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                       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 [No Fee Required]

For the fiscal year ended December 31, 1997

[  ]       Transition report pursuant to sections 13 or 15(d)
         of the Securities Exchange Act of 1934 [Fee Required]

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 of Incorporation)                    (I.R.S. Employer Identification No.)

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:  None

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

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

           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]

           Based on the average bid price for the  Registrant's  Common Stock as
of March  26,  1998 the  aggregate  market  value of the  voting  stock  held by
non-affiliates of the Registrant was approximately  $53,843,000.  As of February
28, 1998 the number of outstanding  shares of the Registrant's  Common Stock was
4,894,880.

Documents  incorporated by reference:  The Company's Proxy Statement dated April
30, 1998 relating to the Annual Meeting of Stockholders to be held June 24, 1998
 is incorporated by reference in Part III hereof.


                               Page 1 of 68 Pages
                    Exhibit Index Appears on Page 63 hereof.


                                                                 1

<PAGE>



                   RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
                    ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
                          YEAR ENDED DECEMBER 31, 1997

                                TABLE OF CONTENTS

<TABLE>
<S>        <C>                                                                                                                  <C>

Item 1.    Business................................................................................................................3

           General ................................................................................................................3
           The Proposed Merger.....................................................................................................4
           Growth Opportunities................................................................................................... 5
           The Riviera.............................................................................................................5
           Future Expansions .....................................................................................................10
           Marketing Strategy.................................................................................................... 10
           Las Vegas Market.......................................................................................................14
           The Black Hawk Project.................................................................................................15
           Colorado Market........................................................................................................16
           Riviera Gaming Management............................................................................................. 16
           Competition........................................................................................................... 17
           Employees and Labor Relations..........................................................................................19
           Regulation and Licensing...............................................................................................19
           Federal Registration...................................................................................................28

Item 2.    Properties.............................................................................................................28

Item 3.    Legal Proceedings......................................................................................................28

Item 4.    Submission of Matters to a Vote of Security Holders....................................................................28

Item 5.    Market for the Registrant's Common Stock and Related Security Holder Matters...........................................29

Item 6.    Selected Financial Data................................................................................................30

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..................................30
           Results of Operations..................................................................................................31
           1997 Compared to 1996..................................................................................................32
           1996 Compared to 1995..................................................................................................33
           Liquidity and Capital Resources........................................................................................35
           Year 2000 Project......................................................................................................36
           Forward Looking Statements.............................................................................................36
           Recently Adopted Accounting Standards..................................................................................36
           Recently Issued Accounting Standards...................................................................................36

Item 8.    Financial Statements and Supplementary Data, etc.......................................................................37

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................58

Item 10.   Directors and Executive Officers of the Registrant.....................................................................59

Item 11.   Executive Compensation.................................................................................................59

Item 12.   Principal Shareholders.................................................................................................59

Item 13.   Certain Relationships and Related Transactions ........................................................................59

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8K.........................................................60
</TABLE>

                                                                 2

<PAGE>



                                                      PART I

Item 1.    Business

General

           Riviera Holdings  Corporation,  a Nevada corporation (the "Company"),
through its wholly owned  subsidiary,  Riviera Operating  Corporation,  a Nevada
corporation  ("ROC"),  owns  and  operates  the  Riviera  Hotel  &  Casino  (the
"Riviera")  located on Las Vegas  Boulevard (the "Strip") in Las Vegas,  Nevada.
Opened in 1955,  the  Riviera  has  developed  a  long-standing  reputation  for
delivering high quality,  traditional Las Vegas-style  gaming and entertainment.
The Riviera is situated on a 26-acre site,  located across the Strip from Circus
Circus  and  across  Paradise  Road from the Las Vegas  Hilton and the Las Vegas
Convention  Center.  The  property  features  approximately  2,100 hotel  rooms,
including 169 suites,  115,000  square feet of casino space,  one of the largest
convention,  meeting  and banquet  facilities  in Las Vegas,  four  full-service
restaurants,  a large buffet, four showrooms,  an entertainment  lounge, 47 food
and retail  concessions  and  approximately  2,900  parking  spaces.  The casino
contains approximately 1,630 slot machines, 46 gaming tables, including poker, a
keno lounge and a 200-seat race and sports book.  The Riviera  offers one of the
most extensive  entertainment  programs in Las Vegas, including the such popular
shows as,  Splash(R),  An Evening at La Cage(R),  Crazy  Girls(R)  and  featured
comedians  at the Riviera  Comedy  Club(TM)..  The  Company,  through its gaming
management  subsidiary,  also  manages the Four Queens  Hotel and Casino  ("Four
Queens") on Fremont  Street in downtown Las Vegas and is  developing a casino in
Black Hawk, Colorado.

           From 1992 to the end of 1997, the Riviera's  management team achieved
growth in EBITDA1 and profit  margins.  EBITDA has increased over 44% from $21.8
million in 1992 to $29.4  million in 1997 and EBITDA  margins have improved from
15.1% to 19.1% over the same period.  The Company  achieved this growth  through
the  implementation  of a number of  strategic  initiatives  that  included  (i)
refocusing its marketing strategy from  "high-rollers" to adult mid-level gaming
customers, a niche that management believes has been under served, (ii) focusing
on conventioneers  who pay higher room rates,  causing Riviera's ADR to increase
from  $47 in  1992  to $58 in  1997,  (iii)  aggressively  marketing  its  hotel
facilities  resulting in occupancy  rates growing from 90.6% in 1992 to 96.8% in
1997, (iv)  emphasizing  higher margin slot play which increased slot revenue by
23% from 1992 to 1997 and (v)  investing  approximately  $54  million in capital
improvements  since 1992.  Management  believes  that it has also  improved  the
stability  of  EBITDA  by  providing  a  broad  entertainment  experience  (1997
non-gaming  revenues:  57% vs. 51% for other casinos on the Strip),  focusing on
conventioneers  (approximately  40% of midweek room nights pre-sold through June
2000) and  developing  a repeat  and loyal  customer  base  through  proprietary
database marketing.

           The  Company,  which was  incorporated  on January 27,  1993,  is the
successor to Riviera,  Inc.,  which filed for protection under Chapter 11 of the
United States Bankruptcy Code in December 1991. The Company acquired the Riviera
pursuant to a plan of reorganization which became effective on June 30, 1993.

           On August 13,  1997 the  Company  completed  an  offering  (the "Note
Offering") of $175 million principal  aggregate amount of its 10% First Mortgage
Notes  due 2004 (the  "Notes")  and,  with the  proceeds  of the Note  Offering,
defeased the outstanding $100 million principal amount of its 11% First Mortgage
Notes due 2002 (the "11%  Notes").  The Note Offering was effected in accordance
with Rule 144A of the

-------------------------

1  EBITDA consists of earnings before interest,  income taxes,  depreciation and
amortization  (excluding  Paulson Merger costs and write off of costs associated
with  the  secondary  offering.)  While  EBITDA  should  not be  construed  as a
substitute  for operating  income or a better  indicator of liquidity  than cash
flow  from  operating  activities,  which  are  determined  in  accordance  with
generally  accepted  accounting  principles  ("GAAP"),  it is included herein to
provide  additional  information  with  respect to the ability of the Company to
meet  its  future  debt  service,   capital   expenditure  and  working  capital
requirements.  Although  EBITDA is not  necessarily  a measure of the  Company's
ability to fund its cash needs,  management believes that certain investors find
EBITDA to be a useful tool for  measuring  the ability of the Company to service
its debt.

                                                         3

<PAGE>



Securities  Act of 1933,  as amended  (the  "Securities  Act").  The Company has
registered under the Securities Act,  securities  identical to the Notes and has
completed an offer to exchange such registered securities for the Notes.

           Since  August  1996,  Riviera  Gaming  Management  -  Elsinore,  Inc.
("RGME"), an indirect wholly owned subsidiary of the Company, has been operating
the Four  Queens  located  adjacent  to the Golden  Nugget on Fremont  Street in
downtown Las Vegas under an interim  management  agreement  for a fee of $83,333
per month. A long-term management agreement with Elsinore Corporation,  a Nevada
corporation  ("Elsinore"),  the owner of the Four  Queens,  went into  effect on
February 28, 1997, the effective  date of the Chapter 11 plan of  reorganization
of Elsinore.

           The term of the  management  agreement  is  approximately  40 months,
subject to  earlier  termination  or  extension.  RGME is paid a minimum  annual
management fee of $1.0 million in equal monthly installments.  In addition, RGME
receives  a fee of 25% of the  amount  by which the Four  Queens'  EBITDA in any
fiscal year exceeds $8 million. RGME has received Warrants to purchase 1,125,000
shares of common stock of Elsinore, exercisable during the term or extended term
of the management agreement at an exercise price of $1.00 per share.

           Either  party  can   terminate  the   management   agreement  if  (i)
substantially  all the Four  Queens'  assets are sold,  (ii) the Four  Queens is
merged or (iii) a majority of the Four  Queens' or  Elsinore's  shares are sold.
Upon such termination,  RGME will receive a $2.0 million termination bonus minus
any amount realized or realizable upon exercise of the Warrants.

The Proposed Merger

           The  Company  has entered  into an  Agreement and Plan of Merger (the
"Merger  Agreement")  with R&E Gaming Corp.  ("R&E Gaming") and its wholly-owned
subsidiary RAS  Acquisition  Sub, Inc. ("RAS"), certain  entities  controlled by
Allen E. Paulson, a California businessman ("Paulson"), pursuant to which one of
such  entities  would be merged with and into the Company  (the  "Merger").  The
closing  of the  Merger is  subject  to a number of  conditions,  including  (i)
approval  by the  affirmative  vote of the holders of at least 60% of all issued
and outstanding  shares of Common Stock,  par value $.001 per share (the "Common
Stock"),   of the  Company   (excluding  the  shares of Common  Stock  owned  by
Paulson or his affiliates) which approval was obtained at a special meeting held
February 5, 1998, (ii)  Paulson's  licensure by  the  Nevada Gaming  Authorities
(as defined),  (iii) the absence of any  regulation,  judgment or other law that
prohibits  the  consummation  of the  Merger  or would  prohibit  or  limit  the
Company's  ownership or control of a material portion of the Company's  business
or assets  following  the Merger,  and (iv) the absence of any material  adverse
change in the  Company's  EBITDA (as  defined in the Merger  Agreement)  for the
period  commencing  on April 1, 1997 through and including the most recent month
prior  to  such  closing  for  which  the  Company's  financial  statements  are
available.  The  holders of  approximately  59% of the  Company's  Common  Stock
entered into an option and voting agreement pursuant to which they voted for the
Merger.  However,  there can be no assurance  that the  conditions to the Merger
will be satisfied or waived or that the Merger will be consummated.

           Paulson,  through his wholly-owned  affiliates, has  entered  into an
agreement to purchase  the  outstanding  common  stock of Elsinore.  Such a sale
would be effective through the merger (the "Elsinore  Merger") of a wholly-owned
subsidiary  of a holding  company  owned by Paulson  into  Elsinore.  Based upon
reports filed pursuant to the  Securities  Exchange Act of 1934, as amended (the
"Exchange  Act"),  as of December  31,  1997,  Morgens,  Waterfall,  Vintiadis &
Company, Inc. ("Morgens Waterfall"), one of the majority stockholders,  together
with its affiliates,  beneficially  owned approximately  94% of the common stock
of Elsinore.



                                                         4

<PAGE>



           On February 25, 1998, the Company announced that it had been advised
by Paulson, President of R&E Gaming, that R&E Gaming is preserving its right not
to proceed with its acquisition of Elsinore and that an Option and Voting
Agreement relating to Elsinore between R&E Gaming and Morgens Waterfall is void
by reason of certain alleged misrepresentations.

          R&E Gaming requested that Morgens Waterfall, SunAmerica Life Insurance
Company  ("SunAmerica") and Keyport Insurance Life Company  ("Keyport")  confirm
the accuracy of certain  representations  and warranties in an Option and Voting
Agreement relating to Riviera.  R&E Gaming also requested  information to enable
it to determine  whether  Riviera is in compliance with certain of the covenants
in the Riviera Merger Agreement with R&E Gaming.

           On March  20,  1998,  the  Company  was  notified  (the  "Termination
Notice") by Paulson on behalf of R&E Gaming and its wholly-owned  subsidiary RAS
that the Merger  Agreement,  dated as of September 15, 1997,  among the Company,
R&E  Gaming and RAS is void and  unenforceable  against  R&E Gaming and RAS,  or
alternatively,  of their intention to terminate the Riviera Merger Agreement.  A
copy of the Termination Notice is filed as an exhibit to this Form 10-K. Riviera
disputes the factual and legal assertions in the Termination  Notice and intends
to vigorously  pursue its rights against  Paulson,  including  collection of the
approximately  $5,825,000  being held in escrow  (the  "Escrow  Funds") by State
Street  Bank and Trust  Company of  California,  N.A.  as escrow  agent under an
Escrow  Agreement  dated as of September 15, 1997. The Escrow Funds consist of :
(i) $3.00 per share (20%) downpayment for approximately  1,555,585 shares of the
Company's  common stock,  which are not owned by the Morgans  Waterfall  managed
funds, SunAmerica,  Keyport or Paulson and his affiliates,  and (ii) interest at
the rate of 7% per annum on the $15.00  purchase price for such shares from June
1, 1997 to February 14, 1998.  The escrowed funds include cash of $654,000 and a
letter of credit in the amount of $5.2 million which expires on June 10, 1998.

Growth Opportunities

           Over  the past  several  years,  management  initiated  a  number  of
strategic  changes at the Riviera to  reposition  the property to compete in the
Las Vegas  gaming  market.  The Company  has  formulated  a business  and growth
strategy to maintain the competitive position of the Riviera as well as grow the
Company.  The key elements of the  Company's  business  and growth  strategy are
discussed below.

Develop New Casino/Hotels

           As part of the  Company's  strategy to diversify its revenue base and
leverage  both the Riviera name and its  management  team,  the Company  pursues
development  opportunities in both established and emerging gaming markets.  The
Company has acquired for $15 million, a certain parcel of real property in Black
Hawk,  Colorado (the "Black Hawk Land"),  which management believes to be one of
the premier  gaming sites in Colorado.  The Company  intends to use this site to
construct one of the largest gaming  facilities in the adjacent gaming cities of
Black Hawk and Central City, Colorado (the "Black Hawk Project"). The Black Hawk
Project is  expected  to feature  approximately  1,000 slot  machines,  14 table
games, an approximately  500 space covered parking garage and  entertainment and
food  service  amenities.   Management   believes  this  market  has  attractive
fundamentals,  including  (i)  gaming  limited  to Black  Hawk/Central  City and
Cripple Creek in Colorado,  (ii) consistent  gaming revenue growth since 1992 to
over $430 million in 1997, (iii) slot machine  dominated market due to statutory
limited  stakes,  (iv) one hour drive from central Denver and (v)  approximately
2.3 million adults residing within 100 miles of Black Hawk.  Management believes
that  the  proposed  Riviera  facility  will  be  highly  successful  due to the
following  attributes:  (i) premier  location:  it will be the first gaming site
encountered when arriving from Denver,  (ii) size and quality: it will be one of
the largest  casinos in the market  complete with  restaurant and  entertainment
options and (iii) superior parking: it will have on-site,  covered self-parking,
which is critical in this market where parking is currently  extremely  limited.
The Black Hawk Project is an attractive  investment  opportunity that allows the
Company to create a  multi-jurisdictional  gaming company. The Company currently
estimates  that total costs for  completion  of the Black Hawk  Project  will be
approximately  $55 million.  The Company purchased the Black Hawk Land in August
1997 for $15 million,  which was  financed by the net proceeds  from the sale of
the Notes, and expects to finance the remainder of the Black Hawk Project from a
combination of third party  financing and additional  investment by the Company,
including up to an additional $15 million of the net

                                                         5

<PAGE>



proceeds  from the sale of the Notes.  The  Company has  received an  excavation
permit and expects to receive the other  necessary  permits in the near  future,
with construction of the casino commencing shortly thereafter.
The casino is scheduled to open in 1999.

           In addition  to the Black Hawk  Project,  the  Company  also plans to
review and selectively acquire or develop casino/hotel properties both in Nevada
and other jurisdictions. Other than the Black Hawk Project, the Company does not
presently  have  any  agreements  in  principle  for  involvement  in any new or
financially troubled projects.

Manage Distressed Casino/Hotel Properties

           The Company believes that there is increasing demand for the services
of skilled  gaming and  hospitality  professionals.  In order to  capitalize  on
management's  reputation  and  experience as successful  casino  operators,  the
Company formed Riviera Gaming  Management,  Inc. ("RGM") for the primary purpose
of obtaining casino management contracts with casinos/hotels in Nevada and other
jurisdictions.  Since August 1996,  RGME,  as subsidiary of RGM, has managed the
Four Queens located  adjacent to the Golden Nugget on Fremont Street in downtown
Las Vegas. Under the Four Queens management contract, RGME receives a guaranteed
minimum  management fee of $1 million plus additional  compensation if EBITDA of
the Four Queens exceeds $8 million per annum, and Warrants to purchase 1,125,000
shares of Elsinore  common  stock (equal to 18.5% of the equity of Elsinore on a
fully  diluted  basis) at $1.00 per share.  Such  management  contract  provides
significant  revenues  and  upside  equity  potential  with  minimal  additional
overhead and capital  expenditure.  RGME generated  approximately  $1 million in
management  fees for the Company in 1997.  Management is continually  evaluating
opportunities to manage other casinos/hotels.

Further Develop the Riviera

           The  Company  has  engaged  architects  and  designers  to prepare an
overall  expansion plan (the "Master  Plan") for the existing  26-acre site. The
Company believes that  implementation of the Master Plan will attract additional
customers.

Casino Roof Area

           Future  Phases may include  development  of an  approximately  60,000
square foot domed shopping and entertainment  complex to be constructed directly
over the casino and containing stores and entertainment  that will appeal to the
Riviera's main target audience,  adults aged 45 to 65. The exit from the complex
will be by an escalator  which will deliver  patrons to the casino.  The Company
expects to find  partners  to finance,  develop  and  operate the  entertainment
attraction  and retail  stores.  The Company also has  approximately  nine acres
available  for  additional  development.  The  Company is  exploring a number of
options in order to make the best use of this valuable land.

Additional Rooms

           Management  believes that additional  rooms adjacent to the Las Vegas
Convention  Center would be  particularly  attractive to business  customers and
would  provide a base of  additional  casino  customers.  Potential  development
projects  include the construction of a new convention or time share hotel tower
and  additional  parking  facilities.  Either  project would require  additional
financing,  and/or a joint venture partner, neither of which is in place at this
time.

The Riviera

           The Riviera is located on the corner of the Strip and Riviera  Drive,
across from Circus Circus. The back of the 26-acre property fronts Paradise Road
across  from the Las Vegas  Hilton  and the Las  Vegas  Convention  Center.  The
Riviera is  strategically  located to take advantage of the high tourist traffic
along the Strip as well as the  increasing  number of convention  customers that
use the Las Vegas Convention Center.


                                                         6

<PAGE>



           The  Company  recently  completed  an  extensive  capital  investment
program.  When the Company acquired the Riviera on June 30, 1993, it embarked on
a refurbishing and upgrading program and has invested  approximately $54 million
in such efforts  through the end of 1997.  Between July 1, 1993 and December 31,
1997, the Company spent  approximately:  (i) $22 million  refurbishing its 2,100
rooms,  including  installation  of a card key entry  system  and new  telephone
computer switch equipment and other similar upgrades,  (ii) $9 million upgrading
its slot machines to be competitive  with slot machines of other Las Vegas Strip
casinos and reducing the average age of the  equipment to less than three years,
(iii) $3 million remodeling bars, restaurants and convention banquet areas, (iv)
$1 million  remodeling the show rooms and upgrading  light and sound  equipment,
(v) $10 million upgrading the life safety, heating and cooling and other back of
the house support systems,  (vi) $4 million  upgrading its computer systems,
including casino rating software,  slot tracking systems and payroll  management
systems,  all with the objective of  controlling  costs and  enhancing  customer
service, and (vii) developing Nickel Town at a cost of $5 million.

