license.  The  annual  renewal  of our  license  may be  conditioned  upon  the
termination  of any beneficial  interest in our voting  securities by unsuitable
persons.

         We May Redeem Shares Due To Gaming Law Considerations, Either As
Required By Gaming Authorities Or In Our Discretion

     Our articles of incorporation provide that if a gaming authority determines
that any stockholder or its affiliates are unsuitable, or if deemed necessary or
advisable by us for gaming law considerations, we may redeem shares of our stock
that  the  stockholder  or the  stockholder's  affiliates  own or  control.  The
redemption  price will be the amount required by the gaming authority or, if the
gaming  authority does not determine the price,  the price deemed  reasonable by
us. If we  determine  the  redemption  price,  that  price will be capped at the
market price of the shares on the date we give the redemption notice. We may pay
the  redemption  price in cash, by promissory  note, or both, as required by the
applicable gaming authority and, if not so required, as we elect.

         We Do Not Meet AMEX's Earnings Or Net Worth Listing Standards

     Our  common  stock is  listed  on AMEX  under  the  symbol  RIV.  We do not
currently  meet the  earnings  or net  worth  standards  of AMEX.  We have  been
informed,  however,  that  according  to AMEX  policy,  AMEX  will not  normally
consider  suspending  dealings in or delisting the securities of a company which
is below the earnings and net worth  standards if the total market value of that
company's  publicly held shares is at least $15 million.  Based on the number of
our  publicly  held  shares as of  February  21,  2008,  our shares  must have a
per-share  market  value of at least  $1.50  in order to meet  that $15  million
level.  However, we cannot be sure that AMEX will continue to follow that policy
or that the price of our shares will continue to enable us to stay at that level
in the future.  If our shares were delisted  from AMEX,  the  marketability  and
liquidity of our stock could be significantly reduced.

Item 2.    Properties

           Riviera Las Vegas

     Riviera  Las Vegas is  located  on the Las Vegas  Strip,  at 2901 Las Vegas
Boulevard  South,  Las Vegas,  Nevada and occupies  approximately  26 acres. The
buildings  comprise  approximately  1.8 million square feet,  including  100,000
square  feet of casino  space,  a 160,000  square-foot  convention,  meeting and
banquet  facility,  2,075  hotel  rooms  (including  177 luxury  suites) in five
towers, three restaurants,  a buffet, four showrooms, a lounge and approximately
2,300 parking spaces.  In addition,  executive and other offices for Riviera Las
Vegas are located on the property.

     There are  approximately  35 food and  retail  concessions  operated  under
individual leases with third parties.  The leases are for periods from one month
to, including option periods, up to twenty years.

           Riviera Black Hawk

     Riviera  Black Hawk is  located  on 1.63 acres of land at 400 Main  Street,
Black Hawk, Colorado.  The buildings include  approximately  325,000 square feet
and  comprise   32,000  square  feet  of  gaming  space,   parking   spaces  for
approximately 520 vehicles  (substantially all of which are covered), a 252-seat
buffet,  one bar, a banquet room with seating for  approximately  300 people and
three outdoor patio areas where patrons can smoke.

     The Riviera Las Vegas and Riviera Black Hawk  properties  are encumbered by
deeds of trust securing our $225 million Term Loan, which mature in June 2014.


Item 3.    Legal Proceedings

     We are party to routine  lawsuits,  either as  plaintiff  or as  defendant,
arising from the normal  operations of a hotel or casino. We do not believe that
the outcome of such litigation,  in the aggregate,  will have a material adverse
effect on our financial position or results of our operations.

                                                32
<PAGE>

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

           Not applicable.

           PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters
             and Issuer Purchases of Equity Securities

     (a) Our common stock is traded on AMEX.  As of February  29,  2008,  we had
approximately 165 shareholders of record and individual participants in security
position  listings.  There are a  significantly  greater number of  shareholders
whose shares are held in street name.  Based on  information  we collected as of
February 29, 2008, we estimate that we have at least 1,400 beneficial holders in
total.

     We have never paid  dividends  on our common stock and do not expect to pay
dividends  (cash or otherwise) on our common stock for the  foreseeable  future.
Our ability to pay  dividends is primarily  dependent  upon receipt of dividends
and distributions from our subsidiaries, which include the operations of Riviera
Las Vegas and Riviera Black Hawk.

     We do not  currently  meet the earnings or net worth  listing  standards of
AMEX. We have been informed,  however,  that according to AMEX policy, AMEX will
not normally  consider  suspending  dealings in or delisting the securities of a
company that does not meet the earnings or net worth  standards if the company's
publicly  held shares have a market value of at least $15 million.  However,  we
cannot give any assurance  that AMEX will continue to follow that policy or that
our share price will  continue to enable us to stay at that level in the future.
Based on the number of our publicly  held shares as of February  23,  2008,  our
share  price  would  have to be at least  $1.50 in order for us to reach the $15
million  level.  If our shares were delisted from AMEX,  the  marketability  and
liquidity of our common stock could be significantly reduced.

     The table  below sets forth the high and low sale prices by quarter for the
years ended December 31, 2007 and 2006, based on AMEX reported prices by certain
brokers who have had transactions in our common stock during the year:
<TABLE>
<CAPTION>

                    First            Second            Third           Fourth
                   Quarter          Quarter           Quarter         Quarter
2007
<S>                 <C>              <C>              <C>              <C>
HIGH                $28.29           $39.12           $36.66           $32.03
LOW                 18.99            27.05             22.15           26.66

2006
HIGH                $16.85           $25.11           $22.52          $ 24.16
LOW                 13.95            17.11             19.25           19.23
</TABLE>


                                                32
<PAGE>
<TABLE>
<CAPTION>

Equity Compensation Plan Information (as of December 31, 2007)


                                    A                            B                             C
Plan category           Number of securities to     Weighted-average exercise    Number of securities
                        be issued upon exercise     price of outstanding         remaining available for
                        of outstanding options,     options, warrants and        future issuance under equity
                        warrants and rights         rights                       compensation plans (excluding
                                                                                 securities reflected in
                                                                                 column A)

Equity
<S>                              <C>                           <C>                    <C>
compensation plans               276,000                       $3.93                  1,102,000
approved by security
holders

Equity compensation
plans not approved               112,500                        N/A                   167,472(1)
by security holders(2)

Total                            388,500                       $3.93                  1,269,472
</TABLE>


     (1) Of the  167,472  shares  referenced  in  column C of the  above  table,
121,452  are from  our  Restricted  Stock  Plan and  46,020  are from our  Stock
Compensation Plan for Directors Serving on the Compensation Committee, which are
described in Note 14 of our consolidated  financial  statements included in this
report. We have a Stock Compensation Plan, under which directors who are members
of the  Compensation  Committee  have the right to receive  all or part of their
annual fees in the form of Common  Stock having a fair market value equal to the
amount of their  fees.  Of the 50,000  shares that are  allocated  to this plan,
46,020 remain available for issuance.

     (2) Restricted Stock for employees issued in 2005 which was not approved by
security holders.

                                                        33
<PAGE>
              Comparison of Five-Year Cumulative Total Returns
                         Performance Graph for
                      Riviera Holdings Corporation

             Produced on 02/13/08 including data to 12/31/2007

         The following graph compares the annual change in the cumulative  total
return,  assuming reinvestment of dividends,  on the Company's Common Stock with
the annual  change in the  cumulative  total returns of the NASDAQ Broad Market,
the  American  Stock  Exchange  Index  (the  "AMEX  Index"),  the New York Stock
Exchange (the "NYSE") and the NASDAQ  Amusement and  Recreation  Services  Index
(the "NASDAQ 79xx"),  which the Company considers to be its peer industry group.
The graph  assumes an  investment  of $100 on December 31, 2002,  in each of the
Common  Stock,  the  stocks  comprising  the  NASDAQ  Broad  Market,  the stocks
comprising the AMEX Index and the stocks comprising the NASDAQ 79xx.


The graph is a Comparison of Cumulative Total Return Among the Company, NYSE/
AMEX/Nasdaq Stock Market (US Companies) and Nasdaq stocks (SIC 7900 - 7999 US
Companies amusement and recreation services) (1).
<TABLE>
<CAPTION>

                     Riviera           NYSE/AMEX/Nasdaq            Nasdaq
                                        U.S. Companies            (SIC 79xx)
                                                          US Amusement Companies

<S> <C>               <C>                  <C>                      <C>
 12/31/02             100.0                100.0                    100.0
 12/31/03             125.2                131.8                    141.0
 12/31/04             960.6                148.0                    178.1
 12/31/05            1138.2                157.1                    170.3
 12/31/06            1677.8                182.2                    229.3
 12/31/07            2138.9                191.7                    222.4
</TABLE>

(1) Comprised of companies whose stock is traded on the Nasdaq National Market
    and whose standard industrial classification is within 7900-7999.  The
    company does not necessarily believe that this is an indication of the value
    of the Company's stock.

(b) Not Applicable

(c) Not Applicable

                                                        34

<PAGE>

Item 6.    Selected Financial Data

           The  following  table sets forth a summary of selected  financial
data for the Company for the years ended  December 31 (in thousands, except Net
Loss Per Diluted Common Share, and adjusted for three-for-one stock split in
2005):
<TABLE>
<CAPTION>

---------------------- ---------- ----------- ------------ ----------- ----------
                        2007       2006          2005       2004       2003
---------------------- ---------- ----------- ------------ ----------- ----------
<S>                     <C>         <C>          <C>         <C>        <C>
Net Revenue             $205,495    $200,994     $202,227    $201,350   $190,159
Net Loss               ($18,258)      ($335)     ($3,999)    ($2,086)  ($14,453)
Net Loss Per Diluted
   Common Share          ($1.48)     ($0.03)      ($0.34)     ($0.20)    ($1.39)
Total Assets            $218,462    $213,682     $211,769    $217,536   $221,538
Total Debt              $225,514    $215,004     $215,431    $216,467   $219,625
---------------------- ---------- ----------- ------------ ----------- ----------
</TABLE>

     The net loss for 2007 was  mainly  impacted  by  financing  costs  totaling
approximately  $26.1 million or $2.12 per share,  including the loss on the swap
fair value of $13.3 million and the loss on retirement of debt of $12.8 million.
We have entered into an interest rate swap  agreement that  substantially  fixes
the interest  rate we pay on $225 million of our Term Loan.  We did not meet the
requirements  for hedge  accounting, and as such we record the change fair value
of the interest rate swap on our balance sheet. This provides the Company with a
stable fixed interest rate of  approximately 7.5% for its current debt. However,
the loss on the change in fair value of the interest rate swap is a non-cash
charge, which reflects the amount of money the Company would have had to pay at
December 31, 2007,  if the Company was to settle the swap  agreements at that
time.  The continued changes in fair value of this derivative will be recorded
over the life of our term loan and depending on interest rates will result in
significant swings in either non-cash income or non-cash losses for the Company
in any given quarter.

     The net loss for 2007 was also  impacted  by costs  totaling  approximately
$2.1 million or $0.17 per share, including mergers, acquisitions and development
costs of $600,000,  Sarbanes-Oxley related expenses of $540,000 and equity based
compensation  expense of $1.0  million.  The net loss for 2006 was  impacted  by
costs totaling approximately $3.0 million or $0.25 per share, including mergers,
acquisitions  and  development  costs of $1.3  million,  Sarbanes-Oxley  related
expenses of $820,000 and equity based compensation expense of $813,000.  The net
loss for 2005 was impacted by costs totaling approximately $3.6 million or $0.30
per share,  including  Sarbanes-Oxley  Act  related  expenses  of $1.2  million,
equity-based   compensation   expense  of  $1.6  million  and  asset  impairment
write-down of $777,000.

 Item 7.   Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overall Outlook and Recent Developments

     We own and  operate  Riviera Las Vegas on the Las Vegas Strip in Las Vegas,
Nevada, and Riviera Black Hawk in Black Hawk, Colorado.

     Our  capital  expenditures  for Riviera Las Vegas are geared to upgrade the
hotel rooms, gaming product and amenities in sufficient condition to compete for
customers in the convention market and casino market. In November 2007, we began
a process of  upgrading  our rooms in Las Vegas by  featuring  new Euro beds and
flat screen TV's.  Room rates and slot revenues are the primary  factors driving
our operating margins. We use technology to maintain labor costs at a reasonable
level, including kiosks for hotel check-in, slot ticket redemption and slot club
redemptions.  In Black  Hawk,  the $5 maximum  bet  restricts  table  games to a
minimum and the area is basically a "locals" slot customer  market.  Our capital
expenditures  in Black Hawk are geared to maintain a  competitive  casino  floor
compared to the market and to provide upgraded Food & Beverage amenities.

                                                35
<PAGE>

     Our marketing  focus in Las Vegas is on using direct  marketing  efforts to
customers  in our  database  and  providing  complimentary  rooms to our  casino
customers  based on the level of their play,  while reducing the number of rooms
available for our Tour and Travel customers. We also seek to maximize the number
of  people  who  patronize  Las  Vegas  but who are not  guests  in our hotel by
capitalizing on our prime Las Vegas Strip location,  convention center proximity
and several popular entertainment  productions.  We are well situated on the Las
Vegas Strip near  Circus  Circus,  Las Vegas  Hilton,  the Las Vegas  Convention
Center,  Wynn Las Vegas,  the planned  estimated $5.0 billion Echelon project on
the site of the former  Stardust and the  estimated  $2.9 billion  Fontainebleau
project  just to our  north,  as well as  numerous  non-gaming  condominium  and
time-share  projects  which are  either  planned  or under  construction  within
walking  distance of our casino.  However,  the recent closures of the Stardust,
Frontier and Westward Ho as well as  construction  in our  immediate  area,  has
caused a significant  reduction in walk-in traffic and may continue to do so for
the foreseeable future.

     Our marketing focus in Black Hawk is on using direct  marketing  efforts to
customers in our database and providing  exciting  events and  give-aways to our
loyalty program members.

     We completed our formal strategic review process, which we commenced in May
2007 when we retained  Jefferies & Company,  Inc. as financial advisor to assist
us in exploring a range of potential  strategic  and financial  alternatives  in
order to enhance shareholder value. In the course of this process, our financial
advisor  thoroughly  explored  a sale of the  entire  Company,  contacting  over
thirty-five  potential  bidders over several  months,  including Riv Acquisition
Holdings and its affiliates.

     In deciding to terminate the strategic  alternative  process,  we took into
account the uncertainty  that would be faced by an potential buyer in attempting
to complete a potential  transaction,  the  deterioration in the credit markets,
the  potential  costs of  terminating  the Company's  swap  agreement due to the
unpredictable  drop in interest  rates,  the ability to obtain  shareholder  and
regulatory approval of a transaction,  the possibility of increased  competition
from slot  machines  at  Colorado  racetracks  and the  impact of weak  economic
conditions on the Company's business. While the strategic review process did not
result in entering into a transaction  to sell the entire Company at the present
time, we have and we will continue to review all  opportunities and consider all
proposals that it receives,  as well as other possible ways in which the Company
can maximize shareholder value.

     We continue to have  discussions  with the Riv  Acquisition  Holdings group
regarding  a possible  sale of the  Company,  although no  agreements  have been
entered into related to such a transaction,  nor can any assurance be given that
an agreement will be ultimately  entered into, or if entered into, on what terms
or price.

  Results of Operations

2007 Compared to 2006

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
operating  data for  Riviera  Las Vegas and Riviera  Black  Hawk.  Net  revenues
displayed  in this table and  discussed  in this section are net of cash rebates
and promotional allowances. EBITDA from properties is presented on the following
schedule:
<TABLE>
<CAPTION>

(Dollars in thousands)                           2007      2006  Incr/(Dec) Incr %

Net Revenues:
<S>                                          <C>         <C>       <C>        <C>
   Riviera Las Vegas                         $151,505    $149,202  $2,303     1.5%
   Riviera Black Hawk                          53,990      51,742   2,248     4.3%
                                              -------    --------  ------
      Total Net Revenues                     $205,495    $200,944  $4,551     2.3%
                                              =======    ========   =====
Property EBITDA
   Riviera Las Vegas                          $30,166     $28,075   $2,091     7.4%
   Riviera Black Hawk                          19,133      16,825    2,308    13.7%
                                              -------     -------   ------
   Property EBITDA                            $49,299     $44,900   $4,399     9.8%
                                              -------     -------   ------

                                                        36

<PAGE>

Other costs and expenses:
     Corporate expenses
              Share-based compensation            966         813      153    18.8%
              Other corporate expense           4,745       4,644      101     2.2%

     Depreciation and amortization             13,116      12,691      425     3.3%
     Mergers, acquisitions and development
         costs, net                               611       1,318     (707)   -53.6%
     Asset Impairments                             72          18       54    300.0%
     Loss on retirement of bonds               12,878           -   12,878     NM
     Decrease in value of derivative
          instruments                          13,272           -   13,272     NM
     Interest expense, net                     21,897      25,751   (3,854)   -15.0%
                                               ------      ------    ------
                                               67,557      45,235   22,322     49.3%
                                               ------      ------   -------
          Net loss                           $(18,258)      $(335) $(17,923)  -50.5%
                                              =======      ======   =======
 Property EBITDA Margins (1)
    Riviera Las Vegas                          19.9%        18.8%     1.1%
    Riviera Black Hawk                         35.4%        32.5%     2.9%

</TABLE>

     (1) Property  EBITDA consists of earnings  before  interest,  income taxes,
depreciation  and  amortization.  EBITDA is presented  solely as a  supplemental
disclosure  because we believe  that it is a widely  used  measure of  operating
performance in the gaming industry and a principal basis for valuation of gaming
companies by certain  investors.  We use  property-level  EBITDA  (EBITDA before
corporate  expenses)  as the primary  measure of  operating  performance  of our
properties,  including the evaluation of operating personnel.  EBITDA should not
be construed as an alternative to operating income, as an indicator of operating
performance,  as an  alternative to cash flow from  operating  activities,  as a
measure of  liquidity,  or as any other measure  determined  in accordance  with
accounting  principles  generally  accepted in the United States of America.  We
have significant uses of cash flows,  including capital  expenditures,  interest
payments and debt principal  repayments that are not reflected in EBITDA.  Also,
other gaming companies that report EBITDA  information may calculate EBITDA in a
different manner than we do. (See footnote 18 for reconciliation to net income).

Riviera Las Vegas

Revenues

     Net revenues for Riviera Las Vegas increased by approximately $2.3 million,
or 1.5%,  from $149.2 million in 2006 to $151.5 million in 2007 primarily due to
increased room revenue of $3.2 million and casino revenue of $475,000  offset by
decreased  entertainment  revenue of $1.0 million.  Room revenues increased $3.2
million, as the average room rate increased $4.40 or 5.6% from $78.47 in 2006 to
$82.87 in 2007 and hotel  occupancy  increased  slightly  from  92.2% in 2006 to
92.9% in 2007.  Revenue per available room (Rev Par) increased $4.68 from $72.37
to $77.05 or 6.5%.  Casino  revenue  increased as a result of an increase in our
table game drop of $3 million and higher poker revenues.