Gaming

           The  Riviera  has 115,000  square  feet of casino  space.  The casino
currently has approximately 1,630 slot machines and 46 gaming tables,  including
blackjack,  craps,  roulette,  pai gow poker, Caribbean Stud(R) poker, baccarat,
Let It Ride(R) and poker.  The casino also includes a keno lounge and a 200-seat
race and sports book.

           Gaming  operations at the Riviera are continually  updated 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.  The Company maintains a slot players club,  through which
members receive  special  promotions and targeted  mailings.  New and innovative
slot and table games have been introduced based on customer feedback. Management
devotes substantial time and attention to the type, location and player activity
of all its slot machines.  The Company recently  completed an extensive  capital
investment program for the upgrade of its slot machines.

           The  current  management  team has made an  effort  to  redirect  its
business  away  from  high-stakes  wagerers  in  favor  of  focusing  on  highly
profitable, less volatile mid-level gaming customers consistent with its focused
marketing efforts. In order to effectively pursue this strategy,  management has
made  several  strategic  changes  including  reconfiguring  the casino space to
improve the flow of customer  traffic,  installing  new slot  machines  and bill
acceptors,  reducing the number of gaming tables and de-emphasizing baccarat. In
addition,  management  implemented stricter credit policies and reduced baccarat
table  limits.  As  a  result,  the  percentage  of  table  game  dollar  volume
represented  by credit play  declined from  approximately  24% in 1993 to 15% in
1997. Also, in 1997,  revenues from slots and tables were  approximately 75% and
25%, respectively,  as compared to 55% and 45%,  respectively,  in 1992. Because
the  extension  of credit is not  necessary  for success with  mid-level  gaming
customers,  losses on  uncollectible  and discounted  receivables  have declined
significantly.  Receivables from casino operations  declined from  approximately
$2.9 million at December 31, 1993 to approximately  $2.2 million at December 31,
1997 and the  allowance  for bad  debts and  discounts  from  casino  operations
declined from approximately  $800,000 to $433,000 during the same period.  These
reductions  have  resulted  primarily  from the  imposition  of stricter  credit
standards.

           During 1997, the Company  developed "Nickel Town(R)" on the corner of
Las Vegas  Boulevard and Riviera  Boulevard at the crosswalk  from Circus Circus
and the local Strip bus stop for  approximately  $5 million.  The 10,000  square
foot facility  contains  approximately  300 slot machines,  a bar, snack bar and
souvenir shop. Food and beverage items are priced very attractively and promoted
extensively.   Dramatic  signage  and  lighting  effects   compatible  with  the
property's existing facade facing Las Vegas Boulevard create a "must see" effect
for passersby on both sides of Las Vegas  Boulevard.  The Company  believes that
the nickel player  represents the most rapidly  growing segment of the Las Vegas
gaming market and is frequently neglected by the Company's major competitors who
focus their slot products on higher denominations.  Two-thirds of the devices in
Nickel Town are nickel slot  machines.  Development of Nickel Town was completed
in December 1997.


                                                         7

<PAGE>



Hotel

           The   Riviera's   hotel  is  comprised  of  five  hotel  towers  with
approximately  2,100 rooms,  including 169 suites.  Built in 1955 as part of the
original  casino/hotel,  the  nine-story  North Tower  features 391 rooms and 11
suites.  In 1967,  the  12-story  South  Tower was  built  with 147 rooms and 31
suites. Another 220 rooms and 72 suites,  including penthouse suites, were added
to the property  through the  construction  of the 17-story Monte Carlo Tower in
1974.  In 1977,  the  six-story San Remo Tower added 243 rooms and six suites to
the south side of the  resort.  The most  recent  phase of hotel  expansion  was
completed in 1988 upon the opening of the 930 room,  49 suite,  24-story  Monaco
Tower.  The Company  recently  completed the  refurbishment  of all of its hotel
rooms.  Despite the significant increase in rooms on the Strip in the last three
years,  management  believes that the Riviera has attained room occupancy  rates
that are among the  highest on the Strip  with  97.5% for 1994,  97.0% for 1995,
98.2% for 1996 and  96.8%  for 1997  (based on  available  rooms).  The  average
occupancy rate for the Strip was 86.4% in 1997.  Room revenue has increased from
$35.4  million  in 1993  to  $41.4  million  in  1997,  an  increase  of 16.9 %.
Management  believes that this performance can be attributed to its targeted and
coordinated marketing strategy, particularly its focus on conventioneers.

Restaurants

           The  quality,  value and  variety of food  services  are  critical to
attracting Las Vegas visitors. The Riviera offers four bars and five restaurants
and serves an average of approximately  5,000 meals per day,  including banquets
and room service. The following table outlines, for each restaurant, the type of
service provided and total seating capacity:
<TABLE>
<S>       <C>                                       <C>                                       <C>
                                                                                                Seating
           Name                                      Type                                      Capacity

           Kady's                                    Coffee Shop                                    290
           Kristofer's                               Steak and Seafood                              162
           Rik' Shaw                                 Chinese                                        124
           Ristorante Italiano                       Italian                                        126
           World's Fare Buffet                       All-you-can-eat                                432
                                                                                                    ---
                    Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,134
                                                                                                  =====
</TABLE>

           In addition,  the Riviera has a food court operated by a third party.
The food court has 200 seats and several fast-food restaurants.

Convention Center

           The Riviera features  100,000 square feet of convention,  meeting and
banquet space.  The convention  center is one of the largest 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.
The Riviera hosts approximately 150 conventions per year. As of December,  1997,
convention  related  advance  bookings of rooms totaled  approximately  450,000,
which includes  365,000  definite  bookings and 85,000  tentative  bookings.  On
average, approximately 25% of the rooms are occupied for conventions.

           The Company has increased its emphasis on the  convention  segment of
its business and the Clark County Planning  Commission has recently approved the
expansion of the Company's  convention  facility.  In 1998, the Company plans to
expand its convention center from 100,000 to 150,000 square feet by constructing
new,  state-of-the-art  convention,  meeting  and  banquet  facilities.  The new
facilities will connect to the existing  convention  facility and the main hotel
buildings by a covered  walkway.  The Company  expects the  expanded  convention
center to be one of the  premier  convention  facilities  in Las Vegas,  ideally
positioned to take advantage of the growing convention business in 1998.


                                                         8

<PAGE>



           The  new  facility  will  generate  increased  banquet,   rental  and
entertainment  revenue. In addition, the Company believes that with the expanded
state-of-the-art  facilities,  hotel room nights occupied by conventioneers will
increase as a percentage of total room nights.  This will increase the Riviera's
average daily room rate since convention rates are considerably  more than those
for  all  other  occupancy  segments.   The  Company's  architect  is  currently
finalizing  drawings for permitting and bidding.  Construction  commenced in the
first quarter of 1998 and is expected to be completed by the end of 1998.

Entertainment and Other

           The Riviera has one of the most extensive  entertainment  programs in
Las  Vegas,  offering  four  different  regularly  scheduled  shows and  special
appearances by headline  entertainers in concert.  The four in-house productions
are regularly updated. In December 1994, the award winning Splash production was
closed in order to revise the show and remodel the  showroom for the new Splash,
which  opened on June 23,  1995.  The  readers of the Las Vegas  Review  Journal
recently  voted The Riviera  Comedy Club the number one comedy club in Las Vegas
and the Crazy Girls  bronze  sculpture in front of the Hotel as the best visitor
photo  opportunity  in Las Vegas.  A summary of the shows and times is  outlined
below:
<TABLE>
<S>                            <C>                           <C>                                         <C>

                                                                                                         Seating
Show                           Type                          Performance Times                           Capacity
-----------------------------  ----------------------------  ------------------------------------------  --------------

Splash                         Variety show                  Twice a night, seven nights per                  950
                                                             week
-----------------------------  ----------------------------  ------------------------------------------  --------------

An Evening at La Cage           Female impersonation         Twice a night, five nights per week;             575
                                                             three times on Wednesday
-----------------------------  ----------------------------  ------------------------------------------  --------------

Crazy Girls                    Adult-oriented                Twice a night, five nights per week;             410
                               production                    three times a night on Saturday
-----------------------------  ----------------------------  ------------------------------------------  --------------

The Riviera Comedy             Stand-up comedy               Twice a night, five nights per week;             350
Club                                                         three times a night on Friday &
                                                             Saturday
-----------------------------  ----------------------------  ------------------------------------------  --------------
</TABLE>

           Other  entertainment  includes the  200-seat Le Bistro  entertainment
lounge located in the casino which offers live performances six times per night.
In  addition,  the Riviera  presents  major  concerts,  including  1996 and 1997
performers such as the Beach Boys, the Pointer Sisters,  Drew Carey, Air Supply,
Frankie Avalon, Bobby Vee, Dion, and the Doobie Brothers.

           Entertainment  revenues have  increased from $16.5 million in 1993 to
$20.9 million in 1997, a 26.7% increase.  Management believes that this increase
is attributable to the increasing popularity of the in-house productions.

Future Expansions

           Future plans for the development of the Riviera  include  development
of an approximately  60,000  square-foot domed shopping center and entertainment
complex to be  constructed  directly over the casino and  containing  stores and
entertainment  that will appeal to the Riviera's  main target  audience,  adults
aged 45 to 65.  The exit from the  complex  will be by an  escalator  which will
deliver patrons to the casino.  The Company expects to find partners to finance,
develop and operate the entertainment attraction and retail stores.


                                                         9

<PAGE>



           The Company also has  approximately six acres of its existing 26-acre
site available for additional development.  The Company is exploring a number of
options in order to make the best use of this valuable  land,  including a joint
venture for the  development of a time-share  condominium  tower,  an additional
hotel tower and parking garage. Under the terms of the Company's Bond Indenture,
the Company could  contribute up to 6 acres of land to such a project and if the
Company  decides to develop a time share tower a third party would construct and
sell time-share units and arrange financing. Management believes that additional
rooms  adjacent  to the  Las  Vegas  Convention  Center  would  be  particularly
attractive to business customers and would provide a base for additional casinos
customers.  The  development  of a time-share  tower or parking  facility  would
require  additional  financing and, in the case of the time-share tower, a joint
venture partner, none of which the Company has in place at the time.

Marketing Strategy

           Since  1992,  the  Riviera's  management  team  implemented  numerous
programs  aimed at  repositioning  the  Riviera  and  refocusing  its  marketing
efforts.  Such initiatives  included  targeting  California and the southwestern
United States and emphasizing  mid-level  gaming  customers,  particularly  slot
players, as opposed to "high rollers."  Management believes that adult mid-level
gaming customers are under-served.  Management  reconfigured the casino space to
improve the flow of  customer  traffic,  installed  new slot  machines  and bill
acceptors,  reduced the number of gaming tables and de-emphasized  baccarat.  In
addition, management reduced credit limits, outsourced the Company's sports book
and shifted to pari-mutuel horse wagering,  thereby decreasing the volatility of
gaming revenues.  Also,  improved hotel marketing efforts resulted in one of the
highest room occupancy rates on the Strip.

           The Riviera 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
maintaining  and  expanding  Riviera's  core  conventioneer  customer  base.  In
developing  its overall  marketing  programs,  the Company  conducts  extensive,
ongoing research of its target customers'  preferences  through written surveys,
one-on-one interviews and focus groups.

Continue to Improve Performance of the Riviera

           The Riviera 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.  Key elements of this strategy include
offering a  value-oriented  experience  by  providing a variety of hotel  rooms,
restaurants and  entertainment,  with some of Las Vegas' most popular shows, all
at reasonable  prices. The Company has completed an extensive capital investment
program at the Riviera, including completion of the upgrade of its slot machines
and the  refurbishment of substantially all its hotel rooms. The Company further
capitalized on the Riviera's prime Strip frontage and proximity to the Las Vegas
Convention Center through  additional  development and expansion on the existing
26-acre  site.  To attract  walk-in  traffic from the nearby  hotel  casinos and
motels (Circus  Circus,  Westward Ho,  Stardust,  Sahara,  and Las Vegas Hilton)
which have more than  10,000  rooms,  the Company  developed  Nickel Town on the
corner of the Strip and Riviera  Boulevard at the  crosswalk  from Circus Circus
and the local Strip bus stop for  approximately  $5 million.  The 10,000  square
foot facility  contains  approximately  300 slot machines,  a bar, snack bar and
souvenir shop. Food and beverage items are priced very attractively and promoted
extensively.   Dramatic  signage  and  lighting  effects   compatible  with  the
property's existing facade facing Las Vegas Boulevard create a "must see" effect
for passersby on both sides of the Strip.  The Company  believes that the nickel
player  represents  the most  rapidly  growing  segment of the Las Vegas  gaming
market and is frequently  neglected by the Company's major competitors who focus
their slot products on higher denominations. Two-thirds of the devices in Nickel
Town are nickel  slot  machines.  Development  of Nickel Town was  completed  in
December 1997.

Emphasize Slot Play

                                                        10

<PAGE>



           Management  instituted  a number of  initiatives  at the  Riviera  to
increase  slot  play,  including  the  replacement  of old  slot  machines,  the
installation  of bill  acceptors  and the addition of slot hosts.  The Company's
strategy is to continue to increase  slot play  through  marketing  programs and
other improvements,  including (i) the Company's slot upgrade program, which was
completed in December 1997, (ii) addition of new signage, (iii) promotion of the
Riviera  Player's Club, (iv)  sponsorship of slot  tournaments,  (v) creation of
promotional  programs,  (vi) marketing of the "World's  Loosest Corner of Slots"
and "$40 for $20" slot  promotions,  and (vii) the opening of Nickel Town(sm) at
the end of 1997.

           During 1997, the Company developed "Nickel Town" on the corner of The
Las Vegas Strip  and Riviera  Boulevard at the crosswalk  from Circus Circus and
the local Strip bus stop for  approximately  $5 million as described above.

           One of the Company's most successful permanent promotions is its "$40
for $20" slot promotion which attracts slot players to the casino. The promotion
offers $40 of slot play on certain  promotional  machines  for $20 cash.  If the
customer  does not win a jackpot or at least $40, a prize with a retail value of
at least $20 is awarded.  While the Riviera's  competitors'  promotions normally
result in a cost (loss) to the casino department,  this innovative program has a
positive EBITDA (exclusive of ancillary slot play) which is used to offset other
marketing  costs,  including  "free pulls,"  drawings,  advertising  and general
marketing.  The sign-up  counter and the promotion  machines are located near an
entrance  to the casino and often draw long lines of  patrons.  The  Company has
introduced  this promotion at the Four Queens and has been approached to license
this promotion to other casinos as well, which it may do in the future.  Another
successful  promotion is the "World's  Loosest Corner of Slots" which is an area
of the casino that contains banks of slot machines with the  guaranteed  highest
pay back  percentages  of any similar  machines in Las Vegas.  Like the "$40 for
$20" slot  promotion,  the "World's  Loosest Corner of Slots" is located near an
entrance  to the  casino to  attract  walk-in  traffic.  These  promotions  have
produced  significant  income from both repeat and walk-in  customers within the
Riviera's targeted market segments.

Create Repeat Customers

           Generating  customer loyalty is a critical  component of management's
business  strategy as retaining  customers is less expensive than attracting new
ones.  The Company has  developed a focused and  coordinated  marketing  program
intended to develop a loyal customer base which  emphasizes (i) providing a high
level of service to its customers to ensure an enjoyable experience while at the
Riviera,  (ii)  responding  to  customer  surveys and (iii)  focusing  marketing
efforts and promotional programs on customers with positive gaming profiles. The
Company  uses its  research  data to tailor  promotional  offers to the specific
tastes of targeted customers.  All slot and table players are encouraged to join
the Riviera  Player's  Club which  tracks  their level of play,  and to fill out
surveys that  provide the Riviera with  personal  information  and  preferences.
Members of the Riviera Player's Club earn bonus points based upon their level of
play,  redeemable  for  free  gifts,  complimentary  services  or cash  rebates.
Promotional  offers are made to  qualifying  customers  through  direct mail and
telemarketing.  The  Company  designs  promotional  offers  targeted  at certain
mid-level gaming patrons that are expected to provide significant revenues based
upon their  historical  gaming  patterns.  The Company  contacts these customers
through a combination of direct mail and telemarketing by an in-house  marketing
staff and independent  representatives located in major cities. The Riviera uses
a proprietary  database  which is linked to its player  tracking  system to help
identify customers'  requirements and preferences;  thereby allowing the Riviera
to customize promotions to attract repeat visitors. The Company offers customers
personalized   service,   credit   availability  and  access  to  a  variety  of
complimentary

                                                        11

<PAGE>



or reduced-rate room, dinner and entertainment  reservations.  Management uses a
specialized  multi-tiered marketing approach to attract customers in each of its
major market  segments.  Slot and table game  tournaments and special events are
designed for specific  levels of play.  Utilizing its  proprietary  database the
Company's  marketing  department  then  targets and invites the  customers  most
appropriate for the customized  events. In addition,  the Company hosts an array
of special  events,  including slot and table  tournaments,  designed to attract
customers for an extended stay.  Management  has found that this  individualized
marketing  approach has provided  significant  revenues  and  profitable  repeat
business.

Provide Extensive Entertainment Options

           The Company also focuses on attracting  its guests through a range of
entertainment  opportunities.   The  Riviera  has  one  of  the  most  extensive
entertainment  programs  in Las Vegas with four  different  regularly  scheduled
shows and special appearances by headline entertainers. In addition to providing
a positive impact on the Company's  profitability,  the shows attract additional
gaming revenue. Surveys indicate that approximately 80% of the show patrons come
from outside the hotel and approximately 66% of these individuals  gamble at the
Riviera before or after the shows. In addition,  the Riviera offers a variety of
quality dining options, a range of accommodations from deluxe rooms to penthouse
suites,  a 75,000  square-foot  pool area with an  olympic-size  swimming  pool,
tennis courts,  fitness center, spa and 47 retail outlets located throughout the
property.  The Company  believes that it offers a  value-oriented  experience by
providing a variety of hotel rooms, restaurants and entertainment,  with some of
Las Vegas' most popular shows, all at reasonable prices.

           The Company believes  entertainment  provides an attractive marketing
tool to attract  customers  to the Riviera.  The Riviera  offers one of the most
extensive  entertainment  programs in Las Vegas,  including  such well  received
shows as Splash (a variety show), An Evening at La Cage (a female  impersonation
show), Crazy Girls (an adult revue) as well as featured comedians at the Riviera
Comedy Club. The Company  updates its shows  continually in response to customer
surveys and to keep them fresh.  Tickets for the shows are offered at reasonable
prices in keeping with the Company's emphasis on mid-level customers.

Attract Walk-In Traffic

           The Company  seeks to maximize the number of people who patronize the
Riviera  that are not guests in the hotel by  capitalizing  on  Riviera's  prime
Strip location,  convention  center proximity and the Riviera's  several popular
in-house  productions.  The Riviera is well situated on the Las Vegas Strip near
Circus Circus,  The Stardust Hotel & Casino, the Westward Ho Casino & Hotel, the
Las Vegas  Hilton and the Las Vegas  Convention  Center.  Management  strives to
attract customers from those facilities,  as well as capitalize on the growth in
Las Vegas visitors in general,  with the goal of increasing  walk-in  traffic by
(i) the  development  of Nickel  Town.  (ii)  providing  a variety  of  quality,
value-priced  entertainment and dining options, and (iii) promoting the "World's
Loosest  Corner of Slots" and "$40 for $20" slot  promotions,  and placing  them
near the entrances to the casino.