Property EBITDA

     Property  EBITDA in Las Vegas  increased  $2.1  million  or 7.4% from $28.1
million  in 2006 to $30.2  million  in 2007 due to  increased  hotel and  gaming
revenues as described above and effects of decreased  casino  marketing costs of
$272,000 in our gaming departments.

Riviera Black Hawk

Revenues

     Net revenues for Riviera Black Hawk,  which are primarily  gaming revenues,
increased  $2.2 million,  or 4.3% from $51.7 million in 2006 to $54.0 million in
2007.  The increase is primarily due to an increase in slot revenues as a result
of the  increase  in hold  percentage.  The  increase  is a result of the entire
market's  increase in hold  percentage  primarily  from the  popularity of lower
denomination slot machines in the market place, which were installed  throughout
2006.

                                                        37
<PAGE>

Property EBITDA

     Property  EBITDA at Riviera Black Hawk increased $2.3 million or 13.7% from
$16.8 million in 2006 to $19.1 million in 2007 due to increased slot revenues as
described above and holding costs constant for the year.

Consolidated Operations

     Net loss increased $18.0 million in 2007 from a loss of $335,000 in 2006 to
a net loss of $18.3  million in 2007 due to an increase  in other  expenses as a
result of a loss on  retirement of debt of $12.9 million and a loss on swap fair
value of $13.3 million (as discussed in item 6) offset by an increase in
operating income and a reduction in cash  interest  expense of $4.2 million as
a result of our debt refinancing in 2007.

Results of Operations

2006 Compared to 2005

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
operating  data for  Riviera  Las Vegas and Riviera  Black  Hawk.  Net  revenues
displayed  in this table and  discussed  in this section are net of cash rebates
and promotional allowances. EBITDA from properties is presented on the following
schedule:
<TABLE>
<CAPTION>

(Dollars in thousands)                       2006           2005   Incr/(Dec)     Incr %
Net Revenues:
<S>                                      <C>            <C>        <C>             <C>
   Riviera Las Vegas                     $149,202       $150.688   $(1,486)       -1.0%
   Riviera Black Hawk                      51,742         51,539       203         0.4%
                                         --------       --------    -------
      Total Net Revenues                 $200,944       $202,227   $(1,283)       -0.6%
                                          =======       ========    ========
Property EBITDA
   Riviera Las Vegas                      $28,075        $26,789    $1,286         4.8%
   Riviera Black Hawk                      16,825         17,282      (457)       -2.6%
   Property EBITDA                        $44,900        $44,071    $  829         1.9%

Other costs and expenses:
     Corporate expenses
              Share-based compensation       813           1,627      (814)     -50.0%
              Other corporate expense      4,644           5,278      (634)     -12.0%
     Depreciation and amortization        12,691         14,065     (1,374)      -9.8%
     Mergers, acquisitions and
          development costs, net           1,318            (65)     1,253
     Asset Impairments                        18            777       (759)
     Interest expense, net                25,751         26,388       (637)     -2.4%
                                          -------        ------      -----
                                          45,235         48,070     (2,835)     -5.9%
                                          -------       -------      -----
          Net loss                       $ (335)       $(3,999)    $ 3,664       91.6%
                                        ========       ========     ======
 Property EBITDA Margins (1)
    Riviera Las Vegas                    18.8%             17.8%      1.0%
    Riviera Black Hawk                   32.5%             33.5%     -1.0%

</TABLE>

 (1) Property EBITDA margins represent property EBITDA as a percentage of net
revenues by property.

                                        38
<PAGE>

Riviera Las Vegas

Revenues

     Net revenues for Riviera Las Vegas decreased by approximately $1.5 million,
or 1.0%,  from $150.7 million in 2005 to $149.2 million in 2006 primarily due to
decreased  entertainment and other revenue.  Poker was reestablished in 2005 and
continued  to  show  growth  in  2006.   Entertainment   revenues  decreased  by
approximately  $3.7 million,  or 21.2%,  from $17.4 million during 2005 to $13.7
million  during 2006 due to the closure of our Splash show in the main  showroom
in September 2006 and reduced  covers in our other shows.  We are in negotiation
for a  replacement  show and the showroom  should  reopen  sometime in mid 2007.
Other revenues decreased $1.8 million as a result of the outsourcing of our gift
shops to ABC Stores in February 2006. Slot revenues  increased $2.4 million from
$45.0 million in 2005 to $47.4  million in 2006 as a result of increased  volume
and the increase in hold percentage.  Poker revenues  increased from $652,000 in
2005 to $1.2  million in 2006 and offset the  decrease in table  games  revenue,
resulting from lower volume and a lower hold  percentage in 2006.  Room revenues
increased $4.7 million,  as the average room rate  increased  $6.63 or 9.2% from
$71.87 to $78.47 and hotel  occupancy  decreased  slightly from 92.6% in 2005 to
92.2% in 2006.  Revenue per available room (Rev Par) increased $5.86 from $66.51
to $72.37 or 8.8%. The increase was due to a 11.1%  increase in convention  room
revenue, which made up 41.4% of total room revenue.

Property EBITDA

     Property  EBITDA in Las Vegas  increased  $1.3  million  or 4.9% from $26.8
million  in 2005 to $28.1  million  in 2007 due to  increased  hotel and  gaming
revenues  as  described  above  and  effects  of  increased  spending  of casino
marketing  and  other  expenses  in the  gaming  departments  due  to  increased
promotional  costs for our 50th  anniversary  celebration and the free slot play
program in 2005, which were not profitable when compared to current promotions.

Riviera Black Hawk

Revenues

     Net revenues for Riviera Black Hawk,  which are primarily  gaming revenues,
increased $203,000, or 0.4% from $51.5 million in 2005 to $51.7 million in 2006.
Revenues in 2005 were  negatively  impacted  by a rockslide  that closed a major
access road to the market for three months and by other road projects throughout
the year.  Revenues in 2006 were  negatively  impacted by weather  conditions in
December  2006,  including a large  snowfall  which caused the major roads to be
closed for  approximately  five days and by increased  competition in the region
with expansions and new property openings during 2006.

Property EBITDA

     Property EBITDA at Riviera Black Hawk decreased $457,000 from $17.3 million
in 2006 to $16.8 million in 2007 due mainly to higher  payroll and benefits cost
in G&A expenses.

Consolidated Operations

     Net loss was  $335,000  in 2006 down $3.6  million  from a net loss of $3.9
million in 2005 due to an increase  in  operating  income and  reduced  interest
expense.

Liquidity and Capital Resources

     Cash and cash  equivalents at December 31, 2007 increased $3.5 million from
December 31, 2006 to $28.8 million.  Cash balances  include  amounts that may be
required to fund our CEO's pension obligation with five days notice (See Notes 8
and  13 to the  financial  statements).  Although  we are  aware  of no  current
intention of our CEO to require this  funding,  under certain  circumstances  we
would have to disburse  approximately $2.0 million in a short period, subject to
the  provisions  of our  agreement  with him.  In  addition we have cash of $2.8
million held as a certificate  of deposit for the benefit of the State of Nevada
Workers  Compensation  Division as a requirement of our being  self-insured  for
Workers  Compensation.  The cash is held in a  one-year  certificate of deposit,
which matures in 2008. We do not believe this investment will be required after
it matures in 2008 and as such the investment is held as a current asset.

                                                39

<PAGE>

     For 2007, our net cash provided by operating  activities increased to $19.1
million  compared  to $14.4  million in 2006 due  primarily  to an  increase  in
operating income. Cash flows used in investing  activities were $14.9 million in
2007   compared  to  $9.1  million  in  2006  due  to  an  increase  in  capital
expenditures.  Net  cash  used in  financing  activities  was  $675,000  in 2007
compared  to  $587,000  in 2006.  We  believe  that cash  flow from  operations,
combined with our $28.8 million of cash on hand and the $20 million available on
our term loan  discussed  below,  will be  sufficient  to cover our annual  debt
service and enable our  investment  in budgeted  capital  expenditures  of $20.0
million for 2008 which we will use primarily  for the room renovation program at
Rivera Las Vegas,  the  purchase  of slot  machines in Las Vegas and Black Hawk
and for other contingencies.

     On  June  8,  2007,  we and  our  Subsidiaries  entered  into a New  Credit
Facility.  This New Credit Facility (the "New Credit Facility")  includes a $225
million  seven-year term loan (the "Term Loan"), and has no amortization for the
first three years,  and a one percent  amortization  for years four through six,
and a full payoff in year seven,  in  addition to an annual  mandatory  pay down
during the term of 50% of excess cash flows, as defined. The New Credit Facility
also includes a $20 million five-year  revolving credit facility (the "Revolving
Credit  Facility") under which we can obtain extensions of credit in the form of
cash loans or standby letters of credit (the "Standby  L/Cs").  We are permitted
to prepay the New  Credit  Facility  without  premium  or  penalties  except for
payment of any funding losses resulting from prepayment of LIBOR rate loans. The
rate for the  Term  Loan and  Revolving  Credit  Facility  is LIBOR  plus  2.0%.
Pursuant to a floating rate to fixed rate Swap Agreement  that became  effective
June 29, 2007 that we entered into under the New Credit Facility,  substantially
the  entire  Term  Loan  portion  of the New  Credit  facility,  with  quarterly
step-downs,  bears interest at an effective fixed rate of 7.485% per annum (2.0%
above the LIBOR Rate in effect on the lock-in date of the swap  agreement).  The
New Credit Facility is guaranteed by the  Subsidiaries and is secured by a first
priority lien on substantially all of our assets.

     We used substantially all of the proceeds of the Term Loan to discharge our
obligations under the Indenture, dated June 26, 2002 (the "Indenture"), with The
Bank of New York as trustee (the "Trustee"), governing the 11% Notes. On June 8,
2007 we  deposited  these  funds with the  Trustee  and issued to the  Trustee a
notice of redemption of the 11% Notes, which was finalized on July 9, 2007.

We utilize derivative instruments for a substantial portion of our Term Loan to
manage certain interest rate risk.

     The interest rate on loans under the Revolving  Credit Facility will depend
on whether they are in the form of revolving loans or swingline  loans. For each
revolving  loan,  the interest rate will depend on whether we elect to treat the
loan as an "Alternate Base Rate" loan ("ABR Loan") or a LIBOR Rate loan.

     Swing  line  loans  will bear  interest  at a per annum  rate  equal to the
Alternative  Base Rate plus the Applicable  Percentage for revolving  loans that
are ABR Loans.

     We will also pay fees under the Revolving Credit Facility as follows: (i) a
commitment  fee in an amount  equal to either .50% or 0.375%  (depending  on the
Consolidated Leverage Ratio) per annum on the average daily unused amount of the
Revolving  Credit  Facility;  (ii)  Standby L/C fees equal to between  2.00% and
1.50%  (depending on the  Consolidated  Leverage Ratio) per annum on the average
daily  maximum  amount  available  to be drawn under each Standby L/C issued and
outstanding  from the date of  issuance to the date of  expiration;  and (iii) a
Standby  L/C facing fee in the  amount of 0.25% per annum on the  average  daily
maximum amount  available to be drawn under each Standby L/C. In addition to the
Revolving  Credit  Facility  fees, we will pay an annual  administrative  fee of
$35,000.

     The  New  Credit  Facility  contains  affirmative  and  negative  covenants
customary  for  financings  of  this  nature  including,  but  not  limited  to,
restrictions on our incurrence of other indebtedness.

                                                40
<PAGE>

     The New Credit Facility contains events of default customary for financings
of this nature including, but not limited to, nonpayment of principal, interest,
fees  or  other  amounts  when  due;  violation  of  covenants;  failure  of any
representation  or warranty to be true in all material  respects;  cross-default
and  cross-acceleration  under our other  indebtedness or certain other material
obligations;  certain events under federal law governing employee benefit plans;
a "change of control";  dissolution;  insolvency;  bankruptcy  events;  material
judgments;  uninsured losses; actual or asserted invalidity of the guarantees or
the security documents; and loss of any gaming licenses. Some of these events of
default  provide for grace periods and materiality  thresholds.  For purposes of
these default provisions, a "change in control" includes: a person's acquisition
of  beneficial  ownership  of 35% or more of our  stock  coupled  with a  gaming
license and/or  approval to direct any of our gaming  operations,  a change in a
majority  of the  members  of our board of  directors  other than as a result of
changes  supported by our current  board  members or by  successors  who did not
stand for  election  in  opposition  to our  current  board,  or our  failure to
maintain 100% ownership of the Subsidiaries.

Contractual Obligations

     The table under "Item 7A.  Quantitative and Qualitative  Disclosures  about
Market Risk"  summarizes  our  contractual  obligations  and  commitments  as of
December 31, 2007.

Critical Accounting Policies and Estimates

     The preparation of our  consolidated  financial  statements  requires us to
adopt accounting  policies and to make estimates and assumptions that affect the
reported  amounts of assets,  liabilities,  revenue,  expenses and provision for
income  taxes.  We  periodically  evaluate our  policies,  and our estimates and
assumptions  related  to  these  policies.  We  operate  in a  highly  regulated
industry.  For  Riviera  Las Vegas and  Riviera  Black  Hawk we are  subject  to
regulations governing operating and internal control procedures. The majority of
our casino  revenue  is in the form of cash,  personal  checks or gaming  chips,
which by their nature do not require complex  estimations.  We estimate  certain
liabilities  with payment  periods  that extend for longer than several  months.
Such estimates include customer loyalty  liabilities,  self-insured  medical and
workers compensation costs and litigation costs. We believe that these estimates
are reasonable  based upon our past  experience with the business and based upon
our  assumptions  related to  possible  outcomes in the  future.  Future  actual
results might differ materially from these estimates.

     We have  determined  that the  following  accounting  policies  and related
estimates  are  critical  to  the  preparation  of  our  consolidated  financial
statements  because such estimates are highly uncertain or susceptible to change
so as to  present a  significant  risk of a  material  impact  on our  financial
condition  or  operating  performance,  and such  policies  and  estimates  were
selected  from  among  available  alternatives,   or  require  the  exercise  of
significant management judgment to apply.

Long-lived Assets

     We have a significant  investment in long-lived property and equipment.  We
estimate that the  non-discounted  future cash flows expected to result from the
use of these  assets  exceed the current  carrying  value of these  assets.  Any
adverse change to the estimate of these  non-discounted  future cash flows could
necessitate  an  impairment  charge that would  adversely  affect our  operating
results. We estimate useful lives for our assets based on historical experience,
estimates  of such  classes  of  assets'  commercial  lives  generally,  and the
likelihood  of  technological  obsolescence.  Should the actual useful life of a
class of assets  differ  from the  estimated  useful  life,  we would  record an
impairment charge or adjust the period over which this asset is depreciated.  We
review useful lives, and  obsolescence,  and we assess  commercial  viability of
these assets periodically.


                                                41
<PAGE>

Deferred Tax Assets

     We utilize  estimates  related to estimated  future  taxable  income in the
application of Statement of Financial  Accounting  Standards ("SFAS") No. 109 to
the  realization of deferred tax assets.  Our estimates are based upon operating
results and, to a lesser extent, our budgets for future operating  results.  The
valuation allowance has been recorded for our net operating loss carry forwards,
excluding our AMT credits, which have indefinite lives.

Allowance for Credit Losses

     We maintain an allowance  for  estimated  credit losses based on historical
experience and specific  customer  collection  issues.  Any unforeseen change in
customer   liquidity  or  financial   condition  could   adversely   affect  the
collectibility of that account and our operating results.

Fair Value of Interest Rate Swap Liability

     The fair value of long-term  liabilities  includes the approximate  cost to
settle our interest rate swap instrument at the respective  valuation dates, and
is  reflected  in fair value of interest  rate swap  liabilities  on the balance
sheet.  The fair value of the interest rate swap  instrument is estimated  based
upon current and predictions of future interest rate levels along a yield curve,
the  remaining  duration  of the  instrument  and other  market  conditions  and
therefore, is subject to significant estimation and a high degree of variability
of fluctuation between periods.

Litigation Cost

     We assess our exposures to loss contingencies  including legal matters, and
we  provide  for an  exposure  if it is judged  to be  probable  and  estimable.
However,  any  accruals  made in relation  thereto do not include the  estimated
costs of defense for any legal  services that we have not yet  received.  If the
actual loss from a contingency exceeds our estimate, our operating results could
be adversely impacted.

Self-insurance Provisions

     We are  self-insured  for  various  levels of general  liability,  workers'
compensation, and, through 2007 we were also self-insured for non-union employee
medical  insurance  coverage.  Effective  January  1,  2008,  we are  no  longer
self-insured for non-union medical insurance coverage.  We maintain  reinsurance
coverage for our 2007  self-insurance  claims  until those claims are  resolved.
Insurance claims and provisions  include  accruals of estimated  settlements for
known claims,  as well as accrued estimates of incurred but not reported claims.
In estimating these costs, we consider our historical claims experience and make
judgments about the expected  levels of costs per claim.  Changes in health care
costs,  accident  frequency and severity and other factors can materially affect
the estimate for these liabilities.

Loyalty Club Program

     We offer to our guests the  opportunity to earn points  redeemable for cash
and  complimentary  rooms and food and  beverage  based on their level of gaming
activities  while at our  properties  and an accrual is  recorded  as points are
earned based upon expected redemption rates.

Recently Issued Accounting Standards

     In February 2007, the Financial  Accounting Standards Board ("FASB") issued
SFAS No.  159,  "The Fair  Value  Option  for  Financial  Assets  and  Financial
Liabilities". SFAS No. 159 permits companies to choose to measure many financial
instruments  and certain other items at fair value.  The objective is to improve
financial  reporting by providing  companies  with the  opportunity  to mitigate
volatility  in  reported   earnings  caused  by  measuring  related  assets  and
liabilities  differently  without  having  to  apply  complex  hedge  accounting
provisions.  The fair  value  option  established  by SFAS No. 159  permits  all
companies  to  choose  to  measure  eligible  items at fair  value at  specified
election  dates.  At each  subsequent  reporting date, a company shall report in
earnings  any  unrealized  gains and  losses  on items for which the fair  value
option has been  elected.  SFAS No. 159 is  effective  as of the  beginning of a
company's first fiscal year that begins after November 15, 2007.  Early adoption
is  permitted  as of the  beginning  of a fiscal  year that  begins on or before
November 15, 2007,  provided the company also elects to apply the  provisions of
SFAS No. 157, "Fair Value Measurements" (see below). We are currently evaluating
if we should  adopt and what the impact that the  adoption of SFAS No. 159 would
have on our consolidated financial statements.


                                                42
<PAGE>

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value,  establishes  a framework for measuring  fair value in
GAAP,  and  expands  disclosures  about  fair value  measurements.  SFAS No. 157
applies under other accounting  pronouncements that require or permit fair value
measurements,   the  FASB  having  previously   concluded  in  those  accounting
pronouncements that fair value is the relevant measurement  attribute.  SFAS No.
157 is effective  for  financial  statements  issued for fiscal years  beginning
after November 15, 2007, and interim  periods within those fiscal years.  We are
currently  evaluating  whether to adopt the fair value option under SFAS No. 157
and  evaluating  what  impact  such  adoption  would  have  on our  consolidated
financial statements.