Focus on Convention Customers

           This  market  segment  consists  of  two  groups:   (i)  those  trade
organizations and groups that hold their events in the banquet and meeting space
provided by a single hotel and (ii) those attending  city-wide  events,  usually
held at the Las Vegas Convention Center. The Riviera targets convention business
because it typically  provides  patrons  willing to pay higher room rates and it
provides certain advance planning benefits, since conventions are usually booked
two years in advance of the event date.  The Riviera has 100,000  square feet of
exhibit,  meeting and banquet  space (one of the largest  convention  facilities
provided by a  casino/hotel  in Las Vegas) making it attractive to large groups.
Management  focuses its marketing efforts on conventions whose participants have
the most  active  gaming  profile and higher  room rate,  banquet  and  function
spending

                                                        12

<PAGE>



habits. The Riviera also benefits from its proximity to the Las Vegas Convention
Center which makes it  attractive to city-wide  conventioneers  looking to avoid
the congestion that occurs during a major convention,  particularly at the south
end of the Strip.  The Company is currently  expanding  its 100,000  square foot
convention,  meeting and banquet facility to 150,000 square feet at an estimated
cost of approximately $15 million. The Company derives  approximately 25% of its
hotel  occupancy  from  convention  customers  and  considers  them  a  critical
component of its customer  base.  Management  believes  that an expansion of the
convention  space  will  accommodate  the  growth in the size and  number of the
groups that presently use the facility and attract new convention groups.

           The Company focuses its marketing efforts in the southwestern  United
States during the spring and summer months and in the mid western  United States
during the fall and winter  months to  effectively  capitalize  on the  vacation
patterns of the Riviera's target customers in those markets.  Marketing  efforts
in California are consistent throughout the year reflecting the constant flow of
California  residents  to Las  Vegas.  Management  has  found  that  many of its
customers  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 the Company to maintain occupancy rates at the
highest  levels  throughout  the  year.  Management  has  developed  specialized
marketing programs and cultivated relationships with wholesale operators, travel
agents and major domestic air carriers to expand this market. The Company's four
largest tour and travel operators,  currently account for approximately 500 room
bookings per night. The Company has successfully  converted many tour and travel
customers who meet the Company's target customer profile into repeat customers.

           In addition to focusing on convention customers,  the Company targets
the following segments of the Las Vegas market:

Mid-Level Gaming Customers

           The Company has developed a marketing  program  intended to develop a
loyal following of repeat slot and mid-level  table game  customers.  Management
believes  it has been  able to  successfully  attract  these  patrons  using the
Riviera's restaurants, hotel accommodations and entertainment and by focusing on
customer service.  Management has adopted a selective  approach to the extension
of credit to these customers in order to reduce volatility of operating results.
The Company uses its research data to tailor  promotional offers to the specific
tastes of targeted customers.  All slot and table players are encouraged to join
the Riviera  Player's Club and to fill out surveys that provide the Riviera with
personal  information and preferences and tracks their level of play. Members of
the  Riviera  Player's  Club earn bonus  points  based upon their level of play,
redeemable for free gifts,  complimentary services or cash rebates.  Promotional
offers are made to qualifying customers through direct mail and telemarketing.

Tour and Travel

           The tour and travel segment of the market  consists of customers from
across the country who utilize "packages" 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 the Company to maintain occupancy rates at the highest
levels  throughout  the year.  Management  has developed  specialized  marketing
programs and cultivated  relationships with wholesale  operators,  travel agents
and major  domestic  air  carriers to expand this  market.  The  Company's  four
largest tour and travel operators account for approximately 500 of the available
2,100 room  bookings per night.  The Company makes an effort to convert tour and
travel  customers who meet the  Company's  target  customer  profile into repeat
customers.


                                                        13

<PAGE>



Free and Independent Travelers

           This market segment  consists of persons who travel to Las Vegas from
all areas of the world,  many of whom  originate from the western United States.
These  customers  are not  affiliated  with  groups and make their  reservations
directly  with the hotel or  through  independent  travel  agents.  The  Riviera
benefits from high name recognition with this market segment.

Las Vegas Market

           Las Vegas is one of the  largest and  fastest  growing  entertainment
markets in the  country.  According  to the Las Vegas  Convention  and  Visitors
Authority  (the  "LVCVA"),  the number of  visitors  traveling  to Las Vegas has
increased at a steady and  significant  rate for the last eleven years from 15.2
million in 1986 to 30.5 million in 1997, a compound  annual  growth rate of 10%.
Clark County gaming has continued to be a strong and growing business with Clark
County gaming  revenues  increasing at a compound annual growth rate of 14% from
$2.4 billion in 1986 to $6.2 billion in 1997.

           The Riviera  targets the large and  expanding  Las Vegas  tourist and
gaming market. Las Vegas is the largest city in Nevada,  with a local population
in excess of one million,  and is Nevada's principal tourist center.  Gaming and
tourism  are  the  major  attractions,  complemented  by  warm  weather  and the
availability of many  year-round  recreational  activities.  Although Las Vegas'
principal   markets  are  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.  A  significant
percentage  of visitors  originate  from Latin America and Pacific Rim countries
such as Japan, Taiwan, Hong Kong and Singapore.

           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
over 56% from  approximately  67,000 at the end of 1989 to 105,000 at the end of
1997,  giving Las Vegas the most hotel and motel rooms of any metropolitan  area
in the country.  Despite this  significant  increase in the supply of rooms, the
Las Vegas hotel occupancy rate exceeded 85% for each of 1993,  1994,  1995, 1996
and 1997. Since January 1, 1996 approximately 15,300 new hotel rooms opened, and
as of December  31, 1997 there were 15,000 hotel rooms under  construction.  The
LVCVA states that an additional 6,000 rooms not yet under  construction  will be
completed by the end of the year 2000.  The LVCVA also lists  47,000  additional
rooms that are proposed but, at present,  have  undetermined  completion  dates.
However,  the Company believes that many of these projects will not materialize.
The new rooms under  construction  are primarily  being  designed to attract the
high end gaming and convention  customers,  and based on construction costs will
be priced at rates  well  above  those  which have been or can be charged by the
Riviera based on the investment in its facility.

           The Company believes that the growth in the Las Vegas market has been
enhanced as a result of (i) a dedicated program by the LVCVA and major Las Vegas
casino/hotels  to  promote  Las  Vegas  as a major  convention  site,  (ii)  the
increased  capacity of  McCarran  Airport  and (iii) the  introduction  of large
themed "must see" destination  resorts in Las Vegas. In 1987,  approximately 1.7
million people  attended  conventions  in Las Vegas and generated  approximately
$1.2 billion of non-gaming  economic  impact.  In 1997, the number of convention
delegates  had  increased  to 3.5 million  with  approximately  $4.4  billion of
non-gaming  economic  impact.  According to the LVCVA, Las Vegas was the largest
convention market in the country in 1996.

           During  the past  five  years,  McCarran  Airport  has  expanded  its
facilities to accommodate the increased  number of airlines and passengers which
it services.  The number of passengers  traveling  through  McCarran Airport has
increased  from  approximately  15.6  million  in 1987 to 30.3  million in 1997.
Construction  has recently been completed on numerous  roadway  enhancements  to
improve access to the

                                                        14

<PAGE>



Airport.  An additional  runway has also been completed and is now  operational.
The Airport has additional long-term expansion plans underway which will provide
three new  satellite  concourses,  60  additional  gates  and other  facilities.
However,  total available seats and flights have recently  declined and there is
concern in the casino industry that the airlines have moved their planes to more
profitable routes for business travelers.

The Black Hawk Project

           In August  1997,  the  Company  acquired  the Black Hawk Land,  which
management believes to be the premier gaming site in Black Hawk,  Colorado.  The
property is  currently  the closest  gaming site to Denver and is the first site
encountered  when  traveling from Denver to Black  Hawk/Central  City. The Black
Hawk/Central  City market primarily  serves the metropolitan  Denver area and is
approximately an hour drive and 40 miles west of central Denver.

           Located on South Main Street,  the  property is directly  across from
the Colorado Central Station,  owned by Anchor Gaming, which management believes
is the  most  successful  casino  in  Colorado  due to its  location,  size  and
availability of parking.  Unlike many other sites, the Riviera  development site
is level and has a  relatively  broad  footprint,  which is  expected to provide
significant cost and time savings in construction  relative to other projects in
the market and can accommodate a large Las Vegas-style casino on one floor.

           The development  site comprises 71,000 square feet, zoned for gaming.
The casino  building  is  expected to be  approximately  62,000  square feet and
include  approximately 1,000 slot machines and 14 table games. In addition,  the
facility  will  provide  entertainment,  food  and  beverage  service  and  will
incorporate an attached covered parking facility for approximately 520 vehicles.

           The Company  currently  estimates  that total costs for completion of
the Black Hawk Project will be approximately $55 million.  The Company purchased
the Black Hawk Land in August 1997 for $15  million,  which was  financed by the
net proceeds from the sale of the Notes, and expects to finance the remainder of
the  Black  Hawk  Project  from a  combination  of  third  party  financing  and
additional investment by the Company,  including up to an additional $15 million
of the net  proceeds  from the sale of the Notes.  The Company  has  received an
excavation permit and expects to receive the other necessary permits in the near
future,  with  construction of the casino  commencing  shortly  thereafter.  The
Company expects to receive the necessary  construction  and other permits in the
near future, with construction of the casino commencing shortly thereafter.  The
casino is scheduled to open in 1999.

Colorado Market

           In November  1990,  Colorado  voters  approved  limited stakes gaming
($5.00 or less per wager) in two historic gold mining areas,  Black Hawk/Central
City and  Cripple  Creek.  Because  of the $5.00  maximum  bet,  the  casinos in
Colorado  emphasize  gaming  machine  play.  Black  Hawk  and  Central  City are
contiguous,   with  Black  Hawk  being   closer  to  Denver,   and  are  located
approximately  40 miles west of Denver and 10 miles north of Interstate  70, the
main highway connecting Denver to many of Colorado's major ski resorts.  Cripple
Creek is located  approximately 45 miles from Colorado Springs and 75 miles from
Pueblo.  Casinos located in the Black Hawk/Central City area serve primarily the
residents  of  Denver  and  Boulder,   Colorado  and  surrounding   communities.
Approximately  three million  people live within a 100-mile  radius of the Black
Hawk/Central City area.

           The following table sets forth  statistical  information  relating to
the growth of the Black Hawk/Central City market compiled from data published by
the Colorado Department of Revenue:


                                                        15

<PAGE>


<TABLE>


                                                                         YEARS ENDED DECEMBER 31,
                                                          1997         1996         1995        1994        1993
                                                        ---------    ---------    --------    ---------   ---------
<S>                                                         <C>          <C>         <C>          <C>         <C>
Aggregate Gaming Revenues (Dollars in millions)              $322         $309        $291         $243        $182
Revenue Per Slot Machine Per Day                               96           93          85           80          70
Average Number of Slot Machines                             8,625        8,446       8,636        7,705       6,922
Average Number of Casinos in Operation                         32           33          32           34          36
</TABLE>

Riviera Gaming Management

           In order to capitalize on  management's  expertise and  reputation as
successful  operators  of casino  properties,  the Company  formed RGM, a wholly
owned  subsidiary of the Company,  for the primary  purpose of obtaining  casino
management  contracts in Nevada and other  jurisdictions.  RGM provides services
such as assisting new venue licensee  applicants in designing and planning their
gaming  operations  and managing the  start-up of new gaming  operations.  These
services include casino design,  equipment  selection,  employee recruitment and
training,  control and  accounting  systems and marketing  programs.  Management
believes  that  management  contracts  provide  high margin  income with limited
additional  overhead  and  little  or  no  capital   expenditure   requirements.
Management   is   continually   evaluating   opportunities   to   manage   other
casinos/hotels.  The Company's objective is to obtain the right to a substantial
equity position in projects it would manage as part of the  compensation for its
services.

Four Queens Management Agreement

           Since August 1996,  RGME has been  operating the Four Queens  located
adjacent to the Golden  Nugget on Fremont  Street in downtown Las Vegas under an
interim  management  agreement  for a fee of  $83,333  per  month.  A  long-term
management  agreement  with  Elsinore,  the owner of the Four Queens,  went into
effect on  February  28,  1997,  the  effective  date of the  Chapter 11 plan of
reorganization of Elsinore.

           The term of the  management  agreement  is  approximately  40 months,
subject to earlier  termination or extension.  Either party may terminate if the
Four Queens' cumulative EBITDA for the first two fiscal years is less than $12.8
million.  The term can be extended by an additional 24 months at RGME's  option,
if the Four Queens'  cumulative EBITDA for the three fiscal years of the term is
at least $19.2 million.  EBITDA is currently  running  between $5 and $6 million
per year. RGME is paid a minimum annual  management fee of $1.0 million in equal
monthly installments.  In addition,  RGME receives a fee of 25% of the amount by
which the Four Queens'  EBITDA in any fiscal year  exceeds $8 million.  RGME has
received  Warrants to purchase  1,125,000  shares of common  stock of  Elsinore,
exercisable  during the term or extended term of the management  agreement at an
exercise  price  of  $1.00  per  share.

           Either  party  can   terminate  the   management   agreement  if  (i)
substantially  all the Four  Queens'  assets are sold,  (ii) the Four  Queens is
merged or (iii) a majority of the Four  Queens' or  Elsinore's  shares are sold.
Upon such termination,  RGME will receive a $2.0 million termination bonus minus
any amount realized or realizable upon exercise of the Warrants.

Competition


                                                        16

<PAGE>



Las Vegas, Nevada

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

           Las Vegas gaming square  footage and room capacity are  continuing to
grow and are  expected to continue  to  increase  significantly  during the next
several  years.  Since  January 1, 1996  approximately  15,300  new hotel  rooms
opened,  and as of  December  31,  1997  there were  15,000  hotel  rooms  under
construction  (which combined  constitutes a 34% increase in the number of hotel
and motel rooms in Las Vegas),  and the LVCVA  states that an  additional  6,000
rooms not yet under  construction will be completed by the end of the year 2000.
The LVCVA also lists 47,000  additional rooms that are proposed but, at present,
have undetermined  completion dates.  Existing and future expansions,  additions
and  enhancements to existing  properties and  construction of new properties by
the Company's  competitors could divert  additional  business from the Company's
facilities. There can be no assurance that the Company will compete successfully
in the Las Vegas market in the future.

           During 1997, available rooms nights in the Las Vegas market increased
from 33.9  million to 37.6  million or 11%,  while  total room  nights  occupied
increased  from 30.6 million to 32.5 million or 6%. The ending room inventory at
December  31, 1997 was  105,000  compared to 99,000 at  December  31,  1996,  an
increase  of  6,000  rooms  or 6%.  This  has had  the  effect  of  intensifying
competition,  resulting in declining occupancy and average room rates throughout
the Las Vegas  market.  Although the Company was able to increase its room rates
nominally  which  offset  a less  than 2%  decline  in  occupancy,  there  is no
certainty  that the Company can continue to maintain  its present  level of room
revenue considering the competitive situation.

Black Hawk, Colorado

           Intense  competition also  characterizes the Black Hawk/Central City,
Colorado market.  There are approximately 32 casinos currently operating in this
market in addition to casinos located in Cripple Creek.  Several new development
projects and expansion plans have been announced,  including a casino by a joint
venture  between Jacobs  Entertainment,  Ltd. and the  owner/operator  of Gilpin
Hotel Casino (under construction and scheduled to open in 1998), and a casino on
property  adjacent  to the Black  Hawk Land by a joint  venture  between  Casino
America and Nevada Gold. Two additional  projects have been announced  which are
subject  to  financing.  Colorado  does not  limit  the  total  number of gaming
licenses  available  for issuance in Colorado and there are no minimum  facility
size  requirements.  The Company  believes that many Colorado casinos may not be
operating profitably.  A number of Colorado casinos have ceased operations,  and
others  have either  filed for  bankruptcy  protection,  closed  temporarily  or
reduced the number of their employees.

           In May 1997, the Colorado  Legislature  passed a bill  permitting the
installation of a minimum of 500 video lottery  terminals at each licensed horse
and  greyhound  racetrack  then  located in  Colorado  Springs,  Pueblo,  Byers,
Loveland, Commerce City and Arapahoe County. The Governor of Colorado vetoed the
bill on June 4, 1997 labeling it as a "back-door  expansion of gambling."  There
is no reason, however, to believe that there will not be renewed efforts to pass
similar legislation during the 1998 or subsequent legislative sessions.

           The Company  also  competes,  to some  extent,  with casinos in other
states,  river  boat  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,  as well as with  gaming  on  cruise  ships  and
international

                                                        17

<PAGE>



gaming  operations.  In addition,  certain states have recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states. Any future development of casinos, lotteries or other forms of gaming in
other states, particularly areas close to Nevada, such as California, could have
a material adverse effect on the Company's results of operations.

           The current  business of the Company is entirely  dependent on gaming
in Las Vegas. The Riviera derives a substantial  percentage of its business from
tourists,  principally  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 the financial  results of the Company.  Until the
Black Hawk Casino opens,  the Company's  operations will be primarily  dependent
upon the results of  operations  achieved by the Riviera on the Las Vegas Strip.
Any  significant  disruption  in operations at the Riviera would have a material
adverse effect on the Company.

Employees and Labor Relations

           As of December 31, 1997,  the Riviera  employed  approximately  2,100
persons and had  collective  bargaining  contracts  with eight  unions  covering
approximately  1,300 of such employees  including  food and beverage  employees,
rooms  department  employees,  carpenters,  engineers,  stage hands,  musicians,
electricians, painters and teamsters. The Company's agreements with the Southern
Nevada  Culinary and  Bartenders  Union and Stage Hands  Union,  which cover the
majority of the Company's  unionized  employees,  were  renegotiated in 1994 and
expired on May 31, 1997 and June 1, 1997, respectively.  The Riviera, along with
the other Las Vegas  hotels are  currently  negotiating  with  these  unions and
anticipate  that new contracts  will be agreed upon during the second quarter of
1998.  The  Culinary and  Bartenders  Union is  currently  concentrating  on its
negotiations  with the larger gaming  companies and is expected to intensify its
negotiations  with the Riviera after  preliminary  agreements  have been reached
with the larger  gaming  companies.  The Stage Hands  Union's  negotiations  are
proceeding  at a  steady  pace and  agreement  on  details  of the  contract  is
anticipated  during  the  second  quarter of 1998.  The  expiration  date of the
Teamsters  contract is March 31, 1998.  The Company is currently in  negotiation
and  anticipates  satisfactory  settlement  in the second  quarter of 1998.  The
Operating  Engineers,  Carpenters,  Painters and Electricians Unions' collective
bargaining  agreements  were renewed in 1995 and generally  expire in 1998.  The
Musicians Union's collective bargaining agreement expires on September 21, 1999.
Although unions have been active in Las Vegas, management considers its employee
relations  to be  satisfactory.  There can be no  assurance,  however,  that new
agreements will be reached without union action or will be on terms satisfactory
to the Company.

Regulation and Licensing

Nevada

Nevada Gaming Authority

           The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) The Nevada Gaming  Control Act and the  regulations  promulgated
thereunder (collectively the "Nevada Act") and (ii) various local ordinances and
regulations.  The Company's  gaming  operations are subject to the licensing and
regulatory control of the Nevada Commission,  the Nevada Board, the Clark County
Board and the City of Las Vegas.  The Nevada  Commission,  the Nevada Board, the
Clark County Board and the City of Las Vegas 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:  (i) the prevention of unsavory or unsuitable  persons
from having a direct or indirect  involvement with gaming at any time and in any
capacity;  (ii) the  establishment  and  maintenance of  responsible  accounting
practices and procedures;

                                                        18

<PAGE>



(iii) 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;  (iv) the prevention of cheating and fraudulent practices;  and (v)
providing a source of state and local  revenues  through  taxation and licensing
fees.  Change in such laws,  regulations  and  procedures  could have an adverse
effect on the Company's gaming operations.

           ROC is required to be licensed by the Nevada Gaming Authorities.  The
gaming  license held by ROC requires the periodic  payment of fees and taxes and
is not  transferable.  ROC is also licensed as a manufacturer and distributor of
gaming devices.  Such licenses also require the periodic payment of fees and are
not  transferable.  The  Company is  registered  by the Nevada  Commission  as a
publicly  traded  corporation  (a "Registered  Corporation")  and has been found
suitable  to own  the  stock  of  ROC.  ROC is  also  registered  by the  Nevada
commission  as an  Intermediary  Company and has been found  suitable to own the
stock  of  RGM  which  has  been  registered  by  the  Nevada  Commission  as an
Intermediary  Company  and has  been  found  suitable  to own the  stock  of its
subsidiary  Riviera Gaming  Management-Elsinore,  Inc.  ("RGME").  RGME has been
licensed as the manager of the Four Queens and such license is not transferable.
ROC and  RGME  are  each a  Corporate  Licensee  (collectively,  the  "Corporate
Licensees") under the terms of the Nevada Act. As a Registered Corporation,  the
Company is 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, the Corporate  Licensees without first obtaining
licenses and approvals from the Nevada Gaming Authorities. The Company, ROC, RGM
and  RGME  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.