     In July  2006,  the FASB  issued  FASB  Interpretation  No. 48 ("FIN  48"),
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109".  FIN 48  clarifies  the  accounting  for  uncertainty  in income taxes
recognized in an enterprise's  financial  statements in accordance with SFAS No.
109,  "Accounting for Income Taxes".  FIN 48 prescribes a recognition  threshold
and  measurement   attribute  for  the  financial   statement   recognition  and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48  also  provides  guidance  on  derecognition,  classification,  interest  and
penalties,  accounting in interim periods,  disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006, and applies to all
tax  positions  accounted  for in  accordance  with SFAS No.  109.  See Note 15,
"Income  Taxes,"  to the  accompanying  consolidated  financial  statements  for
disclosure  regarding  the  effect  of  FIN  48 on  our  consolidated  financial
statements.

Forward-Looking Statements

     Throughout this report we make  "forward-looking  statements," as that term
is defined in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange  Act.  Forward-looking  statements  include the words "may,"
"would," "could," "likely," "estimate," "intend," "plan," "continue," "believe,"
"expect,"  "projections"  or  "anticipate"  and  similar  words and  include all
discussions about our ongoing or future plans, objectives or expectations. We do
not guarantee that any of the  transactions  or events  described in this report
will happen as described or that any positive  trends referred to in this report
will continue.  These forward-looking  statements generally relate to our plans,
objectives and expectations for future operations and results and are based upon
what we  consider  to be  reasonable  estimates.  Although  we believe  that our
forward-looking  statements  are  reasonable  at the  present  time,  we may not
achieve or we may modify our plans, objectives and expectations. You should read
this report completely and with the understanding that actual future results may
be  materially  different  from  what  we  expect.  We do  not  plan  to  update
forward-looking  statements even though our situation or plans may change in the
future, unless applicable law requires us to do so.

     Specific  factors  that might  cause our actual  results to differ from our
expectations,  might cause us to modify our plans or objectives, or might affect
our ability to meet our expectations include, but are not limited to:

o    the  effect of the  termination  of our  previously  announced  strategic
     process  to  explore  alternatives  for  maximizing shareholder  value  and
     the  possible  resulting  fluctuations  in our  stock  price  that will
     affect  other  parties' willingness to make a proposal to acquire us;

o    fluctuations in the value of our real estate, particularly in Las Vegas;

o    the  availability  and  adequacy of our cash flow to meet our requirements,
     including  payment of amounts due under our debt instruments;

                                                43

<PAGE>

o    our substantial indebtedness, debt service requirements and liquidity
     constraints;

o    the availability of additional capital to support capital improvements and
     development;

o    the smoking ban in Colorado on our Riviera Black Hawk property which became
     effective on January 1, 2008;

o    competition  in the  gaming  industry,  including  the  availability  and
     success of alternative gaming  venues, and other entertainment attractions,
     and the approval of an initiative that would allow slot machines in
     Colorado race tracks;

o    retirement or other loss of our senior officers;

o    economic, competitive, demographic, business and other conditions in our
     local and regional markets;

o    changes or developments in laws, regulations or taxes in the gaming
     industry,  specifically in Nevada where  initiatives have been proposed to
     raise the gaming tax;

o    actions taken or not taken by third  parties,  such as our  customers,
     suppliers  and  competitors,  as well as  legislative, regulatory, judicial
     and other governmental authorities;

o    changes in personnel or compensation, including federal minimum wage
     requirements;

o    our failure to obtain, delays in obtaining,  or the loss of, any licenses,
     permits or approvals,  including gaming and liquor licenses, or the
     limitation,  conditioning,  suspension or revocation of any such licenses,
     permits or approvals, or our failure to obtain an unconditional renewal of
     any of our licenses, permits or approvals on a timely basis;

o    the loss of any of our casino  facilities due to terrorist  acts, casualty,
     weather,  mechanical  failure or any extended or extraordinary maintenance
     or inspection that may be required;

o    other  adverse  conditions,  such as  economic  downturns,  changes in
     general  customer  confidence  or  spending,  increased transportation
     costs, travel concerns or weather-related  factors,  that may adversely
     affect the economy in general or the casino industry in particular;

o    changes in our business strategy, capital improvements or development
     plans;

o    the  consequences  of the war in Iraq and other military  conflicts in the
     Middle East,  concerns about homeland  security and any future security
     alerts or terrorist attacks such as the attacks that occurred on
     September 11, 2001;

o    other risk factors discussed elsewhere in this report; and

o    a decline in the public acceptance of gaming.


     All future written and oral forward-looking  statements  attributable to us
or any person acting on our behalf are expressly  qualified in their entirety by
the cautionary  statements contained or referred to in this section. In light of
these and other risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.

                                                        44

<PAGE>

Item 7A.      Quantitative and Qualitative Disclosures about Market Risk

     Market risks  relating to our operations  result  primarily from changes in
interest rates. We invest our cash and cash  equivalents in U.S.  Treasury Bills
with maturities of 30 days or less. Such  investments are generally not affected
by changes in interest rates.

     As of  December  31,  2007,  we  had  $225.5  million  in  borrowings.  The
borrowings  include $225 million credit facility maturing in 2014, SID Bonds (as
defined  below),  and capital leases maturing at various dates through 2012. The
equipment  lease has fixed  interest  rate of 5.5%.  The  $283,000  in a special
improvement  district  bond  offering  ("SID Bonds") with the City of Black Hawk
represents  our share of the debt on the SID Bonds of $1.2  million  is  payable
over a ten-year  period ending 2010. The SID Bonds bear interest at 5.5%. We are
not  susceptible  to  interest  rate  risk  because  our  outstanding   debt  is
substantially  at fixed rates.  We have one interest  rate swap  arrangement  to
hedge the underlying interest rate risk on a total of $225 million of borrowings
under the Term  Loan,  which  bears  interest  at LIBOR  plus  2.0%.  Under this
interest rate swap arrangement,  we receive payments at a variable rate of LIBOR
and pay a fixed rate of  5.485%  on the $225  million  notional  amount,  which
expires  on  June  8,  2014.  As of  December  31,  2007,  we had no  borrowings
outstanding  under our Revolving  Credit  Facility.  As of December 31, 2007, we
have one interest rate swap  arrangement  with periodic step downs  beginning in
2008 which expires on June 8, 2014.  Although  this  interest swap  agreement is
highly  effective  economically  in fixing the interest  rate on this  borrowing
under  the Term  Loan at  approximately  7.485%,  changes  in fair  value of our
interest  rate swap for each  reporting  period  are,  and will  continue to be,
recorded  as an  increase/(decrease)  in swap  fair  value as the swap  does not
qualify for hedge accounting.

                                                        45

<PAGE>
<TABLE>
<CAPTION>

Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate

(Dollars in Thousands)                                                                                         Fair Value
                                  2008       2009       2010       2011       2012     Thereafter    Total     At 12/31/07

Long -Term Debt                                         All interest rates are fixed
   Including Current Portions
Equipment loans and
<S>                                   <C>       <C>        <C>        <C>       <C>        <C>         <C>           <C>
 capital leases-Las Vegas             $89       $76        $23        $24       $19                    $231          $231
Average interest rate                5.5%       5.5%       5.5%       5.5%       5.5%

$225 million Term Loan                                   $1,125     $2,250     $2,250     $219,375   $225,000      $225,000
Average interest rate                                      7.5%       7.5%       7.5%         7.5%

SID Bonds-Black Hawk,
 Colorado casino project             $137       $146                                                     $283          $283
Average interest rate                5.5%       5.5%

Total of all Long-Term Debt,
Including Current Portions     $226             $222     $1,148     $2,274     $2,269     $219,375   $225,514      $225,514


Other Long - Term Liabilities Including Current Portion

CEO pension plan obligation        $1,000     $1,000        $63                                        $2,063        $2,063
Average interest rate                9.0%       7.5%       7.5%

Interest rate derivatives
Derivative instrument

     Pay fixed                                                                            $222,500                  $13,272
         Average receivable rate                                                              4.8%
         Average payable rate                                                                 5.4%


Expected Interest payments        $16,920    $16,980    $16,940    $16,800    $16,630
</TABLE>

A hypothetical one percent change in interest rate would not have a material
effect on our financial statements, as the interest rate swap we currently have
effectively locks our debt at 7.485%, which is in excess of a one percent
increase of the corresponding amount we would receive under the swap agreement.

     Fin 48 requires us to record future unrealized tax payments however, due to
uncertainties  surrounding future taxable earnings and future audits related to
our income taxes and the potential  utilization  of our net operating losses,
we cannot  establish a  reasonably  reliable  estimate of the period of future
cash settlements,  if any;  therefore,  we have excluded this amount from the
contractual obligations table above.

                                                        46

<PAGE>

Item 8.    Financial Statements and Supplementary Data

     Our  consolidated  financial  statements,  including  the notes to all such
statements and other supplementary data are included in this report beginning on
page F-1.

Item 9.    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

           None.

Item 9A.   Controls and Procedures


Disclosure Controls and Procedures


     We maintain  disclosure controls and procedures (as defined in Exchange Act
Rules 13a - 15(e)  and 15d - 15(e))  that are  designed  to  provide  reasonable
assurance that information  required to be disclosed in our Exchange Act reports
is  recorded,  processed,  summarized  and  reported  within  the  time  periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to our  management,  including  our CEO and  Chief  Financial
Officer ("CFO"),  as appropriate,  to allow timely decisions  regarding required
disclosure.  In designing and evaluating the disclosure controls and procedures,
our management  recognized that any controls and procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control objectives,  and our management necessarily is required to apply
its judgment in evaluating the  cost-benefit  relationship of possible  controls
and procedures.

     As of December 31, 2007 we carried out an evaluation, under the supervision
and with the participation of our management,  including our CEO and CFO, of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  Based  on the  foregoing,  our  CEO  and  CFO  concluded  that  our
disclosure controls and procedures are effective.

Internal Control Over Financial Reporting

     Internal  control over financial  reporting (as defined in Rules  13a-15(f)
and  15d-15(f)  under the  Exchange  Act) refers to the process  designed by, or
under  the  supervision  of,  our CEO and  CFO,  and  effected  by our  board of
directors,  management  and other  personnel,  to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial statements for external purposes in accordance with generally accepted
accounting  principles.  Our  management is  responsible  for  establishing  and
maintaining adequate internal control over our financial reporting.

     We have evaluated the  effectiveness of our internal control over financial
reporting as of December 31,  2007.  This  evaluation  was  performed  using the
internal control evaluation  framework  developed by the Committee of Sponsoring
Organizations  of  the  Treadway  Commission.  Based  on  such  evaluation,  our
management  has  concluded  that,  as of such date,  our  internal  control over
financial reporting was effective.

     There has been no change in our internal  control over financial  reporting
during our most  recent  fiscal  quarter  that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                                47
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
Riviera Holdings Corporation
Las Vegas, NV

     We have audited the internal  control over  financial  reporting of Riviera
Holdings  Corporation and subsidiaries  (the "Company") as of December 31, 2007,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring  Organizations  of the Treadway  Commission.  The
Company's  management is responsible for maintaining  effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over  financial  reporting,  included in the  accompanying  Management's
Report on Internal Control Over Financial  Reporting.  Our  responsibility is to
express an opinion on the Company's  internal  control over financial  reporting
based on our audit.

     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial  reporting,  assessing the risk that a material  weakness
exists,  testing  and  evaluating  the design  and  operating  effectiveness  of
internal  control  based  on  the  assessed  risk,  and  performing  such  other
procedures as we considered necessary in the circumstances.  We believe that our
audit provides a reasonable basis for our opinion.

     A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's  board of  directors,  management,  and  other  personnel  to  provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles.  A company's  internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles  and that  receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

     Because of the inherent  limitations  of internal  control  over  financial
reporting,  including  the  possibility  of  collusion  or  improper  management
override of controls,  material  misstatements  due to error or fraud may not be
prevented or detected on a timely basis. Also,  projections of any evaluation of
the  effectiveness  of the internal  control over financial  reporting to future
periods are subject to the risk that the controls may become inadequate  because
of changes in conditions,  or that the degree of compliance with the policies or
procedures may deteriorate.

     In our opinion, the Company maintained, in all material respects, effective
internal control over financial  reporting as of December 31, 2007, based on the
criteria  established in Internal Control -- Integrated  Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

     We have also  audited,  in  accordance  with the  standards  of the  Public
Company Accounting Oversight Board (United States),  the consolidated  financial
statements as of and for the year ended  December 31, 2007, of the Company,  and
our report  dated March 10,  2008,  expressed  an  unqualified  opinion on those
financial statements and includes explanatory paragraphs regarding the Company's
adoption  of  Financial  Accounting  Standards  Board  No.  48,  Accounting  for
Uncertainty  in Income  Taxes-an  interpretation  of FASB Statement No. 109, and
Financial Accounting Standards Board No. 123(R), Share-Based Payment.

/s/ Deloitte & Touche LLP

Las Vegas, NV
March 12, 2008


                                                48
<PAGE>
Item 9B.  Other Information

           Executive Officer Compensation

     On March 4, 2008, we amended our employment  agreement with Mr.  Westerman.
This Third Amendment to Employment Agreement ("Third Amendment") provides, among
other  things,  that  effective  January 1, 2008,  Mr.  Westerman is eligible to
participate  in our  incentive  compensation  plan.  The  Third  Amendment  also
provides for the payment to Mr. Westerman of a discretionary bonus in the amount
of $300,000 prior to March 15, 2008,  for Mr.  Westerman's  contribution  to our
performance in 2007.

     On  March 4, we also  awarded  bonuses  to our  other  Executive  Officers,
payable prior to March 15, 2008, as follows:  (i) Robert  Vannucci was awarded a
2007  incentive  bonus in the amount of $203,  434;  and (ii) Mark  Lefever  and
Tullio  Marchionne  were each  awarded a 2007  incentive  bonus in the amount of
$114,761 and a discretionary bonus in the amount of $35,239.

     In addition to the named Executive  Officers,  Incentive  Bonuses  totaling
approximately  $900,000  were awarded to 113 Riviera Las Vegas and Riviera Black
Hawk participants.

         PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Directors

           The  following  table  presents  information  as of February 23, 2008
regarding  our directors and the directors of Riviera Operating Corporation
("ROC"), our wholly-owned subsidiary:
<TABLE>
<CAPTION>

   Name                   Age        Position

<S>                       <C>                 <C>
William L. Westerman      76       Our Chairman of the Board, CEO and President;
                                   Chairman of the Board and Chief Executive
                                   Officer of ROC

Jeffrey A. Silver         62       Our and ROC's Director

Paul A. Harvey            70       Our and ROC's Director

Vincent L. DiVito         48       Our and ROC's Director

James N. Land, Jr.        78       Our and ROC's Director

</TABLE>

     William  L.  Westerman  has been our  Chairman  of the  Board and CEO since
February 1993. Mr. Westerman was a consultant to Riviera,  Inc. (our predecessor
company) from July 1, 1991 until he was appointed  Chairman of the Board and CEO
of Riviera,  Inc. on January 1, 1992. From 1973 to June 30, 1991, Mr.  Westerman
was President and CEO of Cellu-Craft Inc., a manufacturer of flexible  packaging
primarily for food products,  and then had several  positions with Alusuisse,  a
multi-national  aluminum and chemical  company,  following  its  acquisition  of
Cellu-Craft in 1989.

                                                        49

<PAGE>

     Jeffrey A. Silver has been one of our and ROC's  Directors  since  February
26,  2001.  Mr.  Silver is a  shareholder  with the law firm of Gordon & Silver,
Ltd.,  in Las  Vegas,  Nevada.  He has  also  been a  member  of the  Audit  and
Compliance  Committees of Tropicana  Resorts,  Inc. since June, 2007. Mr. Silver
served as a Chief Deputy District  Attorney,  Clark County,  Nevada from 1972 to
1975 and was a Board  Member  with the  Nevada  Gaming  Control  Board from 1975
through  1978 before  engaging in the private  practice of law from 1979 to 1981
and 1984 to the present.  Mr. Silver was the Chief Operating Officer ("COO") and
General  Counsel of the  Landmark  Hotel & Casino from 1981 to 1983,  CEO of the
Riviera,  Inc. from 1983 to 1984 and Senior Vice  President at Caesars Palace in
1984.  Mr.  Silver  served  on the  Board  of the  LVCVA  from  1989  to 1992 as
Secretary/Treasurer  and also served as trustee. He was a member of the Board of
Directors of the Greater Las Vegas  Chamber of Commerce from 1988 to 1995 and in
1988 was its  Chairman.  Mr.  Silver  served  for four  years as a member of the
United  States  Travel and  Tourism  Advisory  Board.  He was  President  of the
International  Association of Gaming Attorneys from 1992 to 1994 and Chairman of
the American Bar Association Section of Gaming Law from 1994 to 1996. Mr. Silver
has been selected as a Gaming and  Administrative  Law  Practitioner by numerous
legal   publications,   including:   "Best   Lawyers  in  the  United   States,"
"Superlawyers,"  and "Chambers USA - Americas  Leading Lawyers for Business." He
has also  received  the highest  "AV" rating  issued by  Martindale-Hubbell,"  a
prominent legal rating service.

     Major  General  Paul A.  Harvey  USAF  (Ret)  has been one of our and ROC's
Directors  since May 18, 2001.  General Harvey is President and Chief  Executive
Officer of Pearl River Resort,  which is the largest gaming and resort  property
in the State of Mississippi.  He also acts as a consultant to the gaming,  hotel
and resort industry.  General Harvey spent 32 years on active duty in the United
States Air Force where he held numerous command positions  throughout the United
States,  Europe,  Africa and the Middle  East.  He flew 160 combat  missions  in
Vietnam and Southeast Asia before  retiring in 1991 as a command pilot with over
5,000 flying hours.  Following retirement,  he was an Executive in Residence and
Assistant to the  President of William  Carey  College and taught MBA studies in
management  and  leadership.  General  Harvey was the Executive  Director of the
Mississippi  Gaming Commission from 1993 through 1998 before becoming  President
and CEO of Signature  Works,  Inc.,  the largest  employer of blind and visually
impaired  people in the world.  In 2000 Signature  Works,  Inc. merged with LCI,
Inc. His present company,  PDH Associates,  Inc., provides consulting service to
the gaming,  hotel and resort industry.  From 1996 through 2002,  General Harvey
served on the board of directors of the National Center for Responsible  Gaming.
He also serves on the board of directors of Elixir  Gaming  Technologies,  Inc.,
which is headquartered in Las Vegas, Nevada and is an AMEX-listed  company,  and
on the  board of  directors  of Mikohn  Gaming  Corporation,  d/b/a  Progressive
International  Corporation,  also  headquartered  in  Las  Vegas,  Nevada  and a
publicly  reporting  company  under  the  Exchange  Act.  General  Harvey  was a
Commissioner  on the  Mississippi  Band of Choctaw  Indians  Athletic and Boxing
Commission from 2002 through 2007.

     Vincent L. DiVito was appointed as one of our and ROC's Directors effective
June 14, 2002. Mr. DiVito is President and Chief  Financial  Officer  ("CFO") of
Lonza America,  Inc., a global life sciences chemical business  headquartered in
Allendale,  New Jersey. Lonza America,  Inc. is part of Lonza Group, whose stock
is traded on the Swiss Stock  Exchange.  Prior to September 2000, Mr. DiVito was
the Vice  President  and CFO of Algroup  Wheaton,  a global  pharmaceutical  and
cosmetics  packaging  company,  after having  served as the Director of Business
Development.  From 1984 to 1990 Mr.  DiVito  was the Vice  President  of Miracle
Adhesives Corp. (a division of Pratt & Lambert,  an AMEX-listed  manufacturer of
paints,  coatings  and  adhesives).  He also serves on the board of directors of
Elixir Gaming Technology,  Inc., which is headquartered in Las Vegas, Nevada and
is an AMEX-listed company. Prior to 1984, Mr. DiVito spent two years on an audit
team at Ernst & Whinney (now Ernst & Young).  Mr.  DiVito is a certified  public
accountant and certified management accountant.

     James N. Land,  Jr., is a corporate  consultant and was appointed as one of
our and ROC's Directors on April 12, 2004. Mr. Land was first elected a Director
of the Company and ROC on January 21, 1999 and served in that position until May
31,  2002.  From  1956 to  1976,  Mr.  Land was  employed  by The  First  Boston
Corporation in various capacities,  including  Director,  Senior Vice President,
Co-Head of Corporate Finance,  and head of International  Operations.  From 1971
through  1999,  he served as Director  of various  companies,  including  Kaiser
Industries  Corporation,  Marathon Oil Company,  Castle & Cooke, Inc.,  Manville
Corporation, NWA, Inc., Northwest Airlines, and Raytheon Company.

                                                50
<PAGE>

Executive Officers

   The following table presents information as of February 23, 2008 regarding
our and ROC's executive officers:


Name                     Age    Position

------------------------ ------ -----------------------------------------------
William L. Westerman     76     Our and ROC's Chairman of the Board and
                                CEO, and our President

Mark B. Lefever          43     Our and ROC's Treasurer and CFO, Executive
                                Vice President of Finance of ROC and
                                President of RBH

Tullio J. Marchionne     53     Our Secretary and General Counsel, and Secretary
                                and Executive Vice President of ROC

Robert A. Vannucci       60     President and Chief Operating Officer of ROC

For a description of the business experience of William L. Westerman, see
"Directors" above.

     Mark Lefever  became our and ROC's CFO and  Treasurer  and ROC's  Executive
Vice President of Finance on May 22, 2006 and Riviera Black Hawk's  President on
May 15,  2007.  From May of 2004 to April  2006,  Mr.  Lefever  was Senior  Vice
President  and CFO of Resorts  International  Hotel & Casino,  Inc.,  located in
Atlantic City,  New Jersey.  From March of 2001 until December 2003, Mr. Lefever
was  General  Manager and Vice  President  of 29 Palms  Enterprises  & Operating
Company for Trump 29 Casino, a California  Native American casino located in the
greater Palm Springs area.  Prior to that, Mr. Lefever served  initially as Vice
President  and CFO and later as COO of the Desert Inn Resort & Casino  from 1997
through 2000. Mr.  Lefever's  gaming career began in Tunica,  Mississippi as the
Vice President and CFO of Sheraton  Casino from 1996 through May of 1997.  Prior
to his gaming  positions,  Mr.  Lefever spent 10 years in the audit and business
advisory  practice  with Arthur  Andersen  LLC. He is a member of the New Jersey
Society of Certified  Public  Accountants,  and holds a BS degree in  Accounting
from Villanova University.

     Tullio J.  Marchionne  became our General  Counsel on January 10, 2000, was
appointed  as our and ROC's  Secretary on February 17, 2000 and was elected Vice
President of ROC on February 26, 2001 and  Executive  Vice  President in June of
2005. Mr. Marchionne was initially employed by Riviera,  Inc., in June 1986 as a
casino dealer and served in various  capacities  including Pit Manager,  General
Counsel and Director of Gaming  Administration until September 1996, when he was
transferred to the Four Queens Hotel and Casino as Director of Casino Operations
pursuant to the management agreement our subsidiary had with the Four Queens. He
served in that position  until May 1997.  Mr.  Marchionne  served as the General
Manager of the Regency Casino  Thessaloniki,  located in  Thessaloniki,  Greece,
from June 1997 until December 1997. Mr. Marchionne served as a Casino Supervisor
with Bally's Las Vegas from  February  1998 until June 1998,  Director of Casino
Operations  at the Maxim  Hotel and  Casino  in Las Vegas  from June 1998  until
November  1998 and  Director  of Table  Games at the  Resort At  Summerlin  from
November 1998 until December 1999.

     Robert  A.   Vannucci   was  elected  Vice   President  of  Marketing   and
Entertainment  of ROC on April 26, 1994,  Executive  Vice President of Marketing
and  Entertainment  on July 1, 1998 and President of ROC on October 1, 2000. Mr.
Vannucci had been Director of Marketing of ROC since July 19, 1993. Mr. Vannucci
was Senior Vice  President of Marketing and Operations at the Sands Casino Hotel
in Las Vegas from April 1991 to February 1993. He was Vice President and General
Manager of Fitzgerald's Las Vegas (a casino/hotel) from 1988 to January 1991.

     Our and ROC's officers serve at the discretion of our and ROC's  respective
Boards of Directors,  and they are also subject to the licensing requirements of
the Nevada Gaming Commission and Colorado Gaming Commission.

                                                5

<PAGE>
Audit Committee; Audit Committee Financial Expert

     We have a  separately-designated  standing Audit Committee,  established in
accordance  with section  3(a)(58)(A)  of the  Exchange  Act. The members of our
Audit Committee are Vincent L. DiVito, Paul A. Harvey and James N. Land, Jr.

     We have  determined  that the Chairman of our Audit  Committee,  Vincent L.
DiVito,  who meets the AMEX audit  committee  independence  requirements,  is an
"audit  committee  financial  expert",  as defined in Item  407(d)(5)(ii) of SEC
Regulation  S-K.  Mr.  DiVito is a certified  public  accountant  and  certified
management accountant, spent two years on the audit team at Ernst & Whinney (now
Ernst & Young) and is currently  the President, CFO and  treasurer of a global
specialties chemical business.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the Exchange Act (Section  16(a))  requires our directors
and executive  officers and persons who own more than 10% of our common stock to
file with the SEC certain reports regarding  ownership of our common stock. Such
persons are required to furnish us with copies of all Section 16(a) reports they
file.  Based solely on our review of such reports that were  furnished to us and
written representations made to us by those reporting persons in connection with
certain  of those  reporting  requirements,  we believe  that all the  reporting
persons met their Section 16(a)  reporting  obligations on a timely basis during
2007.

Code of Ethics

     We have adopted certain ethical policies that apply to all of our employees
at the level of Supervisor or higher, including our principal executive officer,
principal financial officer and principal  accounting  officer.  Those policies,
together with certain rules adopted by our Disclosure  Committee,  comprise what
we consider to be our code of ethics. Those policies and rules are posted on our
Internet web site at www.theriviera.com.

Audit Committee

     We have a  separately-designated  standing Audit committee,  established in
accordance with section  3(a)(58)(A) of the Exchange Act. Our Audit Committee is
composed of Messrs.  DiVito,  Harvey and Land. Our Audit Committee recommends to
our Board of Directors the  selection of an auditor,  reviews the plan and scope
of our  audits,  reviews  the  auditors'  critique of  management  and  internal
controls and  management's  response to such critique and reviews the results of
our audit.  In 2006 our Audit Committee met eight times. We have determined that
the three  members of our Audit  Committee  to be  independent,  based on AMEX's
standards  that  apply to us. Our Board of  Directors  has  determined  that Mr.
DiVito,  Chairman  of the  Audit  Committee,  is an "audit  committee  financial
expert" as defined by the rules and regulations of the SEC.

Item 11.   Executive Compensation

     Information  regarding this item is incorporated herein by reference to our
proxy  statement  to be filed on or about April 4, 2008,  relating to the annual
meeting of our stockholders to be held on May 13, 2008.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and
             Related Stockholder Matters

     Information  regarding this item is incorporated herein by reference to our
proxy  statement  to be filed on or about April 4, 2008,  relating to our annual
meeting of stockholders to be held on May 13, 2008.

Item 13.   Certain Relationships and Related Transactions, and Director
Independence

     Information  regarding this item is incorporated herein by reference to our
proxy  statement  to be filed on or about April 4, 2008,  relating to our annual
meeting of stockholders to be held on May 13, 2008.

                                                52
<PAGE>

Item 14.   Principal Accountant Fees and Services

     Information  regarding this item is incorporated herein by reference to our
proxy  statement  to be filed on or about April 4, 2008,  relating to our annual
meeting of stockholders of the Company to be held on May 13, 2008.

         PART IV

Item 15.   Exhibits, Financial Statement Schedules

           (a)(1)   List of Financial Statements

           The following is the list of Registered  Public  Accounting Firm
           Reports and the  consolidated  Financial  Statements of the
            Company:

            .    Report of Independent Registered Public Accounting Firm on
                 Internal Control Over Financial Reporting

            .    Report of Independent Registered Public Accounting Firm on the
                 Consolidated Financial Statements

            .    Consolidated Balance Sheets as of December 31, 2007 and 2006

            .    Consolidated Statements of Operations for the Years Ended
                 December 31, 2007, 2006 and 2005

            .    Consolidated Statements of Stockholders' Deficiency for the
                 Years Ended December 31, 2007, 2006, and 2005

            .    Consolidated Statements of Cash Flows for the Years Ended
                 December 31, 2007, 2006 and 2005

            .    Notes to Consolidated Financial Statements

           (a)(2)   List of Financial Statement Schedules

           No financial  statement  schedules have been filed herewith since
           they are either not required,  are not applicable,  or the required
           information is shown in the consolidated financial statements or
           related notes.

           (a)(3)   List of Exhibits

           Exhibits  required by Item 601 of Regulation S-K are listed in the
           Exhibit Index herein,  which  information is incorporated herein by
           reference, and such exhibits are filed herewith.

(b)      The exhibits required by Item 601 of Regulation S-K are filed as
         exhibits to this Form 10-K.

(c)      Not applicable.

                                                53
<PAGE>


                                                              SIGNATURES

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

                               RIVIERA HOLDINGS CORPORATION


                               By:   /s/  WILLIAM L. WESTERMAN
                                     William L. Westerman
                                     Chief Executive Officer and President
                                     (Principal Executive Officer)

                               March 10, 2008


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


Signature                             Title                       Date


/s/ WILLIAM L. WESTERMAN    Chairman of the Board, Chief       March 10, 2008
William L. Westerman        Executive Officer and President


/s/ MARK B. LEFEVER         Treasurer (Principal Financial     March 10, 2008
Mark B. Lefever             and Accounting Officer)


/s/ JEFFREY A. SILVER       Director                           March 10, 2008
Jeffrey A. Silver


/s/ PAUL A. HARVEY          Director                           March 10, 2008
Paul A. Harvey


/s/ VINCENT L. DIVITO       Director                           March 10, 2008
Vincent L. DiVito


/s/ JAMES N. LAND, JR.      Director                           March 10, 2008
James N. Land, Jr.


                                                54

<PAGE>

                                  EXHIBIT INDEX

Exhibit          Description
Number


3.1*            Articles of  Incorporation  of the Company (see Exhibit 3 to
                Quarterly  Report on Form 10-Q filed on November 10, 2003,
                Commission File No. 0-21430)

3.2*            Bylaws of the Company (see Exhibit 3.2 to Registration
                Statement on Form S-4 filed on September 10,  1997,  Commission
                File No. 0-21430)

3.3*            Amendment to the Company Bylaws (see Exhibit 3.1 to Form 8-K
                filed on August 10, 2007, Commission File No. 0-21430)

3.4*            Bylaws of the Company (see Exhibit 3.1 to Form 10-Q filed on
                November 9, 2007, Commission File No. 0-21430)

3.5*            Articles of  Incorporation  of Riviera  Operating  Corporation
                (see Exhibit 3.3 to Registration  Statement on Form S-4
                filed on September 10, 1997, Commission File No. 0-21430)

3.6*            Bylaws of Riviera Operating  Corporation (see Exhibit 3.4 to
                Registration  Statement on Form S-4 filed on September 10,
                1997, Commission File No. 0-21430)

3.7*            Articles of Incorporation  of Riviera Gaming  Management,  Inc.
                (see Exhibit 3.5 to Registration  Statement on Form S-4
                filed on September 10, 1997, Commission File No. 0-21430)

3.8*            Bylaws  of  Riviera  Gaming  Management,  Inc.  (see  Exhibit
                3.6 to  Registration  Statement  on Form  S-4  filed  on
                September 10, 1997, Commission File No. 0-21430)

3.9*            Articles of  Incorporation  of Riviera Black Hawk,  Inc. (see
                Exhibits 3.01 and 3.02 to Amendment No. 1 to Registration
                Statement on Form S-4 filed by Riviera Black Hawk, Inc. on
                August 31, 1999, Commission File No. 333-81613)

3.10*           Bylaws of Riviera Black Hawk, Inc. (see Exhibit 3.03 to
                Amendment No. 1 to Registration  Statement on Form S-4 filed by
                Riviera Black Hawk, Inc. on August 31, 1999, Commission File No.
                333-81613).

10.1*           Indemnity  Agreement,  dated June 30, 1993, from Riviera,  Inc.
                and Meshulam Riklis in favor of the Company and Riviera
                Operating  Corporation  (see Exhibit 10.7 to  Registration
                Statement on Form S-1 filed on August 11, 1993,  Commission
                File No. 33-67206)

10.2*           Equity  Registration  Rights  Agreement dated June 30, 1993,
                among the Company and the Holders of Registerable  Shares
                (see Exhibit 10.9 to Registration Statement on Form S-1 filed
                on August 11, 1993, Commission File No. 33-67206)

10.3*           Operating  Agreement dated June 30, 1993,  between the Company
                and Riviera Operating  Corporation (see Exhibit 10.15 to
                Registration Statement on Form S-1 filed on August 11, 1993,
                Commission File No. 33-67206)

10.4*           Adoption  Agreement  regarding  Profit  Sharing and 401(k)
                Plans of the Company  (see  Exhibit 10.16  to  Registration
                Statement on Form S-1 filed on August 11, 1993, Commission File
                No. 33-67206)

10.5*           Tax Sharing Agreement between the Company and Riviera Operating
                Corporation dated June 30,  1993 (see Exhibit 10.24 to
                Amendment No. 1 to Registration Statement on Form S-1 filed on
                August 19, 1993, Commission File No. 33-67206)

                                                        55

<PAGE>

10.6*           Tax Sharing  Agreement  between the Company and Riviera Black
                Hawk,  Inc.  dated  March 31,  1999 (see Exhibit 10.12 to
                Registration Statement on Form S-4 filed on August 9, 2002,
                Commission File No. 333-97907)

10.7*(A)        1993 Stock Option Plan (see Exhibit 4.4 to Registration
                Statement on Form S-8 filed on May 13,  1996,  Commission File
                No. 333-03631)

10.8*(A)        Stock  Compensation  Plan for Directors  Serving on the
                Compensation  Committee  (see  Exhibit 10.14  to  Registration
                Statement on Form S-4 filed on August 9, 2002, Commission File
                No. 333-97907)

10.9*(A)        Employment  Agreement  dated as of November 21, 1996 among the
                Company,  Riviera  Operating  Corporation and William L.
                Westerman (see Exhibit 10.31 to Form 10-K for the fiscal year
                ended December 31, 1996, Commission File No. 0-21430)

10.10*(A)       Amendment to Employment  Agreement between the Company and
                William L. Westerman  effective January 1, 2001 (see Exhibit
                10.40 to Form 10-K filed March 23, 2001, Commission File No.
                0-21430)

10.11*(A)       Deferred  Compensation  Plan dated  November 1, 2000 (see
                Exhibit  10.19 to Form 10-K filed March 25, 2005,  Commission
                File No. 0-21430)

10.12*(A)       Restricted Stock Plan (see Exhibit 10.20 to Form 10-K filed
                March 25, 2005, Commission File No. 0-21430)

10.13*(A)       Non-Qualified  Stock Option Plan for  Non-Employee  Directors
               (see Exhibit 4.6 to  Registration  Statement on Form S-8
                filed on May 13, 1996, Commission File No. 333-03631)

10.14*(A)       Second  Amendment to Employment  Agreement  between the Company
                and William L.  Westerman  effective July 15, 2003 (see
                Exhibit 10.46 to Form 10-K filed on March 16, 2004, Commission
                File No. 0-21430)

10.15*(A)       Amendment of 1993 Stock  Option Plan (see  Exhibit  10.47 to
                Form 10-K filed on  March 25,  2005,  Commission  File No.
                0-21430)

 10.16*         Purchase and License Agreement,  dated September 25, 2003,
                between Bally Gaming, Inc. and Riviera Operating Corporation
                (see Exhibit 10.49 filed on March 25, 2005, Commission File No.
                0-21430)

10.17*(A)       2005 Incentive Stock Option Plan (see Exhibit A To Schedule 14A
                filed on April 22, 2005, Commission File No. 0-21430)

10.18*(A)       2005  Non-Qualified  Stock Option Plan for  Non-Employee
                Directors (see Exhibit B to  Schedule 14A  filed on April 22,
                2005, Commission File No. 0-21430)

10.19*(A)       Incentive  Compensation  Program as amended  August 3, 1995 (see
                Exhibit  10.51 to  Form 10-K  filed on March 15, 2006,
                Commission File No. 0-21430.