           All gaming devices that are manufactured, sold or distributed for use
or play in Nevada, or for distribution  outside of Nevada,  must be manufactured
by licensed  manufacturers,  distributed  or sold by licensed  distributors  and
approved  by the Nevada  Commission.  The  approval  process  includes  rigorous
testing by the Nevada Board, a field trial and a determination as to whether the
gaming  device  meets  strict  technical  standards  that  are set  forth in the
regulations  of the Nevada  Gaming  Authorities.  Associated  equipment  must be
administratively  approved  by the  Chairman  of the Nevada  Board  before it is
distributed for use in Nevada.

           The Nevada Gaming  Authorities may investigate any individual who has
a material  relationship to, or material involvement with, the Company, ROC, RGM
or RGME 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 ROC and RGME must file  applications  with the Nevada
Gaming  Authorities  and may be required to be licensed or found suitable by the
Nevada Gaming Authorities.  Officers, directors and key employees of the Company
and RGM who are actively and directly  involved in the gaming  activities of ROC
or RGME 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  and, 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.

           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 the Company,  ROC, RGM or RGME the companies  involved  would
have to sever all  relationships  with such  person.  In  addition,  the  Nevada
Commission may require the Company, ROC, RGM or RGME to terminate the employment
of any person

                                                        19

<PAGE>



who refuses to file appropriate applications. Determinations of  suitability  or
of questions pertaining to licensing are not subject to judicial review in
Nevada.

           The Company,  ROC and RGME 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 ROC
must be reported to or approved by the Nevada Commission.

           If it were  determined  that the  Nevada Act was  violated  by ROC or
RGME, the gaming licenses they hold could be limited, conditioned,  suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition,  the Company,  ROC, RGM and RGME and the persons  involved could be
subject to  substantial  fines for each separate  violation of the Nevada Act at
the  discretion  of the  Nevada  Commission.  Further,  a  supervisor  could  be
appointed  by the Nevada  Commission  to operate the 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 licenses of ROC or
RGME or the  appointment  of a supervisor  could (and  revocation  of any gaming
license would) materially adversely affect the Company's gaming operations.

           Any beneficial holder of the Company's voting securities,  regardless
of the  number of shares  owned,  may be  required  to file an  application,  be
investigated,  and have his suitability as a beneficial  holder of the Company's
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 a  Registered  Corporation's  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 a  Registered  Corporation's
voting  securities  may  apply to the  Nevada  Commission  for a waiver  of such
finding  of  suitability  if  such  institutional   investor  holds  the  voting
securities for investment purposes only. An institutional  investor shall not be
deemed to hold  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 the board of directors
of the  Registered  Corporation,  any change in the corporate  charter,  bylaws,
management,  policies or operations of the Registered Corporation, or any of its
gaming  affiliates,  or any other action which the Nevada Commission finds to be
inconsistent  with holding the Registered  Corporation's  voting  securities for
investment  purposes  only.  Activities  which are deemed to be consistent  with
holding voting  securities for investment  purposes only include:  (i) voting on
all matters voted on by stockholders;  (ii) 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 its  management,  policies or  operations;
and (iii) such other  activities  as the Nevada  Commission  may determine to be
consistent  with such  investment  intent.  If the  beneficial  holder of voting
securities who must be found suitable is a corporation, partnership 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 if the record owner,  after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds,  directly or  indirectly,  any  beneficial  ownership of the common stock
beyond such period of time as may be prescribed by the Nevada  Commission may be
guilty of a criminal offense.  The Company is subject to disciplinary action if,
after it receives notice

                                                        20

<PAGE>



that  a  person  is  unsuitable  to  be a  stockholder  or  to  have  any  other
relationship  with the  Company,  ROC,  RGM or RGME,  the  Company (i) pays that
person any dividend or interest  upon voting  securities  of the  Company,  (ii)
allows  that  person to  exercise,  directly  or  indirectly,  any voting  right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise,  or (iv) fails 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 the holder of
any  debt  security  of  a  Registered  Corporation  to  file  applications,  be
investigated  and be found  suitable to own the debt  security  of a  Registered
Corporation,  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
pursuant  to the Nevada  Act,  the  Registered  Corporation  can be  sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution  whatsoever;  (ii)  recognizes any voting right by such  unsuitable
person in connection  with such  securities;  (iii) pays the  unsuitable  person
remuneration in any form; or (iv) makes any payment to the unsuitable  person by
way of principal,  redemption,  conversion,  exchange,  liquidation,  or similar
transaction.

           The Company is 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.  The Company is also  required to render  maximum
assistance  in  determining  the identity of the  beneficial  owner.  The Nevada
Commission has the power to require the Company's  stock  certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.

           The Company may not make a public offering of its 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.  In addition,  (i) a Corporate  Licensee may not  guarantee a security
issued by a Registered Corporation pursuant to a public offering, or hypothecate
its assets to secure the payment or performance of the obligations  evidenced by
such a security,  without the prior approval of the Nevada Commission,  (ii) the
pledge of the stock of a Corporate  Licensee  or  Intermediary  Company  ("Stock
Pledge"),  such as ROC, RGM and RGME, is void without the prior  approval of the
Nevada  Commission,  and  (iii)  restrictions  upon the  transfer  of an  equity
security issued by a Corporate Licensee,  or Intermediary Company and agreements
not  to  encumber  such  securities  (collectively,  "Stock  Restrictions")  are
ineffective without the prior approval of the Nevada Commission.

           Changes in  control of the  Company  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 satisfy the Nevada Board and Nevada Commission in a
variety of  stringent  standards  prior to assuming  control of such  Registered
Corporation.  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  defense
tactics affecting Nevada corporate gaming Licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and

                                                        21

<PAGE>



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: (i) assure the
financial  stability of corporate  gaming Licensees and their  affiliates;  (ii)
preserve the beneficial  aspects of conducting  business in the corporate  form;
and (iii) 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 thereof 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.

           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 the ROC's and RGME's  operations  are  conducted.  Depending
upon the particular fee or tax involved, these fees and taxes are payable either
monthly,  quarterly or annually and are based upon either:  (i) a percentage  of
the gross  revenues  received;  (ii) the number of gaming devices  operated;  or
(iii) the number of table games  operated.  A casino  entertainment  tax is also
paid by casino  operations  where  entertainment is furnished in connection with
the selling of food,  refreshments or merchandise.  Nevada Licensees that hold a
license to manufacture and distribute slot machines and gaming devices,  such as
ROC, also pay certain fees and taxes to the State of Nevada.

           Any person who is  licensed,  required  to be  licensed,  registered,
required  to be  registered,  or is  under  common  control  with  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 their  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 that are harmful to the State of Nevada or its
ability  to collect  gaming  taxes and fees,  or employ 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 the  Riviera  is  subject  to
licensing,  control and  regulation by the Clark County Board.  All licenses are
revocable  and are not  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  affect upon the
operations of ROC.

Colorado

Colorado Gaming Regulation

           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. The Colorado  Amendment defines
limited  stakes  gaming  as the  use of slot  machines  and the  card  games  of
blackjack and poker, with a maximum single bet of five dollars.


                                                        22

<PAGE>



           Limited  stakes  gaming is confined to the  commercial  districts  of
these cities as defined by Central City on October 7, 1981, by Black Hawk on May
4, 1978,  and by Cripple  Creek on December 3, 1973.  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. The Colorado Amendment provides that 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.  The Colorado
Amendment  prohibits  limited  stakes gaming  between the hours of 2:00 a.m. and
8:00 a.m., and allows limited stakes gaming to occur in establishments  licensed
to sell alcoholic beverages.

           Further,  the Colorado  Amendment  provides  that, in addition to any
other  applicable  license  fees,  up to a maximum of 40% of the Adjusted  Gross
Proceeds  ("AGP")  of  limited  stakes  gaming  operations  may be  payable by a
licensee  for  conducting  limited  stakes  gaming.  Such  percentage  is  to be
established by the Colorado  Limited Gaming  Control  Commission  (the "Colorado
Commission") per the Colorado Limited Gaming Act of 1991 (the "Colorado Act").

           The Colorado  legislature  promulgated  the Colorado Act to implement
the provisions of the Colorado  Amendment.  The Colorado Act was signed onto law
on June 4, 1991 and has been amended subsequently.

           The Colorado Act declares  public policy on limited  stakes gaming to
be that:  (i) 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; (ii) 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; (iii) all establishments where limited stakes gaming is conducted and
where  gambling  devices  are  operated  and  all  manufacturers,   sellers  and
distributors  of  certain  gambling  devices  and  equipment  must be  licensed,
controlled  and assisted to protect the public  health,  safety,  good order and
general  welfare of the  inhabitants  of the state to foster the  stability  and
success of limited  stakes  gaming and to preserve  the economy and  policies of
free  competition  in  Colorado;  and (iv) no  applicant  for a license or other
approval has any right to a license or to the granting of the approval sought.

           The  Colorado Act subjects  the  ownership  and  operation of limited
stakes  gaming  facilities  in Colorado to extensive  regulation by the Colorado
Commission  and  prohibits  persons  under the age of 21 from  participating  in
limited  stakes  gaming.  No limited  stakes gaming may be conducted in Colorado
unless all  appropriate  gaming  licenses are approved by and obtained  from the
Colorado Commission. The Colorado Commission has full and exclusive authority to
promulgate, and has promulgated,  rules and regulations governing the licensing,
conducting and operating of limited stakes gaming (the "Colorado  Regulations").
Such  authority does not require any approval by or delegation of authority from
the Colorado  Department of Revenue (the  "Colorado  Revenue  Department").  The
Colorado  Act also created the  Division of Gaming  within the Colorado  Revenue
Department to license, implement,  regulate and supervise the conduct of limited
stakes gaming in Colorado,  supervised and  administered  by the Director of the
Division of Gaming ("Division Director").

           The  Colorado  Commission  may issue  licenses  for: (i) slot machine
manufacturer or distributor,  (ii) operator,  (iii) retail gaming,  (iv) support
and (v) key employee gaming.  The first three 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 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.


                                                        23

<PAGE>



           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 such background investigations.

           Gaming employees must hold either a support or key employee  license.
Every retail gaming licensee must have a key employee  licensee 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 licenses.  A slot machine  manufacturer or distributor license
is required for all persons who manufacture,  import or distribute slot machines
in Colorado.

           The current  practice of the  Colorado  Commission  is to require the
following persons and entities to complete background  investigation  forms, and
to  provide  comprehensive  information  and  to  submit  to a  full  background
investigation:  (a)  persons  or  entities  owning  (either  directly  or  on  a
pass-through  basis)  5% or more of a  privately  traded  entity  licensee,  (b)
persons or entities owning (either  directly or on a pass-through  basis) 10% or
more of a publicly  traded  entity  licensee,  (c) directors and officers of the
licensees, and (d) in certain circumstances,  directors and officers of entities
described  at (a) and (b)  above.  But,  the  Colorado  authorities  retain  the
discretion  to  require  any  person or entity  with an  interest  in a licensee
(directly or on a  pass-through  basis) to submit such  information  and undergo
full  investigation.  The purpose of the investigation is to determine each such
person's or entity's qualifications and suitability for licensure.

           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.

           An  applicant  or licensee  must report to the  Division of Gaming or
Colorado  Commission  all leases not later than 30 days after the effective date
of the lease. Also, an applicant or a licensee, upon the request of the Colorado
Commission or the Division  Director,  must submit copies of all written  gaming
contracts and  summaries of all oral gaming  contracts to which it is or intends
to become a party. The Division Director or the Colorado  Commission may require
changes in the lease or gaming  contract  before an  application  is approved or
participation  in such  agreement is allowed or may require  termination  of the
lease or gaming contract.

           The Colorado Act and the Colorado  Regulations  require  licensees to
maintain  detailed records that account for all business  transactions.  Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement  authorities.  The Colorado Regulations also establish
extensive  playing  procedures  and rules of play for poker,  blackjack and slot
machines.  Retail gaming  licensees must adopt  comprehensive  internal  control
procedures.  Such  procedures  must be  approved  in advance by the  Division of
Gaming and  include the areas of  accounting,  surveillance,  security,  cashier
operations,  key control and fill and drop procedures,  among others.  No gaming
devices  may be used in  limited  stakes  gaming  without  the  approval  of the
Division Director or the Colorado Commission.


                                                        24

<PAGE>



           Licensees  have  a  continuing  duty  to  immediately  report  to the
Division  of Gaming the name,  date of birth and social  security  number of all
persons who obtain an ownership, financial or equity interest in the licensee of
five (5) percent or greater, or who have the ability to control the licensee, or
who have the ability to exercise significant influence over the licensee, or who
loan any money or other thing of value to the licensee. Licensees must report to
the Division of Gaming all  licenses,  and all  applications  for  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.

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

           The  Colorado  Amendment  requires an annual tax of as much as 40% on
the AGP from limited stakes gaming.  Currently,  the gaming tax on AGP is: 2% on
the first $2 million of AGP; 4% on AGP from $2 million to $4 million; 14% on AGP
from $4 million to $5 million;  18% on AGP from $5 million to $10  million;  and
20% on AGP over $10  million.  The gaming tax is paid  monthly,  with  licensees
required to file returns by the 15th of the  following  month.  Gaming taxes are
established as of July 1st the following 12 months.

           The  Colorado  Commission  requires  all gaming  licensees  to pay an
annual device fee for each slot machine,  blackjack  table and poker table.  The
current device fee is $56.25 through June 30, 1998.  The  municipality  of Black
Hawk  assesses an annual  device fee of $750 per device.  There is no  statutory
limit on state or city device fees,  which may be increased at the discretion of
the Colorado Commission or Black Hawk. In addition,  a business  improvement fee
of as much as $102 per device and a  transportation  authority device fee of $77
per device also may apply  depending upon the location of the licensed  premises
in Black Hawk. The current annual business improvement fee is $89.04.

           Black  Hawk  also  imposes  taxes  and fees on other  aspects  of the
businesses of 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 any of the Colorado Regulations is a
criminal  offense.  Gaming licensees  violating the Colorado Act or the Colorado
Regulations  may, in addition to being subject to fines,  suspension for as long
as six months or revocation of the gaming license,  commit a class 1 misdemeanor
which may result in incarceration or fines or both.

           The sale of alcoholic  beverages in gaming  establishments is subject
to strict  licensing,  control and regulation by state and local authorities and
requires  a liquor  license.  Alcoholic  beverage  licenses  are  revocable  and
non-transferable.  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 or fines or both.

           There  are  various  classes  of  retail  liquor  licenses  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 various  classes of retail liquor
licenses such gaming  licensee may only hold liquor  licenses of the same class.
An application for an alcoholic  beverage  license in Colorado  requires notice,
posting and a public hearing before the local liquor  licensing  authority prior
to approval of the same. The Colorado Department of Revenue's Liquor Enforcement
Division  must  also  approve  the  application.   Riviera  Black  Hawk,  Inc.'s
application for a liquor license was approved on

                                                        25

<PAGE>



February 25, 1998 by the Black Hawk City Council. The liquor license application
now only requires approval of the State licensing authority.

           The  Colorado   Commission   has  enacted  Rule  4.5,  which  imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming  licensees  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 even
if  created  under  the  laws of a  foreign  country.  Such  requirements  shall
automatically  apply  to  any  ownership  interest  held  by a  publicly  traded
corporation,  holding  company  or  intermediary  company  thereof,  where  such
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 that entity to
comply with the disclosure regulations contained in Rule 4.5.

           Under  Rule  4.5,   gaming   licensees,   affiliated   companies  and
controlling  persons  commencing  a public  offering of voting  securities  must
notify  the  Colorado  Commission  within  10 days of the  initial  filing  of a
registration  statement with the Securities  and Exchange  Commission.  Licensed
publicly traded  corporations  are also required to send proxy statements to the
Division of Gaming within 5 days after distribution of such statement. Licensees
to whom Rule 4.5  applies  must  include in their  articles of  organization  or
similar 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 (i) 5% or more of any class of voting  securities  of a
publicly traded corporation  required to include in its articles of organization
the Rule 4.5 charter language  provisions,  or (ii) 5% or more of the 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 (all
such persons hereinafter referred to as "qualifying persons"),  shall notify the
Division of Gaming  within 10 days of such  acquisition,  are required to 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
whose  interests  equal 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.  A qualifying  person who is an
institutional investor and whose interests equal 10%, but less than 15%, may not
be required to apply for  suitability,  provided such person fulfills  reporting
requirements required by the Colorado Regulations.

                                                        26

<PAGE>



           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
interests.  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.

           Currently,  no gaming  licenses  in  Colorado  have been  granted  in
connection with the Black Hawk Project. Applications have been made for a retail
gaming  license.  Applications  for key employee  gaming licenses have also been
made.  Additional  gaming and support license  applications will have to be made
and approved prior to the opening of the casino.

Federal Registration

           ROC 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 the present year have been made.

Item 2.    Properties

           The  Riviera  complex  is located  on the Las Vegas  Strip,  occupies
approximately  26 acres  and  comprises  approximately  1,700,000  square  feet,
including  115,000 square feet of casino space,  100,000 square foot convention,
meeting  and  banquet  facility,  approximately  2,100  hotel  rooms  (including
approximately  169 luxury suites) in five towers,  four  restaurants,  a buffet,
four showrooms,  a lounge and  approximately  2,900 parking spaces. In addition,
executive and other offices for the Riviera are located on the property.

           There are 47 food and retail  concessions  operated under  individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.

           The entire Riviera complex is encumbered by a first deed of trust
securing the Notes. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

           The Company also owns the Black Hawk Land,  which is a 71,000  square
foot parcel of real property in Black Hawk, Colorado.

Item 3.    Legal Proceedings

           The Company is a party to several routine  lawsuits both as plaintiff
and as defendant arising from the normal operations of a hotel.  Management does
not believe that the outcome of such litigation,  in the aggregate,  will have a
material  adverse  effect on the financial  position or results of operations of
the Company.


                                                        27

<PAGE>



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

           None.

                                                        28

<PAGE>



                                                      PART II

Item 5.    Market for the Registrant's Common Stock and Related Security Holder
           Matters

           The  Company's  Common  Stock  began  trading on the  American  Stock
Exchange on May 13, 1996 and was reported on the NASDAQ  Bulletin Board prior to
that date.  As of March 12, 1998,  based upon  information  available to it, the
Company believes that there were  approximately  1,300 beneficial holders of the
Company's Common Stock.

           The Company has never paid any dividends on its Common Stock and does
not  currently  expect to pay any  dividends  (cash or  otherwise) on its Common
Stock for the  foreseeable  future.  The  Company's  ability to pay dividends is
primarily  dependent  upon receipt of dividends and  distributions  from ROC. In
addition,  the indenture for the First  Mortgage  Notes  restricts the Company's
ability to pay dividends on its Common Stock.

           The table  below sets  forth the bid and ask sales  prices by quarter
for the years ended  December  31,  1997,  1996 AND 1995,  based on  information
provided by certain brokers who have had  transactions  in the Company's  Common
Stock during the year:

<TABLE>

                                         First                 Second                  Third                 Fourth
                                       Quarter                Quarter                Quarter                Quarter

         1997
<S>                                    <C>                    <C>                    <C>                    <C>
          BID                          $ 12.88                $ 12.25                $ 12.13                $ 12.75
          ASK                            14.50                  14.13                  15.50                  14.94

         1996
          BID                           $ 7.50                 $11.00                 $14.00                 $12.94
          ASK                             9.75                  17.75                  17.13                  15.63

         1995
          BID                             3.00                   3.50                   8.25                   7.00
          ASK                             4.63                   9.13                  11.50                  10.00

</TABLE>

          On March 26, 1998 (the Most recent trade date of the Company's common
stock), 1,600 shares were traded closing at $11.00 per share.