10.20* (A)      Form of Restricted  Stock  Agreement  under the Company's
                Restricted Stock Plan (see  Exhibit 10.52  to Form 10-K filed on
                March 15, 2006, Commission File No. 0-21430)

10.21*          Agreement and Plan of Merger,  dated April 5, 2006,  among Riv
                Acquisition  Holdings Inc., Riv Acquisition Inc. and the
                Company (see Appendix A to revised  definitive  proxy materials
                on Schedule 14A filed on July 3, 2006,  Commission File
                No. 0-21430)

10.22* (A)      Employment  Agreement  between the Company and Mark B.  Lefever
                (see  Exhibit  10.3 to  Form 10-Q  filed on August 9, 2006,
                Commission File No. 0-21430)

                                                        56
<PAGE>

10.23* (A)      Employment  Agreement among Riviera Holdings  Corporation,
                Riviera  Operating  Corporation and Robert A. Vannucci (see
                Exhibit 10.1 to Form 10-Q filed on November 6, 2006, Commission
                File No. 0-21430

10.24* (A)      Forms of Salary Continuation  Agreements with Riviera Operating
                Corporation and Riviera Black Hawk, Inc. dated May 15, 2007 (see
                Exhibit 10.1 to Form 10-Q filed on August 3, 2007, Commission
                File No. 0-21430)

10.25*          Credit  Agreement,  dated June 8, 2007,  among the Company,  the
                Company's  restricted  subsidiaries,  Wachovia  Bank,  National
                Association  and the Lenders that are parties thereto (see
                Exhibit 10.2 to Form 10-Q filed on August 3, 2007,
                Commission File No. 0-21430)

10.26*          Commitment  letter  agreement  dated April 27, 2007 between the
                Company and Wachovia  Bank,  National  Association  and
                Wachovia Capital Markets, LLC. (see Exhibit 10.3 to Form 10-Q
                filed on August 3, 2007, Commission File No. 0-21430)

10.27*          Deed of Trust, Assignment of Leases, Rents, Security Agreement,
                and Fixture Filing dated June 8, 2007, executed by the
                Company in favor of First  American Title  Insurance  Company
                as Trustee (see Exhibit 10.4 to Form 10-Q filed on August
                3, 2007, Commission File No. 0-21430)

10.28*          Deed of Trust,  Assignment of Leases,  Rents,  Security
                Agreement,  and Fixture Filing dated June 8, 2007, executed by
                Riviera  Black Hawk,  Inc. in favor of The Public  Trustee For
                Gilpin  County,  Colorado  and Wachovia  Bank,  National
                Association (see Exhibit 10.5 to Form 10-Q filed on August 3,
                2007, Commission File No. 0-21430)

10.29*          Environmental  Indemnity  dated as of June 8, 2007 between the
                Company and Wachovia  Bank,  National  Association  (see
                Exhibit 10.6 to Form 10-Q filed on August 3, 2007, Commission
                File No. 0-21430)

10.30*          Environmental  Indemnity  dated as of June 8, 2007,  among the
                Company,  Riviera  Black Hawk,  Inc. and Wachovia  Bank,
                National Association (see Exhibit 10.7 to Form 10-Q filed on
                August 3, 2007, Commission File No. 0-21430)

10.31*          Credit Party Pledge Agreement,  dated June 8, 2007, among the
                Company, the Company's restricted  subsidiaries,  Riviera
                Gaming  Management,  Inc. and Wachovia  Bank,  National
                Association  (see Exhibit 10.8 to Form 10-Q filed on August 3,
                2007, Commission File No. 0-21430)

10.32*          Gaming Pledge Agreement dated June 8, 2007,  between the Company
                and Wachovia Bank,  National  Association (see Exhibit
                10.9 to Form 10-Q filed on August 3, 2007, Commission File No.
                0-21430)

10.33*          Security  Agreement,  dated June 8, 2007,  among the Company,
                the Company's  restricted  subsidiaries,  Wachovia Bank,
                National  Association and the Lenders that are parties thereto
                (see Exhibit 10.10 to Form 10-Q filed on August 3, 2007,
                Commission File No. 0-21430)

10.34           Third Amendment to Employment Agreement between the Company and
                William L. Westerman effective March 4, 2008

21.1*           Subsidiaries  of the Company (see  Exhibit 21.1 to  Registration
                Statement  on Form S-4 filed with the  Commission  on
                August 9, 2002, Commission File No. 333-97907)

                                                        57

<PAGE>

23.1            Consent of Deloitte & Touche LLP, Independent Registered Public
                Accounting Firm

31.1            Certification of the Principal Executive Officer of the
                Registrant pursuant to Exchange Act Rule 13a-14(a)

31.2            Certification of the Principal Financial Officer of the
                Registrant pursuant to Exchange Act Rule 13a-14(a)

32.1            Certification  of the Principal  Executive  Officer of the
                Registrant  pursuant to Exchange Act Rule  13a-14(b) and 18
                U.S.C. 1350

32.2            Certification  of the Principal  Financial  Officer of the
                Registrant  pursuant to Exchange Act Rule  13a-14(b) and 18
                U.S.C. 1350

     * These are incorporated herein by reference as exhibits hereto.  Following
the  description  of each such  exhibit is a reference to it as it appeared in a
specified document previously filed with the Securities and Exchange Commission,
to which there have been no amendments or changes, unless otherwise indicated.

(A) Management contract or compensatory plan or arrangement


                                                58
<PAGE>

                                                                  Exhibit 31.1

        Certification of the Principal Executive Officer
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


I, William L. Westerman, certify that:

       1.     I have reviewed this annual report on Form 10-K of Riviera
              Holdings 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 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)) and internal  control over financial  reporting (as
              defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), 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.    Designed such internal control over financial  reporting,
                    or caused such internal control over financial reporting
                    to be designed  under our  supervision,  to provide
                    reasonable  assurance  regarding the  reliability of
                    financial reporting and the preparation of financial
                    statements for external purposes in accordance with
                    generally  accepted accounting principles;

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

              d.    Disclosed in this report any change in the  registrant's
                    internal  control over financial  reporting that occurred
                    during the registrant's fourth fiscal quarter that has
                    materially  affected,  or is reasonably likely to materially
                    affect, the registrant's internal control over financial
                    reporting; and

       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 the registrant's board of directors:

              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.

                                                59
<PAGE>

         Date:    March 10, 2008

         William L. Westerman
         William L. Westerman
         Chief Executive Officer


                                                60
<PAGE>

                                                                  Exhibit 31.2

     Certification of the Principal Financial Officer
 Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


I, Mark Lefever, certify that:

       1.     I have reviewed this annual report on Form 10-K of
Riviera Holdings 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 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)) and internal  control over financial  reporting (as
              defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), 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.    Designed such internal control over financial  reporting,
                    or caused such internal control over financial reporting
                    to be designed  under our  supervision,  to provide
                    reasonable assurance regarding the reliability of financial
                    reporting and the preparation of financial  statements for
                    external purposes in accordance with generally  accepted
                    accounting principles;

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

              d.    Disclosed in this report any change in the  registrant's
                    internal  control over financial  reporting that occurred
                    during the registrant's fourth fiscal quarter that has
                    materially  affected,  or is reasonably likely to materially
                    affect, the registrant's internal control over financial
                    reporting; and

       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 the registrant's board of directors:

              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.

                                                61

<PAGE>

         Date:    March 10, 2008

         Mark Lefever
         Mark Lefever
         Chief Financial Officer


                                                62

<PAGE>

                                                               Exhibit 32.1

          Certification Pursuant to Section 906
            of the Sarbanes-Oxley At of 2002


     In connection with the annual report of Riviera  Holdings  Corporation (the
"Company") on Form 10-K for the period ended December 31, 2007 as filed with the
Securities and Exchange  Commission  (the  "Report"),  I, William L.  Westerman,
hereby  certify  as of the date  hereof,  solely for the  purposes  of Title 18,
Chapter  63,  section  1350 of the United  States  Code,  that to the best of my
knowledge:

1)       The Report  fully  complies  with the  requirements  of Section  13(a)
         or 15(d) of the  Securities  Exchange  Act of 1934,  as amended, and

2)       The information  contained in the Report fairly presents,  in all
         material  respects,  the financial  condition and results of operations
         of the Company at the dates and for the periods indicated.

     This  certification  accompanies each Report pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002 and shall not,  except to the extent required by the
Sarbanes-Oxley  Act of 2002,  be deemed  filed by the  Company  for  purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.

     A signed original of this written statement  required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained
by the Company and furnished to the  Securities  and Exchange  Commission or its
staff upon request.

Date:  March 10, 2008

                                                   /s/ William L. Westerman
                                                   ----------------------------
                                                   Chief Executive Officer

                                        63
<PAGE>

                                                                  Exhibit 32.2

       Certification Pursuant to Section 906
         of the Sarbanes-Oxley Act of 2002


     In connection with the annual report of Riviera  Holdings  Corporation (the
"Company") on Form 10-K for the period ended December 31, 2007 as filed with the
Securities  and Exchange  Commission  (the  "Report"),  I, Mark Lefever,  hereby
certify as of the date hereof,  solely for the purposes of Title 18, Chapter 63,
section 1350 of the United States Code, that to the best of my knowledge:

1)       The Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934, and

2)       The information  contained in the Report fairly presents,  in all
         material  respects,  the financial  condition and results of
         operations of the Company at the dates and for the periods indicated.

     This  certification  accompanies each Report pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002 and shall not,  except to the extent required by the
Sarbanes-Oxley  Act of 2002,  be deemed  filed by the  Company  for  purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.

     A signed original of this written statement  required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained
by the Company and furnished to the  Securities  and Exchange  Commission or its
staff upon request.

Date:  March 10, 2008

                                   /s/ Mark Lefever
                                  -------------------------------
                                  Treasurer and Chief Financial Officer


                                                64
<PAGE>


RIVIERA HOLDINGS CORPORATION

TABLE OF CONTENTS
------------------------------------------------------------------------------




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
     FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS..........................F-1

CONSOLIDATED FINANCIAL STATEMENTS

     Balance Sheets as of December 31, 2007 and 2006........................F-2
     Statements of Operations for the Years Ended December 31, 2007,
          2006 and 2005.................................................... F-3

     Statements of Stockholders' Deficiency for the Years Ended
         December 31, 2007, 2006 and 2005...................................F-4
     Statements of Cash Flows for the Years Ended
         December 31, 2007, 2006 and 2005...................................F-5

     Notes to Consolidated Financial Statements.............................F-7



                                                65
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
Riviera Holdings Corporation
Las Vegas, NV

     We have audited the  accompanying  consolidated  balance  sheets of Riviera
Holdings  Corporation and  subsidiaries  (the "Company") as of December 31, 2007
and 2006,  and the related  consolidated  statements of  operations,  changes in
stockholders'  deficiency,  and cash  flows for each of the  three  years in the
period  ended   December  31,  2007.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial statements based on our audits.

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

     In our opinion,  such consolidated  financial statements present fairly, in
all material respects,  the financial  position of Riviera Holdings  Corporation
and its  subsidiaries  at December  31, 2007 and 2006,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting  principles  generally accepted
in the United States of America.

     As discussed in Note 11 to the consolidated financial statements,  in 2007,
the Company  changed  its method of  accounting  for income  taxes to conform to
Financial  Accounting  Standards  Board  Interpretation  No. 48,  Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.

     As discussed in Note 14 to the consolidated financial statements,  in 2006,
the Company  changed its method of accounting for  share-based  compensation  to
conform to Statement of Financial Accounting  Standards No. 123(R),  Share-Based
Payment.

     We have also  audited,  in  accordance  with the  standards  of the  Public
Company  Accounting  Oversight Board (United States),  the  effectiveness of the
Company's  internal  control over  financial  reporting as of December 31, 2007,
based on the criteria  established in Internal  Control -- Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
and our report dated March 10, 2008,  expressed  an  unqualified  opinion on the
effectiveness of the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Las Vegas, NV
March 12, 2008


                                                F-1

<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
(Dollars In Thousands)
--------------------------------------------------------------------------------

ASSETS                                                       2007         2006
                                                             ----         ----
CURRENT ASSETS:
<S>                                                       <C>           <C>
  Cash and cash equivalents                               $ 28,819      $ 25,285
  Restricted cash and investments                            2,772            -
  Accounts receivable net of allowance of $436 and $163      3,563         3,063
  Inventories                                                1,455         1,792
  Prepaid expenses                                           3,602         4,002
                                                            ------        ------
           Total current assets                             40,211        34,142

PROPERTY AND EQUIPMENT net                                 172,865       171,320

OTHER ASSETS                                                 2,940         5,774

DEFERRED INCOME TAXES-net                                    2,446         2,446
                                                           -------      --------
           Total assets                                  $ 218,462     $ 213,682
                                                           =======      ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
  Current portion of long-term debt                          $ 226         $ 879
  Current portion of obligation to officers                  1,000         1,000
  Accounts payable                                          10,972         9,126
  Accrued interest                                             188         1,063
  Accrued expenses                                          14,279        13,167
                                                            ------        ------
           Total current liabilities                        26,665        25,235

LONG-TERM DEBT - Net of current portion                    225,288       214,124

FAIR VALUE OF INTEREST RATE SWAP LIABILITIES                13,272             -

OTHER LONG-TERM DEBT                                            -          2,763

OBLIGATION TO OFFICERS - Net of current portion              1,063         2,094
                                                           -------        ------
            Total liabilities                              266,288       244,216

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' DEFICIENCY:
  Common stock, $.001 par value 60,000,000 shares
    authorized; 17,124,624 and 17,131,824 shares
    issued at December 31, 2007 and 2006, respectively,         17            17
   12,456,555 and 12,369,431 shares outstanding
  Additional paid-in capital                                18,925        18,165
  Treasury stock, 4,668,069 and 4,762,393
   shares at December 31, 2007 and
   2006, respectively                                       (9,635)       (9,841)
  Acumulated Deficit                                       (57,133)      (38,875)
                                                           --------       -------
      Total stockholders' deficiency                       (47,826)      (30,534)
                                                           --------      --------
      Total liabilities and stockholders' deficiency     $ 218,462     $ 213,682
                                                           =======       =======
See notes to consolidated financial statements.
</TABLE>

                                                F-2
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------

                                                    2007        2006        2005
REVENUES                                           -----        ----       -----
<S>                                            <C>         <C>         <C>
  Casino                                       $ 114,340   $ 111,459   $ 108,130
  Rooms                                           59,890      56,700      52,021
  Food and beverage                               32,353      33,125      34,132
  Entertainment                                   13,498      13,672      17,371
  Other                                            6,632       6,431       8,312
                                                 -------     -------     -------
          Total revenues                         226,713     221,387     219,966
  Less - promotional allowances                  (21,218)    (20,443)    (17,739)
                                                 -------     -------     --------
          Net revenues                           205,495     200,944     202,227
                                                 -------     -------     -------
COSTS AND EXPENSES
  Direct costs and expenses of operating
      departments:
    Casino                                        56,197      57,311      56,092
    Rooms                                         28,121      27,100      27,133
    Food and beverage                             23,848      24,144      24,645
    Entertainment                                  8,687       9,377      13,214
    Other                                          1,360       1,437       2,906
  Other operating expenses
    General and administrative
        Stock-based compensation                     966         813       1,627
        Other general and administrative          42,728      41,318      39,444
    Mergers, acquisitions and development
             costs, net of $1,000
             unrefundable deposit in 2005            611       1,318         (65)
    Asset impairments                                 72          19         777
    Depreciation and amortization                 13,116      12,691      14,065
                                                 -------     -------     -------
         Total costs and expenses                175,706     175,528     179,838

INCOME FROM OPERATIONS                            29,789      25,416      22,389
                                                 -------      ------      ------

  Loss on early retirement of bonds              (12,878)          -           -
  Decrease in value of derivative instruments    (13,272)          -           -
  Interest expense, net, including related
      party interest of $281 $400 and  $518
      in 2007, 2006 and 2005, respectively       (21,897)    (25,751)    (26,388)
                                                 --------    --------    --------
          Total interest expense, net            (48,047)    (25,751)    (26,388)
                                                 --------    --------    --------
NET LOSS                                       $ (18,258)     $ (335)   $ (3,999)
                                                 =======     ========    ========
EARNINGS PER SHARE DATA Loss per share,
      basic and diluted                         $ (1.48)    $ (0.03)    $ (0.34)
                                                 ========    ========    ========
  Weighted-average common and common
      equivalent shares                           12,309      12,134      11,833
                                                 ========    ========    ========

See notes to consolidated financial statements.
</TABLE>

                                                F-3
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Dollars In Thousands)
--------------------------------------------------------------------------------------------------------------------------------

                                     Common Stock         Additional                                Treasury Stock
                                  ----------------------   Paid-In       Retained         -----------------------------------
                                   Shares      Amount      Capital        Deficit        Shares         Amount        Total
                                  ----------------------------------------------------------------------------------------------

<S>             <C>                <C>           <C>      <C>          <C>             <C>            <C>          <C>
BALANCE January 1, 2005            16,548,324    $ 16     $ 15,692     $ (34,541)      (5,047,074)    $ (10,459)   $ (29,292))

  Stock issued under
     executive option plan            166,500       1          395             -                -             -          396
  Stock-based compensation -
     stock options                          -       -           60             -                -             -           60
  Distribution of treasury stock
     deferred compensation trust            -       -         (412)            -          187,983           412            -
  Stock-based compensation -
     restricted stock                       -       -        1,566             -                -             -        1,566
  Issuance of deferred compensation
     -restricted stock                367,500       -            -             -                -             -            -
  Net loss                                  -       -            -        (3,999)              -              -       (3,999)
                                   ----------      ---      ------       --------      -----------      --------     --------
BALANCE December 31, 2005          17,082,324      17       17,301       (38,540)      (4,859,091)      (10,047)     (31,269)

  Stock-based compensation
      - stock options                       -       -           72             -                -             -           72
  Stock issued under executive
       option plan                     97,500       -          257             -                -             -          257
  Restricted stock - Forfeited        (48,000)      -            -             -                -             -            -
  Stock-based compensation -
       restricted stock                     -       -          741             -                -             -          741
  Distribution of treasury stock
       - deferred compensation              -       -         (206)            -           96,698           206            -
  Net loss                                  -       -            -          (335)               -             -          (335)
                                   ----------    ----       ------        -------       ----------        ------     --------
BALANCE December 31, 2006          17,131,824      17       18,165       (38,875)      (4,762,393)       (9,841)     (30,534)

  Stock-based compensation -
       stock options                        -       -           223            -                -             -          223
  Restricted stock - forfeited         (7,200)      -             -            -                -             -            -
  Stock-based compensation -
       restricted stock                     -       -           743            -                -             -          743
  Distribution of treasury stock
       - deferred compensation              -       -          (206)           -           94,324           206            -
  Net loss                                  -       -             -      (18,258)               -             -      (18,258)
                                   ----------     ----       -------    ----------      ----------     ---------     ---------
BALANCE December 31, 2007          17,124,624     $ 17      $ 18,925   $ (57,133)      (4,668,069)     $ (9,635)    $(47,826)

See notes to consolidated financial statements.
</TABLE>

                                                        F-4
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In Thousands)
--------------------------------------------------------------------------------


                                                       2007       2006      2005

OPERATING ACTIVITIES:
<S>                                                <C>           <C>     <C>
  Net loss                                         $(18,258)     $ (335) $(3,999)
  Adjustments to reconcile net loss to net cash
     provided by operating activities:
    Depreciation and amortization                    13,116      12,691   14,065
    Stock-based compensation - restricted stock         743         741    1,566
    Stock-based compensation - stock options            223          72       60
    Provision for bad debts                             377         146      243
    Asset impairment                                     72          18        -
    Loss on early retirement of debt                 12,878           -        -
    Amortization of deferred loan fees                  956       1,999    2,000
    Decrease in value of derivative instruments      13,272           -        -
    Change in operating assets and liabilities:
      Accounts receivable net                          (877)        335      111
      Inventories                                       337         693     (438)
      Prepaid expenses                                  400         195      (96)
      Accounts payable                                 (794)     (1,979)   1,261
      Accrued expenses                               (2,526)        906   (2,936)
      Other assets                                      185          (3)     219
      Deferred compensation plan obligation             (31)        (32)     (48)
      Obligation to officers                         (1,000)     (1,000)  (1,000)
                                                     -------     ------   -------
           Net cash provided by operating activities 19,073      14,447   11,008
                                                     -------     ------   -------
INVESTING ACTIVITIES:
  Capital expenditures for property and
       equipment Las Vegas                           (8,993)     (5,651)  (5,240)
  Capital expenditures for property
       and equipment Black Hawk                      (3,099)     (3,495)  (3,038)
  Restricted cash and investments                    (2,772)         -        -
                                                    --------      ------  --------
           Net cash used in investing activities    (14,864)     (9,146)  (8,278)
                                                    --------     -------  -------
</TABLE>

                                                F-5
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In Thousands)
--------------------------------------------------------------------------------

                                                      2007       2006      2005

FINANCING ACTIVITIES:
<S>                                                   <C>          <C>       <C>
  Proceeds from long-term borrowings                225,112         -         -
  Repayments on long-term borrowings               (223,885)     (844)   (1,440)
  Cash paid for deferred loan fees                   (1,902)        -         -
  Exercise of employee stock options                      -       257       395
                                                     -------     ------  --------
           Net cash used in financing activities       (675)     (587)   (1,045)
                                                      ------     ------  -------
INCREASE IN CASH AND CASH EQUIVALENTS                  3,534     4,714     1,685

CASH AND CASH EQUIVALENTS Beginning of year           25,285    20,571    18,886
                                                    --------    ------   -------
CASH AND CASH EQUIVALENTS End of year               $ 28,819  $ 25,285  $ 20,571
                                                     =======    ======    ======

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
  Property acquired with accounts
       payable Las Vegas, Nevada                     $ 1,800     $ 812     $ 406
                                                     =======    ======    ======
  Property acquired with accounts
       payable Black Hawk, Colorado                    $ 841     $ 619      $ 53
                                                     =======    ======    ======
  Non-cash item Main Street expansion
       Black Hawk                                        -      $ 2,763        -
                                                     ========   =======    ======
  Cash interest paid                                 $ 22,494  $ 24,329  $ 24,608
                                                     ========   =======   =======
  Distribution of deferred compensation
        treasury shares                                $ 206     $ 206     $ 412
                                                     ========   =======   ======
</TABLE>

See notes to consolidated financial statements.

                                                        F-6
<PAGE>

RIVIERA HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of  Operations  --  Riviera  Holdings  Corporation  ("RHC")  and its
wholly-owned  subsidiaries (together, the "Company") own and operate the Riviera
Hotel & Casino  ("Riviera Las Vegas") on the Strip in Las Vegas,  Nevada and the
Riviera Black Hawk Casino ("Riviera Black Hawk") in Black Hawk, Colorado.

     The Company's  operations are subject to extensive regulation in the states
of Nevada and Colorado by the respective Gaming Control Boards and various other
state and local  regulatory  agencies.  Management  believes  that the Company's
procedures comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.

     Principles  of  Consolidation  --  The  consolidated  financial  statements
include  the  accounts  of Riviera  Holdings  Corporation  and its  wholly-owned
subsidiaries.  All material  inter-company  accounts and transactions  have been
eliminated.

     Cash Equivalents -- All highly liquid  investment  securities with maturity
of three months or less when acquired are considered to be cash equivalents.

     Amounts  classified  as  cash  equivalents  consist  of  cash  held  in our
concentration account and money market accounts (all with original maturities of
90 days or less) and had a value of $15,724,000  and $10,809,000 at December 31,
2007 and 2006, respectively.

     Restricted  Cash -- This cash is held as a  certificate  of deposit for the
benefit of the State of Nevada Workers Compensation Division as a requirement of
our being self-insured for Workers Compensation.  The cash is held in a one-year
certificate of deposit, which matures in 2008. We do not believe this investment
will be required after it maures in 2008 and as such the investment is held as a
current asset.

     Inventories  --  Inventories  consist  primarily  of  food,  beverage,  and
promotional items and are stated at the lower of cost (determined on a first-in,
first-out basis) or market.

     Property and Equipment -- Property and  equipment  are stated at cost,  and
capitalized lease assets are stated at the present value of future minimum lease
payments  at the  date of  lease  inception.  Depreciation  is  computed  by the
straight-line  method over the shorter of the  estimated  useful  lives or lease
terms, if applicable, of the related assets, which lives range from:
<TABLE>
<CAPTION>

<S>                               <C>                         <C>
                   Buildings and improvements               7 to 40 years
                   Land improvements                         15 to 20 years
                   Furniture, fixtures and equipment        3 to  7 years
</TABLE>


     The Company  periodically  assesses  the  recoverability  of  property  and
equipment  and  evaluates  such  assets  for  impairment   whenever   events  or
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Asset  impairment is determined to exist if estimated  future cash
flows,  undiscounted  and without interest  charges,  are less than the carrying
amount.  Included in income from  operations  in the fourth  quarter of 2007 was
$72,000  in  asset  impairment  costs  compared  to  $3,000  in  2006.  The 2007
impairment  costs related to the write down and subsquent disposal of costs
associated  with certain slot machines in Black Hawk, which are no longer
compliant with local gaming laws.

                                                F-7
<PAGE>

     Other Assets -- Other assets include  deferred loan offering  costs,  which
are amortized over the life of the debt.  Such  amortized  costs are included in
interest expense.

     Stock-Based  Compensation  -- As of December 31, 2007, the Company has five
active stock-based  compensation plans and two expired stock-based  compensation
plans. Under the Company's active stock compensation plans, the Company shall at
the discretion of the Company's Compensation  Committee,  issue option grants of
Company common stock to those directors in lieu of cash compensation. The option
grants  issued  under this plan are valued at the market  value of the shares at
the date of  issuance on each  regularly  scheduled  date for paying  directors'
fees.

Had compensation cost for the Company's stock option plans been determined based
on the fair value at the date of grant for awards consistent with the provisions
of SFAS  No.123  (using the grant date fair value  method  value  method),  the
Company's  net loss and  pro-forma  net loss per common  share and common  share
equivalent would have been increased to the pro-forma amounts indicated below at
December 31 (in thousands,  except per share amounts):
<TABLE>
<CAPTION>
                                                              2005
                                                              -----
<S>                                                        <C>
Net loss-as reported                                       $ (3,999)
Stock -based employee compenstion expense                        60
Deduct:  Total stock-based employee compensation
  expense determined under fair value-based methods
  for awards net of related tax effects                         (44)
Net loss-pro forma                                       $   (3,983)
Basic loss per common share-as reported                  $    (0.34)
Basic loss per common share-pro forma                    $    (0.34)
Diluted loss per common and common
  share equivalent-as reported                           $    (0.34)
Diluted loss per common and common share
  equivalent-pro forma                                   $    (0.34)
</TABLE>

Fair Value Disclosures

     Cash and Cash  Equivalents,  Accounts  Receivable,  Accounts  Payable,  and
Accrued Expenses--The  carrying value of these items is a reasonable estimate of
their fair value due to their short term nature.

     Long-Term  Debt  -- The  fair  value  of the  Company's  long-term  debt is
estimated based on the quoted market prices for the same or similar issues or on
the  current  rates  offered  to the  Company  for  debt of the  same  remaining
maturities.  Based on the borrowing rates currently available to the Company for
debt with similar  terms and average  maturities,  the  estimated  fair value of
long-term  debt  outstanding  at  December  31,  2007 and 2006 is  approximately
$225,514,000 and $227,105,000,  respectively.  In addition we have interest rate
swap  instrument,  which has an approximate  liability value of $13,300,000 as
of December 31, 2007. The fair value of the interest rate swap instrument is
estimated based upon current interest rate levels along a yield curve, the
remaining  duration of the  instrument  and other  market  conditions  and
therefore, is subject to significant estimation and a high degree of variability
of fluctuation between periods. Under our interest rate swap agreement, which
has a fixed rate of 5.48% compared to the three month LIBOR rate 4.85% as of
December 31, 2007, whcih we would receive.

                                                F-8

<PAGE>

Treasury Stock

     Treasury  shares are stated at cost.  The Company's  Deferred  Compensation
Plan  distributed  the  remaining  shares  to plan  participants  in 2007 and at
December 31, 2007 no shares were remaining in the Plan. The Plan  distributed to
participants,  94,324, 96,698 and 187,983 shares under the Deferred Compensation
Plan during the years ended December 31, 2007, 2006 and 2005.

Revenue Recognition

     Casino  Revenue -- Casino  revenue is the net win from  gaming  activities,
which is the  difference  between  gaming  wins and  losses  less slot club cash
points, cash vouchers, free play and other related customer cash incentives.

     Room Revenue, Food and Beverage Revenue,  Entertainment  Revenue, and Other
Revenue  -- The  Company  recognizes  room,  food  and  beverage,  entertainment
revenue, and other revenue at the time that goods or services are provided.

     Promotional  Allowances -- Revenues  include the estimated  retail value of
rooms,  food  and  beverage,  and  entertainment  provided  to  customers  on  a
complimentary  basis.  Such amounts are then deducted as promotional  allowance.
The estimated cost of providing these  promotional  allowances is charged to the
casino department in the following amounts in thousands:
<TABLE>
<CAPTION>

                                                  Year Ended December 31
                                              -------------------------------
                                                 2007       2006       2005
<S>                                            <C>        <C>        <C>
Food and beverage                              $ 8,882    $ 9,147    $ 8,510
Rooms                                            2,763      2,693      1,333
Entertainment                                      918        629        632
                                              --------   --------    -------
Total costs allocated to casino departments   $12,563    $12,469    $10,475
                                              =======    =======     =======
</TABLE>

     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,  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 recoverability of and estimated useful lives for depreciable
and amortizable assets,  certain accrued liabilities  (including  self-insurance
reserves and customer loyalty  programs),  realizability of deferred tax assets,
fair  value  of  interest  rate  swap  liabilities,  valuation  of  stock  based
compensation  and  collection  allowances  for  receivables.  Actual results may
differ materially from estimates.

     Self-Insurance  Reserves -- The Company is self-insured  for various levels
of general  liability,  workers'  compensation,  and non-union  employee medical
insurance coverage.  Insurance claims and reserves include accruals of estimated
settlements for known claims,  as well as accrued  estimates of incurred but not
reported claims. In estimating these costs, the Company considers its historical
claims  experience and makes  judgments  about the expected  levels of costs per
claim.  Changes in health care costs,  accident frequency and severity and other
factors can materially affect the estimate for these liabilities.  As of January
1, 2008 we are no longer  self-insured for non-union medical insurance  coverage
however, 2007 claims will continue to be paid during the first quarter of 2008.

     Loyalty  Club  Program -- We offer to our guests  the  opportunity  to earn
points  redeemable  for cash  based on their  level  of  gaming  and  non-gaming
activities while at our properties.  An accrual is recorded as points are earned
based upon expected redemption rates.

                                                F-9

<PAGE>

     Advertising  -- The costs of  advertising  are expensed as incurred and are
allocated to each revenue department based upon content. Advertising expense was
$2,782,000, $2,814,000 and $2,472,000 in 2007, 2006, and 2005, respectively.

     Recently  Issued  Accounting  Standards -- In February  2007, the Financial
Accounting  Standards Board ("FASB") issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities".  SFAS No. 159 permits companies
to choose to measure many financial  instruments and certain other items at fair
value. The objective is to improve  financial  reporting by providing  companies
with the  opportunity  to mitigate  volatility  in reported  earnings  caused by
measuring  related assets and  liabilities  differently  without having to apply
complex hedge accounting  provisions.  The fair value option established by SFAS
No. 159 permits all companies to choose to measure  eligible items at fair value
at specified election dates. At each subsequent  reporting date, a company shall
report in earnings any  unrealized  gains and losses on items for which the fair
value option has been elected.  SFAS No. 159 is effective as of the beginning of
a company's  first  fiscal year that  begins  after  November  15,  2007.  Early
adoption is  permitted  as of the  beginning  of a fiscal year that begins on or
before  November  15,  2007,  provided  the  company  also  elects  to apply the
provisions  of  SFAS  No.  157,  "Fair  Value  Measurements".  We are  currently
evaluating  if we will adopt and the impact of that the adoption of SFAS No. 159
will have on our consolidated financial statements and will adopt SFAS 159 as of
January 1, 2008.

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value,  establishes  a framework for measuring  fair value in
GAAP,  and  expands  disclosures  about  fair value  measurements.  SFAS No. 157
applies under other accounting  pronouncements that require or permit fair value
measurements,   the  FASB  having  previously   concluded  in  those  accounting
pronouncements that fair value is the relevant measurement  attribute.  SFAS No.
157 is effective  for  financial  statements  issued for fiscal years  beginning
after November 15, 2007, and interim  periods within those fiscal years.  We are
currently  evaluating  whether to adopt the fair value option under SFAS No. 157
and  evaluating  what  impact  such  adoption  would  have  on our  consolidated
financial statements.

                                                F-9
<PAGE>

     In July  2006,  the FASB  issued  FASB  Interpretation  No. 48 ("FIN  48"),
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109".  FIN 48  clarifies  the  accounting  for  uncertainty  in income taxes
recognized in an enterprise's  financial  statements in accordance with SFAS No.
109,  "Accounting for Income Taxes".  FIN 48 prescribes a recognition  threshold
and  measurement   attribute  for  the  financial   statement   recognition  and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48  also  provides  guidance  on  derecognition,  classification,  interest  and
penalties,  accounting in interim periods,  disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006, and applies to all
tax  positions  accounted  for in  accordance  with SFAS No.  109.  See Note 15,
"Income  Taxes,"  to the  accompanying  consolidated  financial  statements  for
disclosure  regarding  the  effect  of  FIN  48 on  our  consolidated  financial
statements.

2.    ACCOUNTS RECEIVABLE

Accounts receivable consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>

                                                           2007         2006
                                                           ----       ------
<S>                                                       <C>          <C>
Casino                                                    $ 353        $ 335
Hotel                                                     3,646        2,891
                                                          -----       -------
Total                                                     3,999        3,226
Less - Collection allowances                               (436)        (163)
                                                          -----       --------
     Accounts receivable - net                           $3,563       $3,063
                                                         ======       =======
</TABLE>

Changes in the collection allowances consist of the following for the years
ended December 31 (in thousands):

                                                          2007          2006
                                                          ----          ----
Beginning balance                                        $ 163        $1,244
Write-offs                                                (114)       (1,257)
Recoveries                                                  10            30
Provision for doubtful collection                          377           146
                                                         -----         ------
Ending balance                                           $ 436         $ 163
                                                         =====         ======

     The  Company  manages  its  credit  risk by  evaluating  customers'  credit
worthiness  before  extending  credit.  The maximum  credit losses that might be
sustained are limited to the recorded receivables less any amounts reserved.

                                                F-10

<PAGE>

3.    PREPAID EXPENSES

Prepaid expenses consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
                                                           2007         2006

<S>                                                      <C>           <C>
Prepaid gaming taxes                                     $ 1,110       $ 1,527
Prepaid insurance                                            806           891
Vendor deposits                                              542           268
Prepaid equipment maintenance                                254           242
Other                                                        890         1,074
                                                         --------       -------
    Total                                                $ 3,602       $ 4,002
                                                         =======       ========
</TABLE>


4.    PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31 (in thousands):

                                                F-11
<PAGE>

<TABLE>
<CAPTION>

                                                         2007            2006
                                                        -------        --------
<S>                                                    <C>             <C>
Land and improvements                                  $ 40,752        $ 40,904
Buildings and improvements                              144,795         143,417
Equipment, furniture, and fixtures                      155,818         150,576
Construction in progress                                    280              -
                                                        -------         --------
Total cost                                              341,645         334,897
Less - Accumulated depreciation and amortization       (168,780)       (163,577)
                                                       --------        ---------
Property and equipment-net                            $ 172,865       $ 171,320
                                                       ========       =========
</TABLE>
Substantially all of the Company's property and equipment are pledged as
collateral to secure debt (see Note 9).

5.    OTHER ASSETS

Other assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>

                                                            2007           2006

<S>                                                         <C>            <C>
Deposits                                                    $ 69           $ 58
Bond offering costs, net of accumulated amortization
of $194 and $7,149                                         1,708          4,559
Base Stock                                                 1,163          1,157
                                                           -----         -------
Total                                                    $ 2,940        $ 5,774
                                                           =====         ======
</TABLE>


6.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

      Accounts payable consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>

                                                      2007            2006
                                                     -----           ------
<S>                                                 <C>             <C>
Accounts payable vendors                            $ 6,898         $ 5,015
Customer deposits, non-gaming                         1,289           1,544
Other                                                   500             446
                                                      -----           -----
Sub total                                             8,687           7,005


Outstanding chip and token liability                    517             569
Customer loyality liabilities                           677             742
Progressive jackpot liabilities                         745             515
Customer deposits and other                             346             295
                                                       ----            -----
Total gaming customer-related payables                2,285           2,121
                                                    -------          -------
Total                                              $ 10,972         $ 9,126
                                                    =======          ======
</TABLE>

      Accrued expenses consist of the following at December 31 (in thousands):

                                                F-12
<PAGE>
<TABLE>
<CAPTION>

                                                       2007           2006
                                                      -----           ----
<S>                                                 <C>            <C>
Payroll and related taxes and benefits              $ 7,805        $ 8,227
Property and gaming taxes                             2,948          3,036
Incentive and ESOP                                    2,166            659
Professional fees                                       574            340
Deferred revenues and deposits                          786            905
                                                    -------        -------
Total                                               $14,279        $13,167
                                                    =======        ========
</TABLE>

7.       FAIR VALUE OF INTEREST RATE SWAP LIABILITIES

     We utilize  derivative  instruments  for a substantial  portion of our Term
Loan to manage certain  interest rate risk. Our interest rate swap agreement has
a rate of 5.48%  compared  to the three month LIBOR rate of 4.85% as of December
31,  2007.  The Fair  Value of our  interest  rate swap was $13.3  million as of
December 31, 2007, and is recorded as a long-term liability which represents the
amount we would be required to pay to settle the swap agreement.