                                                        29

<PAGE>



Item 6.    Selected Financial Data

The  following  table sets forth a summary of  selected  financial  data for the
Company and, prior to the Company's  emergence from Bankruptcy in June 1993, the
Hotel and Casino division of Riviera, Inc., the Company's  predecessor,  for the
years ended December 31:

<TABLE>
<CAPTION>

                                        Years Ended December 31,                             Six Months Ended
                                                                             Combined    December         June
                                                                                            31,            30,
                                1997       1996       1995         1994        1993        1993           1993
                                ----       ----       ----         ----        ----        ----           ----
                                                                                        (Successor)  (Predecessor)
                                                             (*dollars in thousands)

<S>                             <C>        <C>        <C>          <C>         <C>           <C>             <C>
Total Operating  Revenue        $153,793   $164,409   $151,146     $153,921    $148,922      $76,220         $72,702

Net Income                         2,088      8,440      6,344        4,790       8,235        2,607          5,6281
Basic Earnings per Share on
Weighted Average Common
Shares Outstanding.                 $.42      $1.73      $1.32        $1.00         N/A         $.54             N/A

Diluted Earnings per Share
on Weighted Average
Common and Common
Equivalent Shares.                  $.40      $1.63      $1.25        $1.00         N/A         $.54             N/A

Total Assets                     347,866    167,665    157,931      151,925     143,704      143,704         150,836

Long-Term Debt, including        277,876    105,878    107,822      110,409     112,677      112,677         119,959
current portion.
</TABLE>

    *except for Net Income Per Common Share

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

General

           The current  management team successfully  guided the Company through
its emergence  from  bankruptcy in June 1993.  From 1992 to the end of 1997, the
Riviera's  management  team has  achieved  growth in EBITDA and profit  margins.
EBITDA  increased  over 35% from $21.8  million in 1992 to $29.4 million in 1997
and EBITDA  margins  improved  from 15.1% to 19.1% in 1997 over the same period.
The Company  achieved  this growth  through  the  implementation  of a number of
strategic  initiatives that included (i) refocusing its marketing  strategy from
"high-rollers" to adult mid-level gaming customers, a niche that
--------

1 There was no accrual of interest  subsequent to December 18, 1991. If accrued,
interest expense on these  obligations  would have totaled $10.4 million for the
six months ended June 30, 1993.

                                                        30

<PAGE>



management  believes has been under served,  (ii) focusing on conventioneers who
pay higher room rates, causing Riviera's ADR to increase from $47 in 1992 to $58
in  1997,  (iii)  aggressively  marketing  its  hotel  facilities  resulting  in
occupancy  rates growing from 90.6% in 1992 to 96.8% in 1997,  (iv)  emphasizing
higher margin slot play which  increased slot revenue by 33.0% from 1992 to 1996
and (v) investing  approximately $54 million in capital improvements since 1992.
Management  believes  that it has also  improved  the  stability  of  EBITDA  by
providing a broad entertainment  experience (1997 non-gaming  revenues:  57% vs.
51%  for  other  casinos  on the  Strip  in  1997,  focusing  on  conventioneers
(approximately  30% of mid-week  room  nights  pre-sold  through  June 1999) and
developing  a repeat  and  loyal  customer  base  through  proprietary  database
marketing.

Results of Operations

           The following  table sets forth  certain of the  Company's  operating
information for the years ended December 31, 1997,  1996 and 1995.  Revenues and
promotional  allowances are shown as a percentage of net revenues.  Departmental
costs are shown as a percentage of departmental  revenues. All other percentages
are based on net revenues.
<TABLE>


                                                                                1997                1996              1995
Revenues:
<S>                                                                            <C>                 <C>               <C>
  Casino                                                                       46.6%               48.9%             51.2%
  Rooms                                                                        26.9%               25.4%             26.4%
  Food and Beverage                                                            14.0%               13.8%             14.5%
  Entertainment                                                                13.6%               13.2%             10.0%
  Other                                                                         7.1%                6.3%              5.8%
  Less promotional allowances                                                  -8.3%               -7.7%             -7.9%
                                                                        ------------        ------------      ------------
     Net revenues                                                             100.0%              100.0%            100.0%

Costs and Expenses
  Casino(1)                                                                    59.4%               59.1%             58.6%
  Rooms(1)                                                                     42.9%               45.0%             47.1%
  Food and Beverage(1)                                                         72.9%               70.3%             72.0%
  Entertainment(1)                                                             74.2%               74.8%             73.5%
  Other(1)                                                                     27.5%               28.0%             30.7%
  Selling, general and administrative                                          19.4%               19.1%             19.6%
  Depreciation and amortization                                                 6.8%                5.0%              4.5%
Total Costs and expenses                                                       87.7%               85.8%             86.1%

Income from Operations                                                         12.3%               14.2%             13.9%
Interest expense on $100 million notes                                         -7.2%               -6.7%             -7.3%
Interest income on Treasury Bills to retire $100 million                        1.5%                0.0%              0.0%
Interest expense, other                                                        -4.6%               -0.6%             -0.9%
Interest income, other                                                          1.3%                0.7%              0.8%
Other (income) expense, net                                                    -1.0%               -0.3%              0.0%
                                                                        ------------        ------------      ------------
Income before provision for income taxes                                        2.2%                7.8%              6.4%
Provision for income taxes                                                     -0.9%               -2.7%             -2.2%
                                                                        ------------        ------------      ------------
   Net Income                                                                   1.4%                5.1%              4.2%
                                                                        ============        ============       ===========

  EBITDA Margin                                                                19.1%               19.2%             18.4%
</TABLE>

(1) Shown as a percentage of corresponding departmental revenue.

                                                        31
<PAGE>



1997 Compared to 1996

Revenues

           Net revenues decreased by approximately  $10.6 million, or 6.5%, from
$164.4 million in 1996 to $153.8 million in 1997.  Casino revenues  decreased by
approximately  $8.8 million,  or 10.9%,  from $80.4 million during 1996 to $71.6
million during 1997 due to a general softness in the gaming market in Las Vegas.
Room revenues decreased by approximately  $400,000,  or 1.0%. from $41.8 million
1996 to $41.4 million in 1997 as a result of a decrease in hotel  occupancy from
98.2% to 96.8%. The decrease in occupancy was partially offset by an increase in
ADR from $57.07 in 1996 to $58.24 in 1997. Food and beverage revenues  decreased
approximately  $1.0 million,  or 4.6%,  from $22.6 million 1996 to $21.6 million
during  1997 due to fewer  covers  in the  bars and  restaurants.  Entertainment
revenues decreased by approximately $900,000, or 4.1%, from $21.8 million during
1996 to $20.9 million  during 1997, due to the reduction in number of covers for
the Splash variety show. Other revenues increased by approximately  $600,000, or
5.4%,  from $10.4 million during 1996 to $11.0 million during 1997 due primarily
to management fees of  approximately  $1.0 million for operating the Four Queens
Hotel and Casino in downtown Las Vegas. In 1996 the Company received a refund of
$576,000  from a union  health  and  welfare  trust fund for  reduced  premiums.
Promotional  allowances  remained  relatively  unchanged at approximately  $12.6
million during 1996 an $12.7 million in 1997.

Direct Costs and Expenses of Operating Departments

           Total direct costs and expenses of operating departments decreased by
approximately  $6.9  million,  or 6.8%,  from  $101.5  million  in 1996 to $94.6
million in 1997.  Casino expense  decreased by  approximately  $5.0 million,  or
10.5%,  from $47.5 million  during 1996 to $42.5 million  during 1997 but casino
expenses as a percent of casino revenue  increased  from 59.1% to 59.4%,  due to
the decrease in casino revenues. Room costs decreased approximately $1.0 million
, or 5.6%,  from $18.8 million during 1996 to $17.8 million for 1997,  and, room
costs as a percentage of room revenues decreased from 45.0% during 1996 to 42.9%
during 1997.  Payroll and linen costs were reduced due to the lower  occupancy .
Hotel bad debts expense decreased  $200,000 due to the implementation of tighter
credit policies. Food and beverage costs decreased by approximately $200,000, or
1.1%,  from $15.9  million  during  1996 $15.7  million  during the 1997  period
resulting from a corresponding decrease in revenues.  However, food and beverage
costs as a percentage of food and beverage revenues  increased from 70.3% during
1996 to 72.9% during 1997 because of reduced beverage  promotional  revenue from
the casino bars.  Entertainment  costs decreased by approximately  $800,000,  or
4.9%,  from $16.3 million  during 1996 to $15.5  million  during 1997 due to the
reduced expenses associated with lower covers in Splash.  Entertainment  expense
as a percentage of  entertainment  revenues  decreased from 74.8% during 1996 to
74.2% in 1997 due to a  reduction  in the  number of special  headliner  events.
Other expenses increased by approximately  $100,000,  or 3.3%, from $2.9 million
to $3.0 million due to the corresponding increase in other revenues.

Other Operating Expenses

           Selling,   general   and   administrative   expenses   decreased   by
approximately  $1.6  million,  or 5.1%,  from  $31.5  million  for 1996 to $29.8
million  1997 due to  decreased  incentive  plan  costs  associated  with  lower
earnings.  As  a  percentage  of  total  net  revenues,   selling,  general  and
administrative  expenses  increased  from 19.1%  during the 1996 period to 19.4%
during the 1997  period as a result of  spreading  of fixed costs over a smaller
revenue  base in the 1997 period.  Depreciation  and  amortization  increased by
approximately  $2.3 million,  or 27.7%, from $8.2 million during the 1996 period
to $10.5  million  during the 1997 period due to capital  expenditures  of $21.0
million during the 1997 period.


                                                        32

<PAGE>



Other Income (Expense)

           Interest expense, other increased by $6.1 million because the Company
issued 10% First Mortgage Notes of $175.0 million on August 13, 1997 in addition
to carrying  the 11% $100  million  Notes until June 1, 1998,  when they will be
redeemed.  The Company used part of the proceeds of the10% First  Mortgage Notes
to purchase  United States  Government  securities  at a cost of $104.3  million
which were deposited  into an irrevocable  trust held to retire the $100 million
notes.  Interest income on these  securities was $2.3 million in 1997.  Interest
income,  other increased  approximately  $759,000 or 65.0%, from $1.2 million to
$1.9 million because of the increased cash balances from the remaining  proceeds
of the $175.0 million notes.

           During the first  quarter of 1997 the Company  withdrew its secondary
offering  due to market  conditions  and, as a result,  charged  costs  totaling
$850,000 to other expense.  Also during 1997,  approximately  $400,000 in merger
and acquisition costs related to the R&E Gaming  Corporation Plan of Merger were
charged to other expense as required under GAAP.

Net Income

           As a result of the factors  discussed  above and a decrease in income
taxes of  approximately  $3.1  million  at a 34.5%  effective  rate,  net income
decreased by approximately $6.4 million, or 75.3%, from $8.4 million during 1996
to $2.1 million during 1997.

EBITDA

           EBITDA decreased by approximately  $2.1 million,  or 6.8%, from $31.5
million  in 1996 to $29.4  million  in 1997.  During  the same  periods,  EBITDA
margins were 19.2% and 19.1%, respectively.

1996 Compared to 1995

Revenues

           Net revenues increased by approximately  $13.3 million, or 8.8%, from
$151.1 million in 1995 to $164.4 million in 1996.  Casino revenues  increased by
approximately $3.0 million, or 3.9%, from $77.3 million in 1995 to $80.4 million
in 1996 due primarily to a $2.9 million, or 5.4%, increase in slot revenues as a
result of an increase in promotional  activities directed at slot players.  Room
revenues increased by approximately $2.0 million, or 5.0%, from $39.8 million in
1995 to $41.8 million in 1996 as a result of an increase in hotel occupancy from
97.0% to 98.2% (based on  available  rooms) and an increase in average room rate
of $2.40, or 4.4%. Food and beverage revenues increased  approximately $700,000,
or 3.4%,  from $21.9  million in 1995 to $22.6 million in 1996 due to additional
covers  in  the  bars  and  restaurants.  Entertainment  revenues  increased  by
approximately  $6.6  million,  or 43.4%,  from  $15.2  million  in 1995 to $21.8
million in 1996. This was principally due to the reopening of Splash,  a variety
show which had been closed during the first half of 1995 for show  revisions and
theater  remodeling.  Other revenues increased by approximately $1.6 million, or
18.1%,  from $8.8  million in 1995 to $10.4  million in 1996 due  primarily to a
refund of  $576,000  from a union  health and  welfare  trust  fund for  reduced
premiums and general  increases in other revenues such as telephone,  gift shops
and box office commissions. In addition, the Company received management fees of
approximately  $400,000  for  operating  the Four  Queens  Hotel  and  Casino in
downtown Las Vegas beginning in August 1996. Promotional allowances increased by
approximately  $700,000, or 6.4%, from $11.9 million in 1995 to $12.6 million in
1996 due to additional complimentary show tickets for the Splash and an increase
in complimentaries associated with casino and slot marketing programs.

                                                        33

<PAGE>



Direct Costs and Expenses of Operating Departments

           Total direct costs and expenses of operating departments increased by
approximately  $7.7  million,  or 8.2%,  from  $93.7  million  in 1995 to $101.5
million in 1996.  Casino expense  increased by  approximately  $2.2 million,  or
4.8%, from $45.3 million in 1995 to $47.5 million in 1996 due to a corresponding
increase in casino  revenues and casino expenses as a percent of casino revenues
increased  from  58.6%  to  59.1%,  primarily  due  to  increased  entertainment
promotional allowances upon the reopening of Splash on June 23, 1995. Room costs
were mostly flat for 1996 compared to 1995, however,  room costs as a percentage
of room revenues  decreased from 47.1% in 1995 to 45.0% in 1996 as room revenues
increased while room costs remained relatively constant. Food and beverage costs
increased by approximately $150,000, or .9%, from $15.8 million in 1995 to $15.9
million in 1996 resulting from a  corresponding  increase in revenues.  Food and
beverage  costs as a percentage  of food and beverage  revenues  decreased  from
72.0% in 1995 to 70.3% in 1996 because food and beverage revenue increased while
payroll  and other  costs  remained  relatively  constant.  Entertainment  costs
increased by approximately $5.1 million, or 45.0%, from $11.2 million in 1995 to
$16.3 million in 1996 due to the additional  expenses  associated with operating
Splash  for a full  year in  1996.  Entertainment  expense  as a  percentage  of
entertainment  revenues  increased  from 73.5% in 1995 to 74.7% in 1996 due to a
revision  in the  Splash  producer's  agreement.  Other  expenses  increased  by
approximately  $300,000,  or 11.0%,  from $2.7  million to $2.9 million due to a
corresponding increase in other revenues.

Other Operating Expenses

           Selling,   general   and   administrative   expenses   increased   by
approximately $1.8 million, or 6.2%, from $29.6 million in 1995 to $31.5 million
in 1996 due to increased  incentive plan costs  required to retain  personnel in
the  competitive  gaming  environment.  As a percentage  of total net  revenues,
selling,  general and  administrative  expenses  decreased from 19.6% in 1995 to
19.1% in 1996 as a result of lower general marketing  expenses and the spreading
of fixed costs over a larger revenue base in 1996. Depreciation and amortization
increased by approximately $1.4 million,  or 20.6%, from $6.8 million in 1995 to
$8.2 million in 1996.

Other Income (Expense)

           Interest expense decreased by approximately  $400,000,  or 3.0%, from
$12.5 million in 1995 to $12.1 million in 1996 while  interest  income  remained
constant  at $1.1  million  in 1995 and  1996.  This was due to a  reduction  in
average debt outstanding,  an increase in average cash balances,  and a decrease
in the  investment  yield in 1996.  Other income  increased by $505,000 due to a
gain on the final payment of certain  unsecured  notes in the fourth  quarter of
1996, offset by a loss due to the change in terms of one of the Company's Notes.

Net Income

           As a result of the factors  discussed  above, net income increased by
approximately $2.1 million,  or 33.0%, from $6.3 million in 1995 to $8.4 million
in 1996. The effective income tax rate was 34.4% for 1995 and 1996.

EBITDA

           EBITDA increased by approximately $3.7 million,  or 13.3%, from $27.8
million in 1995 to $31.5  million in 1996.  In the same  periods,  EBITDA margin
increased from 18.4% to 19.2% of net revenues.


                                                        34

<PAGE>



Liquidity and Capital Resources

           The  Company  had cash  and cash  equivalents  of  $65.1  million  at
December  31,  1997,  which  increased  $39.4  million  from  December 31, 1996.
Significant  debt  service on the First  Mortgage  Notes is paid in February and
August and should be considered in evaluating  cash  increases in the second and
fourth quarters.

           For the year ended December 31, 1997, the Company's net cash provided
by operating  activities  was $17.5 million  compared to $18.3 million for 1996.
EBITDA  for 1997 and 1996 was $29.4  million  and $31.5  million,  respectively,
which was adequate to cover the Company's debt service and capital expenditures.
Management  believes  that  sufficient  cash flow will be available to cover the
Company's debt service and enable  investment in budgeted  capital  expenditures
for the next 12 months.

           Scheduled  interest  payments  on the 11%  Notes is  provided  by the
"contractual  defeasance"  whereby a portion of the proceeds  from the new Notes
was used to acquire U.S. Treasury  Securities  sufficient to pay the interest on
the 11% Notes in December 1997 and the interest,  principal and premium due June
1,  1998 when the final  release  of  obligation  will be  accomplished  through
redemption of the 11% Notes. Substantially all of the covenants on the 11% Notes
were released as a result of the "contractual defeasance".

           Cash flow from  operations  is not expected to be  sufficient  to pay
100% of the principal of the Notes at maturity on August 15, 2004.  Accordingly,
the ability of the Company to repay the Notes at maturity will be dependent upon
its ability to refinance those Notes. There can be no assurance that the Company
will be able to refinance  the  principal  amount of the Notes at maturity.  The
Notes are not redeemable at the option of the Company until August 15, 2001, and
thereafter  are  redeemable at premiums  beginning at 105.0% and declining  each
subsequent year to par in 2003.

           The  Indenture  pursuant  to which the Notes were  issued  (the "Note
Indenture") provides that, in certain  circumstances,  the Company must offer to
repurchase the Notes upon the occurrence of a change of control or certain other
events.  In the  event  of such  mandatory  redemption  or  repurchase  prior to
maturity,  the Company would be unable to pay the principal  amount of the Notes
without a  refinancing.  The Merger is  specifically  excluded  from the defined
transactions which would be considered a change in control.

           The Note Indenture contains certain covenants which limit the ability
of the Company and its restricted  subsidiaries,  subject to certain exceptions,
to:  (i)  incur   additional   indebtedness;   (ii)  pay   dividends   or  other
distributions,   repurchase   capital   stock  or  other  equity   interests  or
subordinated   indebtedness;   (iii)  enter  into  certain   transactions   with
affiliates;  (iv) create certain liens; sell certain assets;  and (v) enter into
certain  mergers  and  consolidations.  As a result of these  restrictions,  the
ability  of the  Company  and  ROC to  incur  additional  indebtedness  to  fund
operations or to make capital  expenditures  is limited.  In the event that cash
flow from operations is insufficient to cover cash requirements, the Company and
ROC would be required to curtail or defer certain of their  capital  expenditure
programs  under these  circumstances,  which could have an adverse effect on the
Company's operations.  Management believes the Company is in compliance with the
covenants of the Note Indenture.

            In February  1997, the Company  entered into a $15.0  million,  five
year  reducing  revolving  line of credit (the  "Credit  Facility").  The Credit
Facility  bears  interest at prime plus 0.5% or LIBOR plus 2.9%. The Company has
not utilized this line of credit.  The Credit  Facility was modified as a result
of the Notes and the proposed Merger. The modifications  included an increase in
the  allowable  funded debt to EBITDA  ratio to 4.75 to one.  The Company is not
currently meeting this requirement and therefore, cannot draw down on the Credit
Facility at this time. The Credit  Facility is callable upon a change in control
other than the Merger.

                                                        35

<PAGE>



           Management  considers it important to the competitive position of the
Riviera that expenditures be made to upgrade the property.  Capital expenditures
totaled  approximately  $36.4  million in 1997  including  $16.6 million for the
Black Hawk Project, $14.9 million in 1996, $7.8 million in 1995 and $8.9 million
in 1994. Capital expenditures were financed from cash flow and the proceeds from
the Notes.

           The Company  currently  estimates  that total costs for completion of
the Black Hawk Project will be approximately $55 million.  The Company purchased
the Black Hawk Land in August 1997 for $15  million,  which was  financed by the
net proceeds from the sale of the Notes, and expects to finance the remainder of
the  Black  Hawk  Project  from a  combination  of  third  party  financing  and
additional investment by the Company,  including up to an additional $15 million
of the net  proceeds  from the sale of the Notes.  The Company  has  received an
excavation permit and expects to receive the other necessary permits in the near
future,  with  construction of the casino  commencing  shortly  thereafter.  The
Company expects to receive the necessary  construction  and other permits in the
near future, with construction of the casino commencing shortly thereafter.  The
casino is scheduled to open in 1999.

Year 2000 Project

           The  Company  has  conducted  a review  of its  computer  systems  to
identify  those  areas that could be affected by the "Year 2000" issue and is in
the process of replacing many of its legacy systems to improve overall  business
performance and to accommodate business for the "Year 2000". However,  given the
inherent  risks for a project  of this  magnitude  and the  resources  required,
actual results could differ  materially  from those  anticipated by the Company.
The Company expects its "Year 2000" date conversion project to be completed on a
timely  basis.  However,  there can be no  assurance  that the  systems of other
companies  on which the Company may rely also will be timely  converted  or that
such failure to convert by another  company would not have an adverse  impact on
the Company's  systems.  The estimated  costs directly or indirectly  associated
with the  project are  currently  expected to be  approximately  $200,000.  Such
amounts have been , or will be, expensed to general and  administrative  expense
except for new systems which will be capitalized in accordance with GAAP.

Forward Looking Statements

           The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain  forward-looking  statements.  Certain matters  discussed in
this  filing  could  be  characterized  as  forward-looking  statements  such as
statements  relating  to plans for future  expansion,  as well as other  capital
spending,  financing  sources and effects of regulation  and  competition.  Such
forward-looking  statements involve important risks and uncertainties that could
cause  actual  results  to  differ  materially  from  those  expressed  in  such
forward-looking statements.

Recently Adopted Accounting Standards

           In 1997,  the  Company  adopted  Statement  of  Financial  Accounting
Standards  ("SFAS")  No. 128,  "Earnings  Per Share".  SFAS No. 128 requires the
presentation  of basic net  income per share and  diluted  net income per share.
Basic per share  amounts are computed by dividing  net income by average  shares
outstanding  in the period.  Diluted per share  amounts are computed by dividing
net income by average  shares  outstanding  plus the  dilutive  effect of common
share equivalents outstanding in the period.


                                                        36

<PAGE>



Recently Issued Accounting Standards

           The FASB issued SFAS No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years  beginning after December 15, 1997. This statement
requires businesses to disclose comprehensive income and its components in their
financial   statements.   Management  intends  to  comply  with  the  disclosure
requirements of this statement in the year ending December 31, 1998.

           The FASB  issued  SFAS No.  131,  "Disclosure  about  Segments  of an
Enterprise  and  Related  Information,"  which is  effective  for  fiscal  years
beginning  after  December 15, 1997.  This  statement  redefines  how  operating
segments are determined and requires qualitative disclosure of certain financial
and descriptive  information about a company's operating  segments.  The Company
will adopt SFAS No. 131 in the year ending December 31, 1998. Management has not
finalized its analysis of which  operating  segments it will report on to comply
with SFAS No. 131.

Item 8.    Financial Statements and Supplementary Data, etc.

Financial Statements
For The Years Ended December 31, 1997, 1996, and 1995
Independent Auditors' Report

RIVIERA HOLDINGS CORPORATION
D.B.A. RIVIERA HOTEL & CASINO
<TABLE>

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

                                                                                                                  Page

<S>                                                                                                            <C>
Independent Auditors' Report                                                                                      38

Consolidated Balance Sheets as of December 31, 1997 and 1996                                                      39

Consolidated Statements of Income for the Years Ended December 31, 1997, 1996, and 1995                           40

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996,                      41
     and 1995

Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995                       42

Notes to Consolidated Financial Statements                                                                      43-57
</TABLE>










                                                          37

<PAGE>





                                           INDEPENDENT AUDITORS' REPORT




Riviera Holdings Corporation
        d.b.a. Riviera Hotel & Casino
Las Vegas, Nevada

We have audited the accompanying consolidated balance sheets of Riviera Holdings
Corporation and subsidiaries (the "Company") d.b.a. Riviera Hotel & Casino as of
December 31, 1997 and 1996, and the related  consolidated  statements of income,
stockholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1997. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 the Company as of December 31, 1997
and 1996,  and the results of its  operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted accounting principles.



/S/ Deloitte & Touche, LLP

Las Vegas, Nevada
February 6, 1998



                                                        38

<PAGE>



<TABLE>
<CAPTION>

RIVIERA HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 and 1996
(In Thousands, Except Share Amounts)
------------------------------------------------------------------------------------------------------------------------


ASSETS                                                                                                1997          1996

CURRENT ASSETS:
<S>                                                                                                   <C>          <C>
  Cash and cash equivalents                                                                      $     65,151 $     25,747
  Accounts receivable, net                                                                              4,938        5,113
  Inventories                                                                                           3,509        3,039
  Prepaid expenses and other assets                                                                     4,554        2,692
                                                                                                  ------------------------
          Total current assets                                                                         78,152       36,591
                                                                                                  ------------------------

U.S. TREASURY BILLS HELD TO RETIRE $100 MILLION NOTES                                                 106,596

PROPERTY AND EQUIPMENT, NET                                                                           153,611      127,760

OTHER ASSETS                                                                                            9,299        2,853

RESTRICTED CASH FOR PERIODIC SLOT PAYMENTS                                                                208          461
                                                                                                   -----------------------

TOTAL ASSETS                                                                                     $    347,866  $   167,665
                                                                                                   =======================


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                                              $         36   $    1,297
  Accounts payable                                                                                     10,890        8,733
  Current income taxes payable                                                                                         413
  Accrued interest, other                                                                               6,570           33
  Accrued expenses                                                                                      8,795        9,521
                                                                                                   -----------------------
          Total current liabilities                                                                    26,619       19,997
                                                                                                   -----------------------

DEFERRED INCOME TAXES PAYABLE                                                                           5,958        4,626

$100 MILLION NOTES TO BE RETIRED BY THE U.S. TREASURY BILLS                                           100,000

OTHER LONG-TERM LIABILITIES                                                                             4,076        3,210

LONG-TERM DEBT, NET OF CURRENT PORTION                                                                173,436      104,581
                                                                                                   -----------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock ($.001 par value; 20,000,000 shares authorized; 4,903,680 shares at December 31,
    1997; and 4,922,503 shares at December 31, 1996, issued and outstanding)                                5            5
  Additional paid-in capital                                                                           13,711       13,919
  Notes receivable from employee stockholders                                                            (207)        (853)
  Retained earnings                                                                                    24,268       22,180
                                                                                                   -----------------------
          Total stockholders' equity                                                                   37,777       35,251
                                                                                                   -----------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                        $   347,866  $   167,665
                                                                                                   =======================

</TABLE>

See notes to consolidated financial statements.


                                                          39

<PAGE>


<TABLE>
<CAPTION>


RIVIERA HOLDINGS CORPORATION

CONSOLIDATED  STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997,  1996,
and 1995 (In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------------------- --------------------------


                                                                                         1997          1996         1995

REVENUES:
<S>                                                                                      <C>           <C>          <C>
  Casino                                                                          $      71,624  $     80,384 $     77,337
  Rooms                                                                                  41,412        41,835       39,848
  Food and beverage                                                                      21,603        22,641       21,895
  Entertainment                                                                          20,895        21,778       15,180
  Other                                                                                  10,956        10,398        8,758
                                                                                    --------------------------------------
          Total                                                                         166,490       177,036      163,018
  Less promotional allowances                                                            12,697        12,627       11,873
                                                                                    --------------------------------------
          Net revenues                                                                  153,793       164,409      151,145
                                                                                    --------------------------------------

COSTS AND EXPENSES:
  Direct costs and expenses of operating departments:
    Casino                                                                               42,537        47,509       45,325
    Rooms                                                                                17,781        18,834       18,787
    Food and beverage                                                                    15,747        15,916       15,768
    Entertainment                                                                        15,514        16,287       11,165
    Other                                                                                 3,011         2,916        2,691
  Other operating expenses:
    Selling, general and administrative                                                  29,840        31,454       29,618
    Depreciation and amortization                                                        10,485         8,212        6,811
                                                                                    --------------------------------------
         Total costs and expenses                                                       134,915       141,128      130,165
                                                                                    --------------------------------------

INCOME FROM OPERATIONS                                                                   18,878        23,281       20,980
                                                                                    --------------------------------------

OTHER INCOME (EXPENSE):
  Interest expense on $100 million notes                                                (11,067)      (11,063)     (11,022)
  Interest income on Treasury Bills held to retire $100 million notes                     2,267
  Interest expense, other                                                                (7,137)       (1,022)      (1,431)
  Interest income, other                                                                  1,926         1,167        1,149
  Other, net                                                                             (1,470)          505
                                                                                    --------------------------------------
          Total other income (expense)                                                  (15,481)      (10,413)     (11,304)
                                                                                    --------------------------------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                                  3,397        12,868        9,676

PROVISION FOR INCOME TAXES                                                                1,309         4,428        3,332
                                                                                    --------------------------------------

NET INCOME                                                                        $       2,088 $       8,440$       6,344
                                                                                    ======================================

EARNINGS PER SHARE DATA:
Weighted average common shares outstanding                                                4,913         4,880        4,800
                                                                                    --------------------------------------
Basic earnings per share                                                          $        0.42   $       1.7    $    1.32
                                                                                    --------------------------------------

Weighted average common & common equivalent shares                                        5,214         5,169        5,058
                                                                                    --------------------------------------
Diluted earnings per share                                                        $        0.40   $       1.6   $     1.25
                                                                                   ---------------------------------------

</TABLE>

See notes to consolidated financial statements.


<TABLE>
<CAPTION>

RIVIERA HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(In Thousands, Except Share Amounts)
------------------------------------------------------------------------------------------------------------ --------------

                                                                                                    Notes
                                                                                                  Receivable
                                                                         Additional                  from
                                                  Shares       Common      Paid-In   Retained      Employee
                                                Outstanding     Stock      Capital   Earnings    Shareholders      Total

<S>                                              <C>            <C>       <C>        <C>          <C>           <C>
Balances, January 1, 1995                        4,800,000      $ 5       $ 12,537   $ 7,396      $             $ 19,938

Net income                                                                             6,344                       6,344
                                                 ------------------------------------------------------------------------

Balances, December 31, 1995                      4,800,000        5         12,537    13,740                      26,282

Stock issued under employee stock purchase plan    137,000                   1,543                   (1,383)         160

Collections of stockholders' receivables                                                                332          332

Refunds on employee stock purchases               (17,600)                    (198)                     198

Director compensation plan                          3,103                       37                                    37

Net income                                                                             8,440                       8,440
                                                 ------------------------------------------------------------------------

Balances, December 31, 1996                      4,922,503        5         13,919    22,180           (853)      35,251

Stock issued under employee stock purchase plan      6,200                      71                      (71)

Collections of stockholders' receivables                                                                425          425

Refunds on employee stock purchases                (25,900)                   (292)                     292

Director compensation plan                             877                      13                                    13

Net income                                                                             2,088                       2,088
                                                 ------------------------------------------------------------------------

Balances, December 31, 1997                      4,903,680      $ 5        $ 13,711 $ 24,268         $ (207)    $ 37,777
                                                 ========================================================================
</TABLE>

See notes to consolidated financial statements.





                                                          40

<PAGE>


<TABLE>
<CAPTION>



RIVIERA HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in Thousands)
------------------------------------------------------------------------------------ ----------------------- -----------


                                                                                             1997       1996       1995

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                         <C>        <C>       <C>
  Net income                                                                                $ 2,088    $ 8,440   $ 6,344
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization                                                            10,485      8,212     6,811
    Provision for bad debts                                                                     (16)       524       478
    Provision for gaming discounts                                                              (84)       232       143
    Gain on disposition of long-term debt, net                                                            (505)
    Interest expense                                                                         11,067     12,085    12,453
    Interest paid                                                                           (11,420)   (12,072)  (12,489)
    Interest expense, other                                                                   7,103
  Changes in operating assets and liabilities:
    Increase in U.S. Treasury Bills purchased to retire $100 million notes                   (2,267)
    Decrease (increase) in accounts receivable                                                  276     (1,535)      126
    Decrease (increase) in inventories                                                         (470)      (853)       86
    Increase in prepaid expenses and other assets                                            (1,862)       (90)     (212)
    Decrease in restricted cash for periodic slot payments                                      253        578       318
    Increase in accounts payable                                                              2,167        166     1,033
    Increase (decrease) in accrued expenses                                                    (726)       104       758
    Increase (decrease) in current income taxes payable                                        (413)       362      (522)
    Increase in deferred income taxes payable                                                 1,332      1,603     1,013
    Increase in non-qualified pension plan obligation to CEO upon retirement                    755      1,039       400
                                                                                             ----------------------------

          Net cash provided by operating activities                                          18,268     18,290    16,740
                                                                                             ----------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures for property and equipment, other                                    (19,752)   (14,923)   (7,836)
  Capital expenditures  - Black Hawk, Colorado                                              (16,582)
  Increase in other assets - Black Hawk, Colorado                                              (100)
  Decrease (increase) in other assets                                                        (6,346)     1,906      (382)
                                                                                             ----------------------------

           Net cash used in investing activities                                            (42,780)   (13,017)   (8,218)
                                                                                             ----------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from long-term borrowings                                                        172,848        209       176
  U.S. Treasury Bills purchased to retire $100 million notes                               (104,329)
  Payments on long-term borrowings                                                           (5,041)    (2,226)   (3,159)
  Proceeds from issuance of stock to employees and directors                                     13        197
  Collections of notes receivable from employees                                                425        332
                                                                                            -----------------------------

           Net cash provided by (used in) financing activities                               63,916     (1,488)   (2,983)
                                                                                            -----------------------------

INCREASE IN CASH AND CASH EQUIVALENTS:                                                       39,404      3,785     5,539

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR:                                                25,747     21,962    16,423
                                                                                            -----------------------------

CASH AND CASH EQUIVALENTS, END  OF YEAR:                                                $    65,151   $ 25,747  $ 21,962
                                                                                            =============================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Income taxes paid                                                                     $     1,860   $ 2,463   $  2,852
                                                                                            =============================

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
  Stock issued to employees for notes receivable                                                 71     1,383
                                                                                            ==================
  Non-cash reductions of long-term debt                                                                   845
                                                                                                    ==========

</TABLE>

See notes to consolidated financial statements.




RIVIERA HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
--------------------------------------------------------------------------------



1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis  of  Presentation--Riviera   Holdings  Corporation  and  its  wholly-owned
subsidiary,  Riviera Operating  Corporation  ("ROC"),  (together the "Company"),
were  incorporated  on January  27,  1993,  in order to  acquire  all assets and
liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993, pursuant to
a plan of reorganization.

In July 1994 management  established a new division,  Riviera Gaming Management,
Inc.  ("RGM") for the purpose of  obtaining  management  contracts in Nevada and
other jurisdictions. In August 1995 RGM incorporated in the state of Nevada as a
wholly owned subsidiary of ROC.

Nature  of  Operations--The  primary  line of  business  of the  Company  is the
operation of the Riviera Hotel and Casino ("the  Riviera") on the "Strip" in Las
Vegas,  Nevada.  The  Company  is  engaged  in a single  industry  segment,  the
operation  of a  hotel/casino  with  restaurants  and  related  facilities.  The
Company, through its gaming management subsidiary,  also manages the Four Queens
Hotel and Casino in  downtown  Las Vegas (see Note 13). In 1997  Riviera  Gaming
Management  of  Colorado,  Inc.  and its 100  percent  owned  subsidiaries  were
incorporated  to acquire land and  construct and operate a casino in Black Hawk,
Colorado.

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

Principles of Consolidation--The  consolidated  financial statements include the
accounts of the Company and its wholly owned subsidiaries, ROC and RGM entities.
All material intercompany accounts and transactions have been eliminated.

Cash and Cash  Equivalents--All  highly  liquid  investments  securities  with a
maturity  of three  months  or less  when  acquired  are  considered  to be cash
equivalents.  The Company accounts for investment  securities in accordance with
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), Accounting for
Certain Investments in Debt and Equity Securities.

The  Company's  investment   securities,   along  with  certain  cash  and  cash
equivalents  that are not deemed  securities  under SFAS 115, are carried on the
consolidated balance sheets in the cash and cash equivalents category.  SFAS 115
addresses the accounting and reporting for investments in equity securities that
have  readily   determinable  fair  values  and  for  all  investments  in  debt
securities,  and requires such  securities  to be classified as either  held-to-
maturity, trading, or available-for-sale.  Management determines the appropriate
classification  of  its  investment  securities  at the  time  of  purchase  and
re-evaluates  such  determination  at each balance sheet date.  Held to maturity
securities  are required to be carried at amortized  cost.  At December 31, 1997
and 1996,  securities  classified  as held to maturity  were  comprised  of debt
securities  issued by the U.S. Treasury and other U.S.  government  corporations
and agencies and repurchase agreements with an amortized cost of $50,534,000 and
$19,756,000, respectively, maturing in three months or less.


                                                          41

<PAGE>



Inventories--Inventories  consist  primarily of food,  beverage,  gift shop, and
promotional  inventories;  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.  Interest incurred during  construction
of new facilities or major  additions to facilities is capitalized and amortized
over the life of the asset. 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  range  from 5 to 40  years.  The  costs of  normal
maintenance  and repairs are charged to expense as incurred.  Gains or losses on
disposals are recognized as incurred.

Other  Assets--Other  assets include bond offering costs and commissions,  which
are amortized over the life of the debt, and are included in interest expense.

Restricted Cash for Periodic Slot  Payments--At  December 31, 1997 and 1996, the
Company had  interest-bearing  deposits with a commercial  bank in the amount of
$208,000 and  $461,000,  respectively,  which are  restricted  as to use.  These
amounts represent  deposits required by the State of Nevada Gaming Control Board
to fund periodic slot payments due customers through the year 2000.

Fair Value Disclosure as of December 31, 1997--

Cash and cash  equivalents,  accounts  receivable,  restricted cash for periodic
slot payments,  accounts payable, and accrued liabilities--The carrying value of
these items is a reasonable estimate of their fair value.

Long-term  Debt--The fair value of the Company's  long-term debt  (including the
$100 million Notes to be retired by the U.S.  Treasury Bills) 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 is
approximately $276,638,000.

Casino  Revenue--The  Company  recognizes,  as gross  revenue,  the net win from
gaming activities, which is the difference between gaming wins and losses.