8.    OBLIGATION TO OFFICERS

     Obligation to officers consists of the nonqualified pension plan obligation
to our Chief Executive Officer ("CEO"),  including accrued interest and deferred
compensation  plan  liabilities,  payable  upon  expiration  of  his  employment
contract or a change of control of the Company. See Note 13 for a description of
this plan.  Obligation to officers  consists of the following at December 31 (in
thousands).
<TABLE>
<CAPTION>

                                                         2007            2006
                                                         ----           -----

<S>                                                      <C>            <C>
Accrued interest on pension CEO, unfunded                $ 2,063        $ 3,093
Deferred compensation funded                                   -              1
                                                          -------        ------
                                                           2,063          3,094
                                                          -------        -------
Less-current portion                                      (1,000)        (1,000)
                                                          -------       --------
Obligation to officers - net of current portion          $ 1,063        $ 2,094
                                                          ======         ======
</TABLE>

                                                F-13
<PAGE>

9.    LONG-TERM DEBT

 Long-term debt consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>


                                                            2007           2006

<S>                                                         <C>             <C>
$225 million Term Loan maturing on June 8, 2014         $ 225,000             -

11% Senior Secured Notes maturing on June 15, 2010, net        -       $ 213,601

5.5% to 5.9% notes collateralized by equipment,
 payable monthly, including interest                           -             802

Capitalized lease obligations (Note 10)                       231            189

5.5% Special Improvement District Bonds - issued
  by the City of Black Hawk, Colorado, interest
  and principal payable monthly
  over 10 years beginning in 2000                             283            411
                                                          -------        --------
Total long-term debt                                      225,514        215,003
Less-Current maturities by terms of debt                     (226)          (879)
                                                         ---------       --------
Total                                                   $ 225,288      $ 214,124
                                                         ========        =======
</TABLE>

Maturities of long-term debt for the years ending December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
<C>                                                      <C>
2008                                                     $ 226
2009                                                       222
2010                                                     1,148
2011                                                     2,274
2012                                                     2,269
Thereafter                                             219,375
                                                       -------
Total                                                $ 225,514
                                                       =======
</TABLE>

On June 8, 2007, we and our Subsidiaries entered into the New Credit Facility.

     The New Credit Facility includes a $225 million seven-year term loan ("Term
Loan"),  and has no  amortization  for the first three years,  and a one percent
amortization  for years four through  six,  and a full payoff in year seven,  in
addition to an annual  mandatory  pay down during the term of 50% of excess cash
flows, as defined. The New Credit Facility also includes a $20 million five-year
revolving  credit  facility  ("Revolving  Credit  Facility")  under which we can
obtain  extensions  of credit in the form of cash  loans or  standby  letters of
credit  ("Standby  L/Cs").  We are  permitted to prepay the New Credit  Facility
without premium or penalties  except for payment of any funding losses resulting
from  prepayment  of LIBOR rate loans.  The rate for the Term Loan and revolving
Credit  Facility is LIBOR plus 2.0%.  Pursuant to a floating  rate to fixed rate
swap  agreement  that became  effective June 29, 2007 that we entered into under
the New Credit Facility,  substantially  the entire Term Loan portion of the New
Credit facility, with quarterly step-downs, bears interest at an effective fixed
rate of 7.485% per annum  (2.0%  above the LIBOR  Rate in effect on the  lock-in
date of the swap  agreement).  The New  Credit  Facility  is  guaranteed  by the
Subsidiaries and is secured by a first priority lien on substantially all of our
assets.

                                                F-14

<PAGE>

     We used substantially all of the proceeds of the Term Loan to discharge our
obligations under the Indenture, dated June 26, 2002 (the "Indenture"), with The
Bank of New York as trustee (the "Trustee"), governing the 11% Notes. On June 8,
2007 we  deposited  these  funds with the  Trustee  and issued to the  Trustee a
notice of redemption of the 11% Notes, which was finalized on July 9, 2007.

     We utilize  derivative  instruments  for a substantial  portion of our Term
Loan to manage certain  interest rate risk. Our interest rate swap agreement has
a rate of 5.48%  compared  to the three month LIBOR rate of 4.85% as of December
31, 2007.

     The interest rate on loans under the Revolving  Credit Facility will depend
on whether they are in the form of revolving loans or swingline  loans. For each
revolving  loan,  the interest rate will depend on whether we elect to treat the
loan as an "Alternate Base Rate" loan ("ABR Loan") or a LIBOR Rate loan.

     Swing  line  loans  will bear  interest  at a per annum  rate  equal to the
Alternative  Base Rate plus the Applicable  Percentage for revolving  loans that
are ABR Loans.

     We will also pay fees under the Revolving Credit Facility as follows: (i) a
commitment  fee in an amount  equal to either .50% or 0.375%  (depending  on the
Consolidated Leverage Ratio) per annum on the average daily unused amount of the
Revolving  Credit  Facility;  (ii)  Standby L/C fees equal to between  2.00% and
1.50%  (depending on the  Consolidated  Leverage Ratio) per annum on the average
daily  maximum  amount  available  to be drawn under each Standby L/C issued and
outstanding  from the date of  issuance to the date of  expiration;  and (iii) a
Standby  L/C facing fee in the  amount of 0.25% per annum on the  average  daily
maximum amount  available to be drawn under each Standby L/C. In addition to the
Revolving  Credit  Facility  fees, we will pay an annual  administrative  fee of
$35,000.

     The New Credit  Facility  contains  non-financial  affirmative and negative
covenants customary for financings of this nature including, but not limited to,
restrictions on our incurrence of other indebtedness.

We believe we are in compliance with all covenants as of December 31, 2007.

     The New Credit Facility contains events of default customary for financings
of this nature including, but not limited to, nonpayment of principal, interest,
fees  or  other  amounts  when  due;  violation  of  covenants;  failure  of any
representation  or warranty to be true in all material  respects;  cross-default
and  cross-acceleration  under our other  indebtedness or certain other material
obligations;  certain events under federal law governing employee benefit plans;
a "change of control";  dissolution;  insolvency;  bankruptcy  events;  material
judgments;  uninsured losses; actual or asserted invalidity of the guarantees or
the security documents; and loss of any gaming licenses. Some of these events of
default  provide for grace periods and materiality  thresholds.  For purposes of
these default provisions, a "change in control" includes: a person's acquisition
of  beneficial  ownership  of 35% or more of our  stock  coupled  with a  gaming
license and/or  approval to direct any of our gaming  operations,  a change in a
majority  of the  members  of our board of  directors  other than as a result of
changes  supported by our current  board  members or by  successors  who did not
stand for  election  in  opposition  to our  current  board,  or our  failure to
maintain 100% ownership of the Subsidiaries.

     The New Credit Facility is guaranteed by the Subsidiaries, which are all of
our restricted subsidiaries. These guaranties are full, unconditional, and joint
and several.  RHC's unrestricted  subsidiaries,  which have no operations and do
not significantly contribute to our financial position or results of operations,
are not guarantors of the New Credit Facility.

     The 5.5%  Special  Improvement  District  Bonds were  issued by the City of
Black Hawk,  Colorado.  The proceeds were used for road  improvements  and other
infrastructure  projects  benefiting Riviera Black Hawk and a nearby casino. Our
share of the debt was $1.2 million  payable over a ten-year period that began in
2000.


                                                F-15
<PAGE>

10.   LEASING ACTIVITIES


     The Company leases certain office  equipment  under capital  leases.  These
agreements  have been  capitalized  at the present  value of the future  minimum
lease payments at lease  inception and are included with property and equipment.
The interest  rate on the  equipment  leases is 5.5%.  We estimate that the fair
market value of the property and  equipment  subject to the leases  approximates
the net present value of the leases.

     The  following  is a schedule by year of the minimum  rental  payments  due
under capital leases as of December 31, 2007 (in thousands):
<TABLE>
<CAPTION>
<C>                                                                  <C>
2008                                                                 $ 111
2009                                                                    90
2010                                                                    29
2011                                                                    29
2012                                                                    21
Thereafter                                                               -
                                                                       ----
Total minimum lease payments                                           280
Less-Taxes, maintenance, and insurance                                 (28)
Less-Interest portion of payments                                      (21)
                                                                       ----
Present value of net minimum lease payments                          $ 231
                                                                       ====
</TABLE>

     Property and equipment under capital lease as of December 31, 2007 and 2006
were  $437,000  and  $325,000  with  accumulated  amortization  of $207,000  and
$135,000, respectively.

     Rental  expense for equipment  under  operating  leases for the years ended
December  31, 2007,  2006 and 2005 was  approximately  $1,230,000,  $503,000 and
$1,096,000,  respectively.  All are cancelable  within a year. In addition,  the
Company  leases retail space to third parties  (primarily  retail shops and fast
food  vendors)  under  terms of  noncancelable  operating  leases that expire in
various years through 2011,  and have options to extent at the tenant's  option.
Rental income,  which is included in other revenue, for the years ended December
31, 2007, 2006 and 2005 was approximately $2,448,000,  $2,069,000 and $2,205,000
respectively.

     At December 31, 2007,  the Company had future  minimum annual rental income
due under noncancelable operating leases as follows (in thousands):
<TABLE>
<CAPTION>

<C>                                                         <C>
2008                                                        $ 2,599
2009                                                          2,280
2010                                                          2,034
2011                                                          1,064
2012                                                             48
                                                             ------
Total                                                       $ 8,025
                                                             ======
</TABLE>

     Certain   lease   arrangements   at  the  Riviera   Las  Vegas   contain  a
buyout/liquidated  damages provision.  This provision provides that in the event
of a major  renovation  or certain  other  events,  the  Company  has the right,
according to an agreed-upon  formula, to buy out any remaining term of the lease
by providing the tenant twelve months written notice.

                                                F-16

<PAGE>

11.   INCOME TAXES

     The effective  income tax rate of zero differs from the  statutory  Federal
income  tax  rates  for the years  ended  December  31 as  follows  (dollars  in
thousands):
<TABLE>
<CAPTION>

                                   2007                  2006            2005
                              ------------------  ---------------- ------------------
                               Amount     Rate     Amount  Rate     Amount    Rate
                              ------------------  ---------------- -------------------

Income taxes benefit
<S>                         <C>         <C>       <C>     <C>     <C>        <C>
  at Federal statutory rate $ (6,390)   (35.0)%   $ (117) (35.0)% $ (1,400)  (35.0)%
Income taxes benefit
  at State statutory rate     $ (119)    (0.6)%
Employee benefits                639     3.5 %       633  189.0 %      695    17.4 %
FICA credit                     (217)    (0.2)%     (222) (66.3)%     (239)   (6.0)%
Other                            132     0.7 %         -     -        (232)   (5.8)%
Rate change impact                84     0.5 %         -     -          -         -
Valuation allowance            5,871    31.1 %      (294) (87.7)%    1,176   29.4 %

Benefit for income taxes        $ -     0.0 %       $ -     0.0 %     $ -     0.0 %
</TABLE>


Comparative analysis of the provision for income taxes is as follows:
<TABLE>
<CAPTION>

                                   2007         2006          2005
                                  -----        ------         ----
<S>                                <C>          <C>           <C>
Current                        $     -      $      -      $      -
Deferred                             -             -             -
                                  -----         -----          ----
Total                              $ -           $ -           $ -
                                  =====         =====          ====
</TABLE>


The tax effects of the items  composing  the  Company's  net  deferred tax asset
consist of the  following  at  December 31  (in thousands):


                                                F-17

<PAGE>
<TABLE>
<CAPTION>
                                                                 2007     2006
                                                                =====     =====
Deferred tax liabilities
<S>                                                           <C>      <C>
  Reserve differential for hospitality and gaming activities  $ 1,309  $ 1,582
  Difference between book and tax-depreciable property          5,852    5,955
                                                               ------    -------
Total Deferred Tax Liabilities                                  7,161    7,537
                                                               ------    ------
Deferred tax assets
    Net operating loss carryforwards                         $23,116   $ 21,985
    Reserves not currently deductible                          7,030      2,480
    Bad debt reserves                                            155         57
    AMT and other credits                                      3,531      3,315
                                                              ------     ------
Total Deferred Tax Assets                                     33,832     27,837
                                                              ------     ------
Less - Valuation allowance                                   (24,225)   (17,854)
                                                              ------     ------
Net deferred tax asset                                       $ 2,446    $ 2,446
                                                              ======     ======
</TABLE>

     The Company has  $3,531,000 of  alternative  minimum tax ("AMT") credit and
general business credit  available to offset future income tax liabilities.  The
AMT credits have no expiration  date. The general business credit will not begin
to expire until 2010. The Company has approximately $65,000,000 in federal gross
net operating loss  carryforwards and $11,000,000 in state gross net operating
loss carryforwards.  The net operating loss  carryforwards  will expire between
2013 and 2028.  Currently,  the Company  does not believe that it is more likely
than  not that it can  utilize  the  deferred  tax  assets  and  accordingly,  a
valuation allowance has been provided for substantially all deferred tax assets.

     The realizability of the net deferred tax asset related to Rivera Las Vegas
is  dependent  upon  future  earnings.  The  Company's  net  deferred  tax asset
approximates  its  AMT  credit  carryforwards, which do not expire. For this
reason there is no valuation allowance against the AMT Credit.

     In June 2006, the Financial  Accounting  Standards Board (FASB) issued FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes -- an
interpretation  of FASB  Statement  No.  109"  (FIN  48),  which  clarifies  the
accounting and disclosure for uncertainty in tax positions,  as defined.  FIN 48
seeks to reduce the diversity in practice associated with certain aspects of the
recognition and measurement  related to accounting for income taxes. The Company
is subject to the  provisions  of FIN 48 as of  January  1,  2007.  The  Company
believes that its income tax filing  positions and deductions  will be sustained
on audit and does not anticipate any adjustments  that will result in a material
adverse effect on the Company's financial condition,  results of operations,  or
cash flow.  Therefore,  no reserves for uncertain income tax positions have been
recorded  pursuant  to FIN  48.  In  addition,  the  Company  did not  record  a
cumulative effect adjustment related to the adoption of FIN 48.

12.   COMMITMENTS AND CONTINGENCIES

     The Company is party to routine lawsuits arising from the normal operations
of a casino or hotel. We do not believe that the outcome of such litigation,  in
the aggregate,  will have a material  adverse effect on the financial  position,
results of operations, or cash flows of the Company.

                                                F-18

<PAGE>

13.   EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS

     William L.  Westerman  serves as our Chairman of the Board,  President  and
CEO,  and as  Chairman  of the  Board  and CEO of our  wholly-owned  subsidiary,
Riviera Operating Corporation ("ROC"), and CEO of Riviera Black Hawk Inc.

     Under Mr. Westerman's  employment agreement,  which was last amended by the
Third Amendment to the employment agreement on March 4, 2008, he is employed for
one-year  (calendar  year)  terms,  which  automatically  renew  for  successive
one-year terms unless  written notice is provided by Mr.  Westerman at least 180
days, or by us at least 90 days,  prior to  termination of the current term. Mr.
Westerman's base annual compensation is $1,000,000. The Third Amendment provides
that, effective January 1, 2008, Mr. Westerman is eligible to participate in our
senior management incentive compensation plan. The Third Amendment also provides
for the  payment  to Mr.  Westerman  of a  discretionary  bonus in the amount of
$300,000  prior to March  15,  2008,  for Mr.  Westerman's  contribution  to our
performance in 2007.

     On  February  5,  1998,  Stockholders  approved  a  merger  agreement  that
constituted  a change of control  under Mr.  Westerman's  employment  agreement.
(That merger  agreement was terminated  without  consummation of the merger.) On
March 5, 1998, Mr. Westerman  exercised his right to require us to establish and
fund a Rabbi Trust for his benefit.  On March 20, 1998, Mr. Westerman waived his
right to have us fund the Rabbi Trust in exchange  for our  agreement to fund it
within five business days after notice from him.

     Mr.  Westerman's  employment  agreement  required  us to fund a  retirement
account for him. We no longer make  principal  contributions  to the  retirement
account,  but the account continues to accrue interest.  The retirement  account
had a balance,  including  accrued  interest,  of  $2,063,000 as of December 31,
2007.

     We credit Mr. Westerman's retirement account quarterly with interest on the
first day of each succeeding  calendar quarter in an amount equal to the product
of (i) our average borrowing rate for the immediately  preceding fiscal year, as
determined by the our Chief Financial Officer,  and (ii) the average outstanding
balance in the retirement account during the preceding calendar quarter.  At the
recommendation  of the  Committee,  in order to reduce the amount  that would be
payable immediately upon Mr. Westerman's separation from employment with us, Mr.
Westerman and we agreed that commencing  April 1, 2003, and continuing the first
day of each  quarter  thereafter,  he be  paid  the  following  in  cash:  (i) a
distribution of $250,000 from the principal  balance of his retirement  account;
and (ii) the quarterly  interest credited to his retirement  account one quarter
in arrears.

     We retain beneficial ownership of Mr. Westerman's retirement account, which
is earmarked to pay his  retirement  benefits.  However,  upon (1) the vote of a
majority  of the  outstanding  shares of common  stock  approving  a "change  of
control" (as discussed in the next paragraph), (2) the occurrence of a change of
control without Mr. Westerman's  consent,  (3) a breach by us of a material term
of the employment  agreement or (4) the expiration or earlier termination of the
employment  agreement  for any reason other than cause,  Mr.  Westerman  has the
right to require us to establish a "Rabbi  Trust" for his benefit and to require
us to fund it with cash  equal to the amount  then  credited  to his  retirement
account,  including any amount to be credited to his  retirement  account upon a
change of control.

     In the event that Mr.  Westerman  ceases to be  employed  by us (except for
termination for cause,  in which case Mr.  Westerman would forfeit all rights to
monies in the retirement account),  he will be entitled to receive the amount in
the  retirement   account   (principal  and  interest)  in  20  equal  quarterly
installments  commencing  as of the date he ceases to be employed.  In the event
that Mr.  Westerman's  Rabbi  Trust  has not yet been  funded,  the  balance  of
principal and interest of the  retirement  account shall be paid directly to Mr.
Westerman upon his retirement or termination (except for cause) or upon a change
of control.

                                                F-19

<PAGE>

     Mr.  Westerman's  agreement  also  provides  that for a period of 24 months
following  termination  for any reason except cause,  he shall not engage in any
activity,  which is in  competition  with us  within a 75-mile  radius  from the
location of any hotel or casino then  operated by us. As  consideration  for not
competing,  we will pay to Mr. Westerman a total of $500,000 in two equal annual
installments of $250,000.  The first installment is payable within five business
days of termination  of employment  with the second  installment  payable on the
first anniversary of termination.

     In addition to Mr. Westerman, one other executive,  Robert Vannucci, has an
employment agreement with us.

     Mr.  Vannucci  serves  as  President  and COO of ROC.  We  entered  into an
employment  agreement  with  Mr.  Vannucci  effective  September  1,  2006.  The
agreement  is for a  one-year  term  and  automatically  renews  for  successive
one-year terms.  Mr.  Vannucci's base  compensation is $400,000.  His employment
agreement also provides for an annual base award of $200,000 and plus an amount
for a stretch bonus under our Incentive Compensation Program if we fully achieve
our  financial  targets at Riviera Las Vegas in 2008 (or a prorated award, if we
partially achieve those targets).  For 2007 Mr. Vannucci received an Incentive
Compensation Program award of $203,458. For 2006,  Mr.  Vannucci  received an
Incentive Compensation Program award of $92,500. Mr. Vannucci did not receive an
Incentive  Compensation  Program award for 2005. Mr. Vannucci or we may
terminate the employment  agreement at any time upon 30 days prior written
notice,  but if we terminate it without cause,  then Mr.  Vannucci will be
entitled to one year's salary,  a prorated award under our Incentive
Compensation  Program,  two years of health insurance  benefits and a one-year
automobile  allowance of $6,000,  plus reimbursement of all reasonable
automobile expenses (excluding lease or loan payments).