Promotional    Allowances--Promotional    allowances    consist   primarily   of
accommodations,  entertainment, and food and beverage services furnished without
charge to  customers.  The retail  value of such  services  is  included  in the
respective  revenue   classifications   and  is  then  deducted  as  promotional
allowances.   The  estimated  costs  of  providing  promotional  allowances  are
classified as costs of the casino operating department through interdepartmental
allocations.  These allocations for the years ended December 31, 1997, 1996, and
1995, are as follows (amounts in thousands):
<TABLE>


                                                                                    1997            1996            1995

<S>                                                                           <C>             <C>             <C>
Food and beverage                                                             $    6,130      $    6,671      $    6,570
Rooms                                                                              1,704           1,410           1,451
Entertainment                                                                      2,623           2,592           2,280
                                                                              -------------------------------------------
          Total costs allocated to casino                                     $   10,457      $   10,673      $   10,301
                                                                              ===========================================
</TABLE>

Federal  Income  Taxes--The  Company and its  subsidiaries  file a  consolidated
federal tax return.  The Company  accounts for income taxes in  accordance  with
SFAS 109, Accounting for Income Taxes. SFAS 109 requires recognition of deferred
tax assets and liabilities  for the expected  future tax  consequences of events
that have been  included in the financial  statements  or tax returns.  Deferred
income taxes reflect the net tax effects of

                                                          42

<PAGE>



(i) temporary differences between the carrying amounts of assets and liabilities
for financial  reporting  purposes and the amounts used for income tax purposes;
and (ii) operating loss and tax credit carryforwards.

Estimates and Assumptions--The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  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
estimated useful lives for depreciable and amortizable  assets,  certain accrued
liabilities  and the estimated  allowance for  receivables.  Actual  results may
differ from estimates.

Reclassifications--Certain reclassifications have been made to the 1996 and 1995
financial  statements  to conform  with the  current  year  presentation.  These
reclassifications had no effect on the Company's net income.

Recently  Adopted  Accounting   Standards--See  Note  16  for  recently  adopted
Accounting Standards.

Recently Issued Accounting  Standards--The  FASB issued SFAS No. 130,  Reporting
Comprehensive  Income,  which is  effective  for fiscal  years  beginning  after
December 15, 1997. This statement required businesses to disclose  comprehensive
income and its components in their financial  statements.  Management intends to
comply with the  disclosure  requirements  of this  statement in the year ending
December 31, 1998.

The FASB issued SFAS No. 131,  Disclosure  about  Segments of an Enterprise  and
Related  Information,  which is  effective  for  fiscal  years  beginning  after
December  15,  1997.  This  statement   redefines  how  operating  segments  are
determined  and  requires  qualitative   disclosure  of  certain  financial  and
descriptive  information about a company's operating segments.  The Company will
adopt SFAS No. 131 in the year ending  December  31,  1998.  Management  has not
finalized its analysis of which  operating  segments it will report on to comply
with SFAS No. 131.

2.      ACCOUNTS RECEIVABLE

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



                                                                                                     1997           1996

<S>                                                                                              <C>            <C>
Casino                                                                                           $  2,211       $  2,280
Hotel                                                                                               3,115          3,479
Other                                                                                                 158
                                                                                             ----------------------------
          Total                                                                                     5,484          5,759

Less allowance for bad debts and discounts                                                            546            646
                                                                                             ----------------------------
          Total                                                                                  $  4,938       $  5,113
                                                                                             ============================
</TABLE>


                                                          43

<PAGE>



Changes in the casino and hotel  allowance  for bad debts and  discounts for the
years ended December 31, 1997, 1996 and 1995,  consist of the following (amounts
in thousands):
<TABLE>


                                                                                       1997          1996           1995

<S>                                                                                 <C>           <C>          <C>
Beginning balance                                                                   $   646       $   741      $   1,424
Write-offs                                                                             (438)         (912)        (1,358)
Recoveries                                                                               49            61             54
Provision for bad debts                                                                 372           524            478
Provision for gaming discounts                                                          (83)          232            143
                                                                                 ----------------------------------------
          Ending balance                                                            $   546       $   646      $     741
                                                                                 ========================================
</TABLE>

3.      PREPAID EXPENSES AND OTHER ASSETS

Prepaid  expenses  and other  assets  consist of the  following  at  December 31
(amounts in thousands):
<TABLE>


                                                                                                     1997           1996

<S>                                                                                             <C>            <C>
Prepaid gaming taxes                                                                            $   1,286      $   1,039
Prepaid federal income taxes                                                                        1,190
Prepaid insurance                                                                                     263            304
Other prepaid expenses                                                                              1,815          1,349
                                                                                                -------------------------
          Ending balance                                                                        $   4,554      $   2,692
                                                                                                =========================
</TABLE>

4.      PROPERTY AND EQUIPMENT
Property  and  equipment  consist of the  following  at  December 31 (amounts in
thousands):
<TABLE>


                                                                                                  1997              1996

<S>                                                                                             <C>             <C>
Land and improvements                                                                           $ 36,751        $ 21,751
Buildings and improvements                                                                        80,322          77,455
Equipment, furniture, and fixtures                                                                67,793          51,650
Construction in progress                                                                           2,326
                                                                                                -------------------------
          Total property and equipment                                                           187,192         150,856

Less accumulated depreciation                                                                     33,581          23,096
                                                                                                -------------------------
          Net property and equipment                                                           $ 153,611       $ 127,760
                                                                                               ==========================
</TABLE>

In 1997 approximately $771,000 in interest costs was capitalized on construction
projects.  Certain  of the  Company's  property  and  equipment  is  pledged  as
collateral to secure debt (see Note 8).


                                                          44

<PAGE>



5.      OTHER ASSETS

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


                                                                                                     1997           1996

<S>                                                                                             <C>             <C>
Deposits                                                                                        $     725       $  1,178
Bond offering costs and commissions, net                                                            7,327            403
Other                                                                                               1,247          1,272
                                                                                            -----------------------------
          Total                                                                                 $   9,299       $  2,853
                                                                                            =============================
</TABLE>

6.      ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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


                                                                                                     1997           1996

<S>                                                                                              <C>             <C>
Outstanding chip and token liability                                                             $    681        $   836
Casino account deposits                                                                               203            498
Miscellaneous gaming                                                                                  716            982
                                                                                                 ------------------------
          Total liabilities related to gaming activities                                            1,600          2,316

Accounts payable to vendors                                                                         7,944          5,118
Hotel deposits                                                                                        969          1,123
Other                                                                                                 377            176
                                                                                                 ------------------------
          Total                                                                                  $ 10,890        $ 8,733
                                                                                                 ========================
</TABLE>
<TABLE>

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


                                                                                                     1997           1996

<S>                                                                                             <C>            <C>
Payroll, related payroll taxes, and employee benefits                                           $   5,593      $   5,279
Incentive plans and profit sharing                                                                  1,982          3,012
Other                                                                                               1,220          1,230
                                                                                                 ------------------------
          Total                                                                                 $   8,795      $   9,521
                                                                                                 ========================

</TABLE>

                                                          45

<PAGE>

<TABLE>


7.      OTHER LONG-TERM LIABILITIES

Other long-term liabilities consists of the following at December 31 (amounts in
thousands):


                                                                                                     1997           1996

Periodic slot payments due to customers through 2000, pre-funded
<S>                                                                                            <C>            <C>
  by restricted cash (see Note 1)                                                              $      208     $      461
Non-qualified pension plan obligation to the CEO of the Company,
  payable in 20 quarterly installments upon expiration of his
  employment contract, plus accrued interest                                                        3,868          2,749
                                                                                               --------------------------
          Total other long term liabilities                                                     $   4,076      $   3,210
                                                                                               ==========================

</TABLE>

                                                          46

<PAGE>



8.      LONG-TERM DEBT

Long-term debt consists of the following at December 31 (amounts in thousands):

<TABLE>

                                                                                                  1997              1996

11% First Mortgage Notes maturing on December 31, 2002,  bearing interest at the
  rate of 11% per  annum,  payable  semi-annually  on June 30 and  December  31,
  redeemable  beginning June 1, 1998, at 104.3125%;  1999 at 102.8750%;  2000 at
  101.4375%;   and  2001  and   thereafter  at  100%.   (Note  9  describes  the
<S>                                                                                          <C>             <C>
  reclassification in the current year.)                                                                     $    100,000

10% First Mortgage Notes  maturing on August 15, 2004,  bearing  interest at the
  rate of 10% per annum,  payable  semi-annually on February 15 and August 15 of
  each year,  redeemable  beginning August 1, 2001, at 105%; 2002 at 102.5%; and
  2003 and thereafter at 100%.  These notes are  collateralized  by the physical
  structures
  comprising the Riviera Hotel and Casino.                                                   $    172,963

Unsecured,  non-interest bearing promissory note in an original principal amount
  of $8,000,000 (the "Class 13/14 Note") to settle the claims of the former sole
  shareholder and his affiliates, discounted
  at 12%.                                                                                                           4,707

Capitalized lease obligations (See Note 11)                                                            741            986

Unsecured,  promissory  notes in the  original  principal  amount  of  $441,262,
  bearing interest at the rate of 8.5% per annum, payable
  monthly and maturing December 31, 1998.                                                               96            185
                                                                                               ---------------------------

          Total long-term debt                                                                     173,800        105,878

Less current maturities by terms of debt                                                               364          1,297
                                                                                               ---------------------------

          Total                                                                               $    173,436   $    104,581
                                                                                               ===========================
</TABLE>

Maturities of long-term  debt for the years ending  December 31, were as follows
(amounts in thousands):

<TABLE>

<S>                                                                                                      <C>
1998                                                                                                     $          364
1999                                                                                                                281
2000                                                                                                                192
2001
2002
Thereafter                                                                                                      172,963
                                                                                                         --------------
          Total                                                                                               $ 173,800
                                                                                                         ==============
</TABLE>

During the fourth quarter of 1996 the Company made the final payment on the note
issued to settle the Class 12 claim, which was less than what was recorded,  and
resulted in income of approximately  $845,000. Also during the fourth quarter of
1996,  the terms of the Class  13/14  Note were  revised,  which  resulted  in a
decrease in the

                                                          47

<PAGE>



discount  rate  from 16.8  percent  to 12.0  percent  and  increased  principal,
resulting in additional expense of $340,000. Other net income for the year ended
December 31, 1996, includes the net effect of the above transactions.

Other income (expense)  for  the year ended  December 31, 1997 includes $850,000
of costs for a canceled secondary offering.

In February 1997, the Company  entered into a $15.0 million,  five year reducing
revolving  line of credit (the "Credit  Facility").  The Credit  Facility  bears
interest at prime plus 0.5% or LIBOR plus 2.9%.  The  Company  has not  utilized
this line of credit.  The Credit  Facility  was  modified as a result of the 10%
Notes and the proposed  Merger.  The  modifications  included an increase in the
allowable  funded  debt to  EBITDA  ratio  to 4.75 to one.  The  Company  is not
currently  meeting  this  requirement  and,  therefore,  cannot draw down on the
Credit  Facility at this time. The Credit  Facility is callable upon a change in
control other than the Merger.

On August 13, 1997, the Company issued 10 percent First Mortgage Notes (the "10%
Notes")  with a principal  amount of $175  million  dollars.  The 10% Notes were
issued at a  discount  in the  amount of $2.2  million.  The  discount  is being
accreted  over the  life of the  note on a  straight  line  basis.  The 10% Note
Indenture  contains certain covenants which limit the ability of the Company and
its  restricted  subsidiaries,  subject  to  certain  exceptions,  to: (i) incur
additional indebtedness;  (ii) pay dividends or other distributions,  repurchase
capital  stock or other equity  interests or  subordinated  indebtedness;  (iii)
enter into certain transactions with affiliates; (iv) create certain liens; sell
certain assets; and (v) enter into certain mergers and consolidations. A portion
of the proceeds  from the 10% Notes  totaling $4.5 million was paid to a bank to
retire the Class 13/14 Notes.  As described in Note 9, a portion of the proceeds
was invested in U.S.  Treasury  Notes to pay the 11% First Mortgage  Notes.  The
Company has registered under the Securities Act of 1933, as amended,  securities
identical  to the 10%  Notes.  On  January 8, 1998,  the  Company  completed  an
exchange  offer for such  registered  securities  for the First  Mortgage  Notes
effective January 1, 1998.

The First  Mortgage  Notes are  unconditionally  guaranteed  by all existing and
future restricted  subsidiaries of the Company, which will not initially include
Riviera  Colorado  Holdings,  Inc. and Riviera Black Hawk, Inc.  ("RBH").  As of
December 31, 1997,  RBH had no  operations.  At December 31, 1997,  RBH only had
assets of approximately $16.3 million, which represents the cost of the land for
the Black Hawk project and construction in progress.  Therefore, the Company has
not included  separate  financial  information for the guarantors as of December
31, 1997.  The Company  intends to disclose such  additional  information in the
future as the subsidiary develops.

The Company has credit  facilities  totaling  $1,100,000 at banks for letters of
credit issued periodically to foreign vendors for purchases of merchandise.

9.      $100 MILLION NOTES TO BE RETIRED BY THE U.S. TREASURY BILLS

On August 13, 1997,  the Company used part of the proceeds from the 10% Notes to
purchase United States  Government  Securities (the  "Securities")  at a cost of
$109.8 million, which was deposited into an irrevocable trust. These Securities,
together with interest that will be earned by the Securities will be used to pay
the principal,  interest, and call premium of $4,313,000 due on the 11% Notes on
June 1, 1998, which is the earliest date the 11% Notes can be redeemed. Interest
earned from the Securities is included in interest income on Treasury Bills held
to retire $100  million . The  interest  expense from the 10% Notes and from the
11% Notes are reported separately on the consolidated statements of income. As a
part of the funding for the  retirement  of these notes,  substantially  all the
covenants (other than payment of principal and interest) were released.


                                                          48

<PAGE>



10.     FEDERAL INCOME TAXES

SFAS 109  requires the Company to compute  deferred  income taxes based upon the
difference  between  the  financial  statement  and  tax  basis  of  assets  and
liabilities  using  enacted  tax  rates in  effect  in the  years  in which  the
differences are expected to reverse.

The effective income tax rates on income  attributable to continuing  operations
differ from the statutory  federal  income tax rates for the year ended December
31, 1997, 1996, and 1995, as follows (amounts in thousands):

<TABLE>

                                              1997                       1996                       1995
                                             Amount        Rate         Amount        Rate         Amount        Rate

<S>                                               <C>     <C>            <C>          <C>          <C>          <C>
Taxes at federal statutory rate               $   1,189   35.0 %     $   4,504        35.0 %    $   3,386       35.0 %
Other                                               120    3.5 %           (76)       (1.0)%          (54)      (1.0)%
                                              ------------------------------------------------------------------------

Provision for income taxes                    $   1,309   38.5 %     $   4,428        34.0 %    $   3,332       34.0 %
                                              ========================================================================
</TABLE>

The tax effects of the items comprising the Company's net deferred tax liability
consist of the following at December 31 (amounts in thousands):
<TABLE>


                                                                                                     1997           1996

Deferred Tax Liabilities:
<S>                                                                                             <C>            <C>
  Basis in long-term debt obligations                                                           $     150      $     457
  Reserve differential for hospitality and gaming activities                                        1,214          1,133
  Difference between book and tax depreciable property                                              6,955          5,226
  Other                                                                                               867            806
                                                                                                -------------------------
          Total                                                                                     9,186          7,622
                                                                                                -------------------------

Deferred Tax Assets:
  Reserves not currently deductible                                                                 1,845          1,806
  Bad debt reserves                                                                                   191            226
  AMT and other credits                                                                             1,192            964
                                                                                                -------------------------
          Total                                                                                     3,228          2,996
                                                                                                -------------------------

Net deferred tax liability                                                                     $    5,958       $  4,626
                                                                                                =========================
</TABLE>

The Company has $1,185,000 of alternative minimum tax credit available to offset
future income tax liabilities. The credit has no expiration date.

11.     LEASING ACTIVITIES

The Company leases certain 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.  Management
estimates  the fair market value of the property  and  equipment  subject to the
leases approximates the net present value of the leases. The leased property and
equipment consist primarily of signs and air conditioning equipment.

                                                          49

<PAGE>



The  following  is a schedule by year of the minimum  rental  payments due under
capital leases, as of December 31, 1997 (amounts in thousands).
<TABLE>

<S>                                                                                                          <C>
1998                                                                                                          $ 441
1999                                                                                                            429
2000                                                                                                            227
                                                                                                           ---------
          Total minimum lease payments                                                                        1,097

Less taxes, maintenance, and insurance                                                                          270
Less interest portion of payments                                                                                86
           Present value of net minimum lease payments                                                        $ 741
                                                                                                           =========
</TABLE>

Rental  expense for the years ended  December  31,  1997,  1996,  and 1995,  was
approximately $275,000, $334,000, and $406,000, respectively.

In addition,  the Company  leases  retail space to third  parties under terms of
noncancelable  operating  leases which  expire in various  years  through  2003.
Rental income,  which is included in other income,  for the years ended December
31,  1997,  1996,  and  1995,  was  approximately  $1,555,000,  $1,573,000,  and
$1,533,000,  respectively.  At December 31, 1997, the Company had future minimum
annual rental income due under noncancelable operating leases as follows:
<TABLE>

<S>                                                                                                         <C>

1998                                                                                                         $ 1,374
1999                                                                                                             903
2000                                                                                                             581
2001                                                                                                             376
2002                                                                                                             203
Thereafter                                                                                                       149
                                                                                                          -----------
          Total                                                                                              $ 3,586
                                                                                                          ===========
</TABLE>

12.     COMMITMENTS AND CONTINGENCIES

The  Company  is  party to  several  routine  lawsuits,  both as  plaintiff  and
defendant,  arising  from  normal  operations  of a hotel.  Management  does 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.

Proposed Merger--On September 15, 1997, the Company entered into a Agreement and
Plan of Merger with R&E Gaming Corp., an entity  controlled by Allen E. Paulson,
pursuant  to which the  Company  would be  acquired  by R&E Gaming  and  Riviera
shareholders  would  receive  $15 per  share in cash for each  share of  Riviera
common stock owned by them, plus an amount equal to seven percent per annum from
June  1,  1997,  to the  date of the  closing.  As  part  of its  review  of the
transaction,  the  Company's  Board of  Directors  received an opinion  from its
financial advisor,  Ladenburg,  Thalmann & Co., Inc., as to the fairness, from a
financial  point of view, of the  consideration  to be received in the merger by
the  Company's  shareholders.  In  connection  with the  execution of the merger
agreement,  shareholders  owning  approximately  56 percent of the  outstanding,
fully diluted Company shares have granted R&E Gaming an option to purchase their
shares at the same price that all  shareholders  would receive in the merger and
have  agreed  to vote in favor of the  transaction.  Closing  of the  merger  is
subject to a number of  conditions,  including  approval  by the  Nevada  Gaming
Authorities. On February 5, 1998, at a special meeting the shareholders approved
the merger.  There can be no assurance that the conditions to the merger will be
met or that the merger will be consummated. See Note 17, Subsequent Events.


                                                          50

<PAGE>



A  subsidiary  of R&E Gaming has  entered  into an  agreement  to  purchase  the
outstanding common stock of Elsinore Corporation,  the primary asset of which is
the Four Queens  Hotel and Casino in Downtown  Las Vegas,  Nevada.  Since August
1996 Riviera Gaming Management-Elsinore,  Inc. (RGME), an indirect subsidiary of
the Company, has been managing the Four Queens under a contract which guarantees
RGME a  minimum  management  fee plus  additional  compensation  based on EBITDA
improvement  of the Four Queens,  and warrants to purchase  1,125,000  shares of
Elsinore  common  stock  (equal to 18.4  percent of the equity of  Elsinore on a
fully  diluted  basis) at $1.00 per share.  See Note 17, Subsequent Events.

Other income (expense) for the year ended December 31, 1997,  includes  $400,000
in costs relating to the proposed Paulson merger.

Black Hawk  Project--The  Company  has begun  construction  on a casino in Black
Hawk, Colorado, on a site which was purchased for $15 million in August 1997. As
of December 31, 1997,  the Company had expended  approximately  $16.7 million on
the project.  The Company  entered into a contract for a gross  maximum price of
$24.5 million for the construction of the casino. The Company estimated the cost
of the project at $55 million.