     Incentive Compensation Program -- We have an Incentive Compensation Program
covering  employees  who,  in the opinion of our  Chairman of the Board,  either
serve in key executive,  administrative,  professional,  or technical capacities
with us, or who have  made a  significant  contribution  to the  successful  and
profitable  operation of the  Company.  The amount of each bonus is based upon a
sliding targeted scale of earnings established annually.  During the years ended
December  31,  2007,  2006 and 2005,  the Company  recorded  accrued  bonuses of
$1,716,000, $581,000 and $555,000 respectively, under this program.

     Pension Plan Contributions -- We contribute to multi-employer pension plans
under  various  union  agreements  in  Las  Vegas  to  which  we  are  a  party.
Contributions,  based on wages paid to  covered  employees,  were  approximately
$1,989,000,  $1,952,000  and  $1,760,000  for the years ended December 31, 2007,
2006 and 2005,  respectively.  Our share of any  unfunded  liability  related to
multi-employer plans, if any, is not determinable.

     Profit  Sharing and 401(k) Plans -- We have profit sharing and 401(k) plans
(the "Profit  Sharing and 401(k)  Plans") for employees of Riviera Las Vegas and
Riviera Black Hawk who are at least 21 years of age and who are not covered by a
collective bargaining agreement and are eligible after ninety days of service.

     Effective  January 1, 2008 we amended our 401(k)  Plans to an amount not to
exceed 50% of the first 6% of each participant's compensation.  Prior to January
1, 2008 the  Company  match was 25% of the  first 8%. We made  contributions  of
$279,000,  $276,000 and $290,000 for the years ended December 31, 2007, 2006 and
2005. We also pay  administrative  costs of the Profit Sharing and 401(k) Plans,
which are not significant.

                                                F-20
<PAGE>

     Prior to 2003, we suspended  contributions to the profit sharing  component
of the Profit Sharing and 401(k) Plans and we have substituted  contributions to
an Employee Stock Ownership Plan ("ESOP"), (see "Employee Stock Ownership Plan,"
directly below).

     Employee Stock Ownership Plan -- The ESOP was established  prior to 2003 to
replace the profit  sharing  contribution  component  of the Profit  Sharing and
401(k) Plans. The 401(k) component remains unchanged. The ESOP provides that all
employees of Riviera Las Vegas and Riviera  Black Hawk who were  employed on and
completed a minimum of 1,000 hours of service by, December 31 of that plan year,
were at least 21 years of age, and were not covered by a  collective  bargaining
agreement  are eligible to  participate  in the ESOP.  The ESOP provides that we
will make a  contribution  to the ESOP's  participants  at Riviera Las Vegas and
Riviera Black Hawk relative to the economic performance of each property and for
the corporate  participants  relative to the economic  performance of the entire
Company.  We will make a  contribution  equal to 1% of each eligible  employee's
annual compensation if a prescribed annual operating earnings target is attained
and an additional 1% thereof for each $2 million by which operating earnings are
exceeded,  up to a maximum of 4% for 2007. Under the ESOP, our contributions are
made in cash,  which may be used to buy our  common  stock and pay  participants
upon  separation  of service.  We  contributed  $316,000 in 2007, $0 in 2006 and
$126,000 in 2005, respectively to the ESOP.

     Deferred  Compensation  Plan --  Prior  to  2003,  we  adopted  a  Deferred
Compensation  Plan (the  "DCP").  The purpose of the DCP is to provide  eligible
employees  with the  opportunity  to defer  the  receipt  of cash  compensation.
Participation in the DCP is limited to employees who receive annual compensation
of at least $100,000.  The deferred funds other than the common stock component,
are maintained on the Company books as funded liabilities under Rabbi Trusts for
the  benefit  of the  participants.  All  elections  to  defer  the  receipt  of
compensation  must be made no later than December 1st preceding the plan year to
which the  election  relates and are  irrevocable  for the duration of that plan
year. No deferrals have been made since 2004. The plan distributed the remaining
common  stock to  participants  during 2007 and as of December 31, 2007 the plan
does not have any participants.

     Restricted  Stock Plan -- Prior to 2003, we adopted a Restricted Stock Plan
to  provide  incentives,  to  attract  and retain  highly  competent  persons as
officers  and key  employees.  Participants  consist  of such  officers  and key
employees  as  our  Compensation   Committee   determines  to  be  significantly
responsible  for our  success  and future  growth and  profitability.  Awards of
restricted  stock are subject to such terms and conditions as we determine to be
appropriate  at the time of the  grant,  including  restrictions  on the sale or
other  disposition  of such shares and provisions for the forfeiture of unvested
shares for no  consideration  upon termination of the  participant's  employment
within specified periods or under certain conditions. Please see Note 13.

     Salary  Continuation  Agreements -- Approximately 60 executive officers and
certain other employees  (excluding Mr.  Westerman and Mr.  Vannucci) of ROC and
RBH  have  salary  continuation  agreements  effective  through  December  2008,
pursuant  to which they will be  entitled  to receive  (1) six months  salary if
their employment with the Company is terminated, without cause, within 12 months
of a change of control of the  Company;  and (2) group  health  insurance  for a
period  of  6  months.   The  base  salary  payments  are  payable  in  biweekly
installments,  subject to the  employee's  duty to  mitigate by using his or her
best efforts to find employment. In addition, two officers and three significant
employees have salary  continuation  agreements  effective  through December 31,
2008, pursuant to which each of them will be entitled to receive one year's base
salary and certain  benefits for two years,  if their  employment  is terminated
without cause within 24 months of a change of control of the Company. These five
salary  continuation  agreements  are not  subject  to a duty to  mitigate.  The
estimated total amount payable under all such agreements was approximately  $3.5
million, which includes $690,000 in benefits, as of December 31, 2007.

                                                F-21

<PAGE>

14.   STOCK OPTION PLANS

     Stock Compensation Plans -- On January 1, 2006, we adopted SFAS No. 123(R),
using the modified prospective application.  Accordingly, prior amounts have not
been  restated.  In the first  quarter of 2006 our  adoption of SFAS No.  123(R)
resulted  in no  incremental  stock-based  compensation  expense,  as we  had no
non-vested options  outstanding at January 1, 2006. At December 31, 2007, we had
two active  stock option plans and two expired  stock  option  plans,  which are
described  below.  Under the 1993  Employee  Stock Option Plan (the "1993 Option
Plan"),  we were  authorized to grant options to employees for up to one million
shares of our  common  stock.  Under the  Non-Qualified  Stock  Option  Plan for
Non-Employee  Directors  (the "1996 Option Plan"),  we were  authorized to grant
options to  non-employee  directors  for up to 150,000  shares of common  stock.
Under these plans, the exercise price of each option equaled the market price of
our stock on the date of grant.  All options  have become  vested under the 1996
Option Plan.  Although  the 1993 Option Plan and 1996 Option Plan have  expired,
some options granted under these plans are still outstanding.

     Effective  May 17,  2005,  we  implemented  two new stock  option plans and
reserved a total of 1,150,000  shares for options  issuable under the plans.  We
allocated  150,000 shares to a new option plan for  non-employee  directors.  We
will  grant  options  for 6,000  shares to each  non-employee  director  on each
anniversary of the effective  date of the plan.  Also, we will grant options for
6,000 shares to each person who becomes a  non-employee  director  after May 17,
2005. The option exercise price will be the closing market price of our stock on
the date of the option  grant.  The options will vest over five years at 20% per
year, commencing on the first anniversary of the grant.

     In 2005,  we allocated one million  shares to a new incentive  stock option
plan for our officers and key  employees.  Our Stock Option  Committee will have
discretion  as to whom those options will be granted and the number of shares to
be allocated to each option grant. The option exercise price will be the closing
market price of our stock on the date of the option grant. The options will vest
over four years, with 20% vesting on the date of grant, and an additional 20% on
each anniversary of the grant.

     In March of 2005 we  granted  385,500  restricted  shares to 21  executives
under our Restricted Stock Plan. On December 31, 2007, 137,700 restricted shares
remained  outstanding.  As of  December  31,  2007,  $1,370,000  remained  to be
realized as expense  related to these  shares.  This  amount will be  recognized
straight line over the remaining 3 years. On the 2007  anniversary of the grant,
48,300 shares vested and the restrictions were lifted.

     One  executive  left the  company in 2007 and  forfeited  7,200  restricted
shares.  Except for accelerated  vesting in the event of an executive's death or
disability, retirement at or after age 62, termination of employment by us other
than for cause,  or certain  events of hardship,  or in the event of a change in
control of the Company, the vesting schedule for the shares is as follows.
<TABLE>
<CAPTION>

<S>                              <C> <C>            <C>
                           March 10, 2006............20%
                           March 10, 2007............40%
                           March 10, 2008............60%
                           March 10, 2009............80%
                           March 10, 2010...........100%
</TABLE>

     On May 27,  2005,  we  granted  a total of  30,000  shares  of stock to our
non-employee  directors.  Those shares are subject to  restrictions  on resales,
assignments,  pledges,  encumbrances or other  transfers  prior to vesting.  The
shares vest at the rate of 20% per year on each  anniversary  of the grant date.
However,  accelerated  vesting  will occur upon death,  disability,  a change of
control of the Company or under any other  termination of  directorship  status,
except resignation prior to reaching age 62 or declining to stand for reelection
prior to reaching  age 62 (which would result in  forfeiture  of the  non-vested
shares).

                                                F-22
<PAGE>
     The activity of the 1993 Option Plan and the two director option plans (the
1996 Option Plan and the 2005 Stock Option Plan for  Non-employee  Directors) is
as follows:
<TABLE>
<CAPTION>

                                                               Weighted-
                                                                Average
                                                               Per Share
                                                                Exercise
Stock Options                                    Shares          Price

<S>                  <C>                       <C>               <C>
Outstanding, January 1, 2005                   477,000           $ 2.42
  Exercised                                   (166,500)          $ 2.38
                                              --------
Outstanding, December 31, 2005                 310,500           $ 2.45
  Automatic grant to directors                  24,000          $ 21.60
  Exercised                                    (97,500)          $ 2.63
  Forfeited                                     (3,000)          $ 2.45
                                               --------
Outstanding, December 31, 2006                 234,000           $ 4.33
  Automatic grant to directors                  24,000           $ 36.56
                                               -------
Outstanding, December 31, 2007                 258,000            $ 7.33
                                               =======
</TABLE>
<TABLE>
<CAPTION>

                                        Outstanding      Average            Weighted-
                                             at         Remaining            Average
                   Range of             December 31,   Contractual           Exercise
               Exercise Prices              2007           Life               Price
               ------------------------------------------------------------------------
<S>            <C>      <C>                  <C>         <C>                 <C>
               $1.33 to $2.00                36,000      4.88 years          $ 1.91
               $2.18 to $20.00              174,000      3.28 years          $ 2.45
               $20.00 to $36.56              48,000      8.92 years         $ 29.08
</TABLE>
<TABLE>
<CAPTION>

                                           Exercise   Weighted Average   Aggregate Intrinsic
                                Shares       Price     Remaining Life           Value
<S>                <C>   <C>    <C>          <C>         <C>                  <C>
Shares exercisable 12/31/07    224,800      $3.59       4.58 years        $6,106,000
</TABLE>

     The total  intrinsic  value of options  exercised  during 2006 and 2005 was
$1,614,000 and $2,053,000 respectively. No options were exercised in 2007.

     Option expense  recorded in 2007,  2006 and 2005 was $223,000,  $72,000 and
$60,000, respectively.  Restricted stock expense recorded in 2007, 2006 and 2005
was $744,000,  $741,000 and $1,600,000,  respectively.  As of December 31, 2007,
$177,000 remains to be recorded as expense for outstanding options.

     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions used for grants in 2007, respectively: dividend yield of 0%; average
expected volatility 41% based on the history of the stock price; risk-free
interest rates of 5.01%; and average expected life of 2.7 years.  The average
weighted fair value of options  granted in 2007 and 2006 was $11.06 and $14.30
per share, respectively.  No options were granted in 2005.

                                                F-23

<PAGE>

15.     GUARANTOR INFORMATION

     The New Credit Facility is guaranteed by the Subsidiaries, which are all of
our restricted subsidiaries. These guaranties are full, unconditional, and joint
and several.  RHC's unrestricted  subsidiaries,  which have no operations and do
not significantly contribute to our financial position or results of operations,
are not guarantors of the New Credit Facility.

16.   LOSS PER SHARE

     Basic  loss per share is  computed  by  dividing  net loss per share by the
weighted-average  number of common shares  outstanding  for the period.  Diluted
loss per share is  computed  by dividing  net income by the  weighted  number of
common and  common-equivalent  shares  outstanding  for the  period.  Options to
purchase common stock,  whose exercise price was greater than the average market
price for the period,  have been excluded from the  computation  of diluted loss
per share as their  effect  would  have been  anti-delutive.  Such  antidilutive
options  excluded from the  calculation  of diluted loss per share for the years
ended  December  31, 2007,  2006 and 2005 were  265,486;  171,353;  and 276,196,
respectively based on the treasury method.

17.   RELATED PARTY TRANSACTIONS

     Jeffrey A. Silver, a member of our board of directors,  is a shareholder in
the law firm of Gordon & Silver,  Ltd.  ("Gordon  &  Silver").  We have  engaged
Gordon & Silver for  various  securities  issues and other legal  matters  since
1993. We continue to utilize the services of Gordon & Silver and we believe that
the fee arrangement is substantially  equivalent to the arrangements  that would
have been made with a comparable  law firm where a  relationship  of this nature
did not exist.  We incurred  legal  expenses  to the firm which are  included in
mergers, acquisitions and development cost of $174,000, $495,000 and $137,000 in
2007, 2006 and 2005, respectively.  We incurred legal expenses to the firm which
are included in other general and administrative  costs of $67,000,  $56,000 and
$297,000 in 2007, 2006 and 2005, respectively.

     We  incurred  legal  expenses  to  the  firm,  which  are  included  in our
refinancing costs of $124,000 for 2007.

18.   SEGMENT DISCLOSURES

     We review our operations by our geographic gaming market segments:  Riviera
Las  Vegas  and  Riviera  Black  Hawk.  All  inter-segment  revenues  have  been
eliminated.

                                                F-24

<PAGE>
<TABLE>
<CAPTION>
(in thousands)                                  2007       2006        2005

Net revenues:
<S>                                           <C>        <C>         <C>
      Riviera Las Vegas                       $151,505   $ 149,202   $ 150,688
      Riviera Black Hawk                        53,990      51,742      51,539
                                              --------   ---------   ----------
Total net revenues                            $205,495   $ 200,944   $ 202,227
                                              ========   =========    ========
Property EBITDA(1)
      Riviera Las Vegas                         30,166      28,075      26,789
      Riviera Black Hawk                        19,133      16,825      17,282

Other costs and expenses:
      Corporate expense
            Share-based compensation               966         813       1,627
            Other corporate expenses             4,745       4,644       5,278
      Depreciation and amortization             13,116      12,691      14,065
      Mergers, acquisitions and development
           costs, net                              611       1,318         (65)
      Asset impairments                             72          18         777
      Loss on retirement of bonds               12,878
      Decrease in value of derivative
            instruments          1               3,272
      Interest expense                          23,756      26,366      26,608
      Interest income                           (1,859)       (615)       (220)
                                                -------     ------      -------
                                                67,557      45,235      48,070
                                                -------     ------     --------
      Net loss                               $ (18,258)     $ (335)   $ (3,999)
                                               ========    ========   =========

Interest expense:
      Riviera Las Vegas                        $ 16,851    $ 18,643    $ 18,857
      Riviera Black Hawk                          6,905       7,723       7,751
                                                -------     -------    --------
                                               $ 23,756    $ 26,366    $ 26,608
                                                =======    ========    =========
Depreciation Expense
      Riviera Las Vegas                        $ 9,143     $ 9,032     $ 9,712
      Riviera Black Hawk                         3,973       3,659       4,353
                                               -------      ------      ------
                                              $ 13,116    $ 12,691    $ 14,065
                                                ======     =======      ======
Asset Impairment:
      Riviera Las Vegas                          $ -        $ 18       $ 310
      Riviera Black Hawk                          72           -         467
                                                -----       -----      -----
                                                $ 72        $ 18       $ 777
                                                =====       =====      =====

                                                    December 31
Property and equipment (2):                       2007       2006
                                               --------     ------
      Riviera Las Vegas                        $109,885   $ 108,234
      Riviera Black Hawk                         62,980      63,086
                                               --------    --------
                                               $172,865   $ 171,320
                                               ========    ========
</TABLE>

                                                F-25

<PAGE>

     (1) Property  EBITDA consists of earnings  before  interest,  income taxes,
depreciation  and  amortization.  EBITDA is presented  solely as a  supplemental
disclosure  because we believe  that it is a widely  used  measure of  operating
performance in the gaming industry and a principal basis for valuation of gaming
companies by certain  investors.  We use  property-level  EBITDA  (EBITDA before
corporate  expenses)  as the primary  measure of  operating  performance  of our
properties,  including the evaluation of operating personnel.  EBITDA should not
be construed as an alternative to operating income, as an indicator of operating
performance,  as an  alternative to cash flow from  operating  activities,  as a
measure of  liquidity,  or as any other measure  determined  in accordance  with
accounting  principles  generally  accepted in the United States of America.  We
have significant uses of cash flows,  including capital  expenditures,  interest
payments and debt principal  repayments that are not reflected in EBITDA.  Also,
other gaming companies that report EBITDA  information may calculate EBITDA in a
different manner than we do.

     (2)  Property  and  equipment  represent  property  and  equipment  net  of
accumulated depreciation and amortization.

19.  UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>

RIVIERA HOLDINGS CORPORATION
UNAUDITED QUARTERLY FINANCIAL DATA
(Amounts in Thousands, Except per Share Data)
--------------------------------------------------------------------------------
                                   March 31    June 30 September 30  December 31
Year ended December 31, 2007
<S>                                 <C>        <C>        <C>           <C>
  Net revenues                      $ 52,027   $ 53,665   $ 52,380     $ 47,423
  Operating income                    8,961       9,439      6,664        4,725
  Income (loss) before tax benefit    2,562       3,574    (18,254)      (6,140)
  Net Income (loss)                   2,562       3,574    (18,254)      (6,140)
  Income (loss) per share basic       $ 0.21     $ 0.29    $ (1.48)    $ (0.50)
  Income (loss) per share diluted     $ 0.20     $ 0.28    $ (1.47)    $ (0.49)

Year ended December 31, 2006
  Net revenues                      $ 51,689   $ 52,437   $ 50,349    $ 46,469
  Operating income                    7,789       6,895     5,988        4,744
  Income (loss) before tax benefit    1,280         418      (432)      (1,601)
  Net Income (loss)                   1,280         418      (432)      (1,601)
  Income (loss) per share basic &
       diluted                       $ 0.11      $ 0.03   $ (0.04)    $ (0.13)
</TABLE>






                                                F-26

<PAGE>