Employees and Labor  Relations--As  of December 31, 1997,  the Riviera  employed
approximately 2,100 persons and had collective  bargaining  contracts with eight
unions  covering  approximately  1,300  of such  employees,  including  food and
beverage employees,  rooms department employees,  carpenters,  engineers,  stage
hands,  musicians,   electricians,   painters,  and  teamsters.   The  Company's
agreements  with the Southern  Nevada  Culinary and  Bartenders  Union and Stage
Hands Union, which cover the majority of the Company's unionized employees, were
renegotiated   in  1994  and  expired  on  May  31,  1997,  and  June  1,  1997,
respectively.  The Riviera,  along with the other Las Vegas hotels are currently
negotiating  with these unions and anticipate  that new contracts will be agreed
upon during the second  quarter of 1998.  The Culinary and  Bartenders  Union is
currently concentrating on its negotiations with the larger gaming companies and
is expected to intensify its  negotiations  with the Riviera  after  preliminary
agreements have been reached with the larger gaming  companies.  The Stage Hands
Union's negotiations are proceeding at a steady pace and agreement on details of
the contract is  anticipated  during the second  quarter of 1998. The expiration
date of the  Teamsters  contract is March 31, 1998.  The Company is currently in
negotiation  and  anticipates  satisfactory  settlement in the second quarter of
1998. The Operating Engineers,  Carpenters,  Painters,  and Electricians Unions'
collective  bargaining  agreements were renewed in 1995 and generally  expire in
1998. The Musicians Union's collective bargaining agreement expires on September
21, 1999.  Although unions have been active in Las Vegas,  management  considers
its employee relations to be satisfactory.  There can be no assurance,  however,
that new  agreements  will be reached  without  union action or will be on terms
satisfactory to the Company.

13.     MANAGEMENT AGREEMENTS

From August 1996 until  February  1997,  RGM has been  operating the Four Queens
adjacent to the Golden  Nugget on Fremont  Street in downtown Las Vegas under an
interim  management  agreement  for a fee of  $83,333  per  month.  A  long-term
management  agreement (the  "Management  Agreement")  with Elsinore  Corporation
("Elsinore"),  the owner of the Four  Queens,  went into effect on February  28,
1997, the effective date of the Chapter 11 plan of  reorganization  of Elsinore.
The Company  believes  that the terms of the  Management  Agreement  are no less
favorable to the Company than if the Company had negotiated  with an independent
party. The term of the Management Agreement is approximately 40 months,  subject
to earlier  termination  or extension.  Either party may terminate if cumulative
earnings before interest, taxes,  depreciation,  and amortization ("EBITDA") for
the first two fiscal years is less than $12.8 million.  The term can be extended
by an additional 24 months at RGM's option,  if cumulative  EBITDA for the three
fiscal years of the term is at least $19.2 million. RGM is paid a minimum annual
management  fee of $1.0  million,  payable  in equal  monthly  installments.  In
addition,  RGM  receives  a fee of 25  percent  of the  amount by which the Four
Queens EBITDA exceeds $8 million in any fiscal year.  RGM has received  warrants
to purchase 1,125,000 shares of common stock of Elsinore, exercisable during the
term or extended term of the management agreement at an exercise price of $1 per
share. Either party can terminate the Management  Agreement if (i) substantially
all the Four Queens' assets are sold; (ii) the Four Queens is merged; or (iii) a
majority of the Four Queens' or Elsinore's shares are sold. Upon such

                                                          51

<PAGE>



termination RGM will receive a $2.0 million  termination  bonus minus any amount
realized or realizable upon exercise of the warrants.

14.     EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS

The Company has an  employment  agreement  with Mr.  Westerman,  Chairman of the
Board and Chief  Executive  Officer of the Company.  This agreement  includes an
annual  base  salary,  an  incentive  bonus  based upon the  extent of  adjusted
operating  earnings,   contributions  to  a  Non-Qualified   Pension  Plan,  and
contributions to a Profit Sharing and 401(k) Plan. In addition,  the Company has
termination fee agreements with each of the Directors,  Executive Officers,  and
Significant  Employees pursuant to which each of such employees will be entitled
to receive one year's salary and health  insurance  benefits if their employment
with the  Company  is  terminated  within one year of a change of control of the
Company and without cause, or the involuntary termination of Mr. Westerman.

The  Company has an  incentive  compensation  plan,  covering  employees  of the
Company  who, in the opinion of the  Chairman of the Board,  either serve in key
executive,  administrative,  professional,  or  technical  capacities  with  the
Company or other employees who also have made a significant  contribution to the
successful and profitable  operation of the Company.  The amount of the bonus is
based on operating earnings before depreciation, amortization, interest expense,
provision for income taxes,  extraordinary  losses and gains,  any provisions or
payments made pursuant to the Plan, and any provisions or payments made pursuant
to the  incentive  compensation  of the  Chairman and Chief  Executive  Officer.
During the years ended December 31, 1997,  1996, and 1995, the Company  recorded
accrued bonuses of $1,282,000,  $2,588,000, and $2,123,000,  respectively, based
upon the above incentive  compensation plan and the incentive  compensation plan
established for the Chairman of the Board under his employment agreement.

The Company  contributes  to  multi-employer  pension  plans under various union
agreements to which the Company is a party.  Contributions,  based on wages paid
to covered employees, were approximately $1,604,199,  $1,650,000, and $1,576,000
for the years ended December 31, 1997, 1996, and 1995. These  contributions were
for approximately 1,400 employees,  including food and beverage employees,  room
department  employees,   carpenters,   engineers,   stage  hands,  electricians,
painters,  and teamsters.  The Company's share of any unfunded liability related
to multi-employer plans, if any, is not determinable.

The  Company   sponsors  a  Profit   Sharing  and  401(k)  Plan  which  incurred
administrative  expenses of approximately  $44,000,  $34,000 and $59,000 for the
years ended 1997, 1996, and 1995.

The profit sharing component of the Profit Sharing and 401(k) Plan provides that
the  Company  will make a  contribution  equal to one  percent of each  eligible
employee's annual  compensation if a prescribed annual operating earnings target
is attained and an additional 1/10th of one percent thereof for each $200,000 by
which operating earnings is exceeded,  up to a maximum of three percent thereof.
The Company may elect not to contribute to the Profit Sharing and 401(k) Plan if
it notifies its employees by January of the Profit Sharing and 401(k) Plan year.
An  employee  will become  vested in the  Company's  contributions  based on the
employee's years of service.  An employee will receive a year of vesting service
for each plan year in which  the  employee  completed  1,000  hours of  service.
Vesting  credit  will be  allocated  in 20 percent  increments  for each year of
service commencing with the attainment of two years of service. An employee will
be fully vested following the completion of six years of service.

The 401(k)  component of the Profit  Sharing and 401(k) Plan  provides that each
eligible  employee may  contribute  up to 15 percent of such  employee's  annual
compensation,  and  that  the  Company  will  contribute  one  percent  of  each
employee's annual compensation for each four percent of compensation contributed
by the employee,  up to a maximum of two percent. All non-union employees of the
Company are eligible to  participate in the Profit Sharing and 401(k) Plan after
twelve consecutive months of service with the Company.


                                                          52

<PAGE>



ROC is a party to termination fee agreements with certain significant  employees
pursuant to which each such  employee  is entitled to receive one year's  salary
and benefits if his or her employment with ROC is terminated  within one year of
a change of control of the Company or ROC, or the involuntary termination of Mr.
Westerman's  employment.  The estimated total amount that would be payable under
all such  agreements  at December 31,  1997,  is  approximately  $1.8 million in
salaries and $400,000 in benefits.

ROC is a party to stay  bonus  agreements  with  certain  significant  employees
pursuant to which each such  employee  is entitled to receive one year's  salary
(less the  amount  of any  incentive  bonus  paid in 1997 for 1996) in the event
there is a change of control of the Company.  The agreements  expire on December
31,  1997.  The  estimated  total  amount  that would be payable  under all such
agreements is approximately $353,000.

15.     STOCK OPTION PLANS

At a meeting held on July 27, 1993, the Company's  Board of Directors  adopted a
stock option plan providing for the issuance of both non-qualified and incentive
stock options (as defined in the Internal Revenue Code).  This stock option plan
was  ratified  by the  Company's  shareholders  at the  April 26,  1994,  annual
meeting. The number of shares available for purchase under the Stock Option Plan
as adopted was 120,000 (as adjusted  pursuant to antidilution  provisions).  The
stockholders  approved a  four-for-one  stock  split,  increasing  the number of
shares of Common Stock  available  for  purchase  under the Stock Option Plan to
480,000.  Options were granted for 228,000  shares for 1993;  132,000 shares for
1994;  none for 1995;  and 110,000 for 1996. No options were  exercised in 1995,
1996, or 1997. On November 21, 1996, the Company  amended the Stock Option Plan,
which was approved at the annual  meeting  held on May 8, 1997,  to increase the
number of shares  available  under the Stock Option Plan from 480,000  shares to
1,000,000  shares and granted options to purchase 300,000  additional  shares to
Mr.  Westerman.  Options vest 25 percent one year after the date of grant and 25
percent  each  subsequent  year.  The  term  of an  option  can in no  event  be
exercisable  more than ten years (five years in the case of an incentive  option
granted to a shareholder  owning more than 10 percent of the Common  Stock),  or
such shorter period, if any, as may be necessary to comply with the requirements
of state securities laws, from the date such option is granted.

On March 5, 1996, the Board of Directors adopted an employee stock purchase plan
(the "Stock Purchase  Plan"),  which was approved by the stockholders on May 10,
1996.  A total of 300,000  shares of common  stock  (subject to  adjustment  for
capital  changes) in the aggregate may be granted under the stock purchase plan.
The Stock  Purchase Plan is  administered  by the  compensation  committee.  The
purchase  price per share of stock shall be 85 percent of per share market value
of the common stock on the purchase  date.  On May 31, 1996,  approximately  560
union and non-union  employees  participated in the 1996 employee stock purchase
plan.  Under the plan,  137,000  shares were issued to  employees  at $11.26 (85
percent of market price at May 10,  1996),  for $160,000 cash and the balance in
notes  receivable  of  $1,383,000  which are payable  over two years via payroll
deduction.  During 1997,  25,900  shares were  returned  through the plan as the
result of refunds to the employees.  During 1997,  6,200 shares were reissued at
$11.47 for notes receivable of $71,145.

On May 10, 1996, the shareholders  approved a Nonqualified Stock Option Plan for
Non-Employee  Directors  (the  "Nonqualified  Stock  Option  Plan")  and a Stock
Compensation  Plan for  Directors  serving on the  Compensation  Committee  (the
"Stock  Compensation  Plan").  The total number of shares available for purchase
under each plan is 50,000.  Pursuant to the Nonqualified  Stock Option Plan, two
directors were granted  options to purchase 4,000 shares at an exercise price of
$13.25,  which  represented  fair market value.  As of December 31, 1997,  3,980
shares were issued pursuant to the Stock Compensation Plan at $12.08 per share.

The Company has adopted the disclosures-only provision of Statement of Financial
Accounting   Standards  No.  123,   Accounting  for  Stock-Based   Compensation.
Accordingly, no compensation cost has been recognized for the stock option plan.
Had compensation  cost for the Company's stock option plan been determined based
on the fair value at the date of grant for awards consistent with the provisions
of SFAS 123, the  Company's net income and pro forma net income common share and
common  share  equivalent  would have been  decreased  to the pro forma  amounts
indicated below at December 31 (in thousands, except per share amounts).


                                                          53

<PAGE>


<TABLE>


                                                                                                     1997           1996

<S>                                                                                            <C>            <C>
Net income - as reported                                                                       $ 2,088        $ 8,440
Net income - pro forma                                                                         $ 2,058        $ 8,380
Basic earnings per common share - as reported                                                  $  0.42        $  1.73
Basic earnings per common share - pro forma                                                    $  0.42        $  1.72
Diluted earnings per common and common share equivalent - as reported                          $  0.40        $  1.63
Diluted earnings per common and common share equivalent - pro forma                            $  0.39        $  1.61

</TABLE>


                                                          54

<PAGE>



16.     EARNINGS PER SHARE

For the year ended  December 31, 1997,  the Company  adopted FASB  Statement No.
128, Earnings per Share. This statement  established standards for computing and
presenting   earnings  per  share  ("EPS")  and  required   restatement  of  all
prior-period EPS data presented. Basic EPS is computed by dividing net income by
the weighted average number of common shares outstanding for the period. Diluted
EPS 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  EPS.  Such
antidilutive  options outstanding for the twelve months ended December 31, 1997,
1996,  and  1995,  were  410,000,   414,000  and  zero  (0),   respectively.   A
reconciliation of income and shares for basic and diluted EPS is as follows:
<TABLE>
<CAPTION>


                                                                                FOR THE YEAR ENDED 1997
                                                                       INCOME              SHARES            PER-SHARE
                                                                    (NUMERATOR)         (DENOMINATOR)         AMOUNT

Basic EPS
<S>                                                                     <C>                     <C>           <C>
  Income available to common stockholders                               $     2,088             4,913         $  0.42
                                                                                                            =========
Effect of dilutive securities
  Options                                                                                         301
                                                                    ---------------     -------------
Diluted EPS
  Income available to common stockholders plus
    assumed conversions                                                 $     2,088             5,214         $  0.40
                                                                    ===============     =============       =========


                                                                                FOR THE YEAR ENDED 1996
                                                                       INCOME              SHARES            PER-SHARE
                                                                    (NUMERATOR)         (DENOMINATOR)         AMOUNT

Basic EPS
  Income available to common stockholders                               $     8,440             4,880         $  1.73
                                                                                                            =========
Effect of dilutive securities
  Options                                                                                         289
                                                                    ---------------     -------------
Diluted EPS
  Income available to common stockholders plus
    assumed conversions                                                 $     8,440             5,169         $  1.63
                                                                    ===============     =============       =========


                                                                                FOR THE YEAR ENDED 1995
                                                                       INCOME              SHARES            PER-SHARE
                                                                    (NUMERATOR)         (DENOMINATOR)         AMOUNT

Basic EPS
  Income available to common stockholders                               $     6,344             4,800         $  1.32
                                                                                                            =========
Effect of dilutive securities
  Options                                                                                         258
                                                                    ---------------     -------------
Diluted EPS
  Income available to common stockholders plus
    assumed conversions                                                 $     6,344             5,058         $  1.25
                                                                    ===============     =============       =========
</TABLE>

On November 16, 1995, the  stockholders of the Company  approved an amendment to
the Company's  Amended and Restated  Articles of  Incorporation  to increase the
authorized   shares  of  common  stock  from   5,000,000  to  20,000,000  and  a
four-for-one stock split. Accordingly, per share information,  average number of
shares  outstanding,  and  number  of  shares  outstanding  in the  accompanying
consolidated  financial  statements have been adjusted for the stock split as of
the earliest date presented (January 1, 1995).


                                                          55

<PAGE>



17.     SUBSEQUENT EVENTS (UNAUDITED)

On February 25, 1998 the Company announced that Riviera Holdings Corporation has
been advised by Allen E. Paulson, President of R&E Gaming Corporation,  that R&E
Gaming is preserving  its right not to proceed with its  acquisition of Elsinore
Corporation,  and it alleges  that an Option and Voting  Agreement  relating  to
Elsinore  between it and majority  shareholder,  Morgens  Waterfall,  is void by
reason of certain alleged misrepresentations.

R&E Gaming  Corporation  has  requested  information  to enable it to  determine
whether  the  Company is in  compliance  with  certain of the  covenants  in the
Company  Merger  Agreement  with R&E Gaming.  R&E Gaming has also requested that
Morgens,   Waterfall,   Vintiadis  and  Company,  Inc.  ("Morgens   Waterfall"),
SunAmerica, and Keyport Life confirm the accuracy of certain representations and
warranties  in an Option and  Voting  Agreement  relating  to the  Company.  The
Company has and will furnish all information that R&E Gaming reasonably requests
and believes that it is in full compliance with all of its obligations under the
Company Merger Agreement.

On March 5,  1998,  Mr.  Westerman  exercised  a clause  in the  Agreement  that
requires the Company to establish a trust for the money in his  retirement  fund
as permitted in his employment  agreement  following  shareholder  approval of a
"change in control." The approval by the  shareholders of the merger on February
5, 1998,  constituted  a change of control.  The  Company  has  entered  into an
agreement  with Mr.  Westerman to address  funding the trust amount in the event
the merger is not consummated.

On March 20, 1998, R&E Gaming  Corporation  notified the Company that R&E Gaming
considered  the  merger  agreement  with  Riviera  "void and  unenforceable"  or
alternatively  of R&E's  "intention to terminate"  and "demand  repayment of all
moneys and letters of credit".  Riviera  disputes R&E Gaming's factual and legal
assertions and will vigorously pursue collection of the approximately $6 million
being held in escrow related to the merger.


                                                          56

<PAGE>




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

None.


                                                        57

<PAGE>



                                                     PART III

Item 10.   Directors and Executive Officers of the Registrant

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 30, 1998,  relating to the Annual Meeting
of Stockholders to be held on June 24, 1998, and is made a part hereof.

Item 11.   Executive Compensation

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 30, 1998,  relating to the Annual Meeting
of Stockholders to be held on June 24, 1998, and is made a part hereof.

Item 12.   Principal Shareholders

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 30, 1998,  relating to the Annual Meeting
of Stockholders to be held on June 24, 1998, and is made a part hereof.

Item 13.   Certain Relationships and Related Transactions

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 30, 1998,  relating to the Annual Meeting
of Stockholders to be held on June 24, 1998, and is made a part hereof.


                                                        58

<PAGE>



                                              PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K

           (a)(1)   List of Financial Statements.

           The  following  Independent  Auditors'  Report  and the  Consolidated
Financial Statements of the Company are incorporated by reference into this Item
14 of Form 10-K by Item 8 hereof:

-        Independent Auditors' Report dated February 6, 1998.
-        Consolidated Balance Sheets as of December 31, 1997 and 1996.
-        Consolidated Statements of Income for the Years Ended December 31,
         1997, 1996 and 1995.
-        Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 1997, 1996 and 1995.
-        Consolidated Statements of Cash Flows for the Years Ended December 31,
         1997, 1996 and 1995.
-        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 by reference.

           (b)      Reports on Form 8-K
           No  reports on Form 8-K were  filed  with the  Commission  during the
fourth quarter ended December 31, 1997.




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<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)

           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.
<TABLE>

Signature                                            Title                                                         Date

<S>                                         <C>                                                             <C>

/s/ WILLIAM L. WESTERMAN                    Chairman of the Board, Chief
William L. Westerman                        Executive Officer and President                                 March 26, 1998


/s/ DUANE R. KROHN                          Treasurer (Principal Financial
Duane R. Krohn                              and Accounting Officer)                                         March 26, 1998


/s/ ROBERT R. BARENGO                       Director                                                        March 26, 1998
Robert R. Barengo


/s/ WILLIAM FRIEDMAN                        Director                                                        March 26, 1998
William Friedman


/s/ PHILIP P. HANNIFIN                      Director                                                        March 26, 1998
Philip P. Hannifin
</TABLE>







                                                            60

<PAGE>

<TABLE>


                                                  EXHIBIT  INDEX


Exhibit
Number                               Description
--------------------------------------------------------------------------------
<S>                                  <C>
2.1*                                 Agreement   and  Plan  of   Merger,   dated September 15, 1997, by and among R&E Gaming
                                     Corp.,  Riviera Acquisitions Sub, Inc., and Riviera  Holdings  Corporation (see Exhibit
                                     10.1 to  Current  Report  on Form 8-K filed with the  Commission on September 29, 1997,
                                     Commission File No. 0-21430)

3.1*                                 Second Restated Articles of Incorporation of the Company (see Exhibit
                                     3.1 to Registration Statement on Form S-4 filed with the Commission on
                                     September 10, 1997, Commission File No. 0-21430)

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

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

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

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

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

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

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

3.9*                                 Articles of Incorporation of Riviera Gaming Management of Colorado,
                                     Inc. (see Exhibit 3.9 to Amendment No. 1 to Registration Statement on
                                     Form S-4 filed with the Commission on December 9, 1997, Commission
                                     File No. 0-21430)



                                                        61

<PAGE>




3.10*                                Bylaws of Riviera Gaming Management of Colorado, Inc. (see Exhibit
                                     3.10 to Amendment No. 1 to Registration Statement on Form S-4 filed
                                     with the Commission on December 9, 1997, Commission File No. 0-21430)

4.1*                                 Indenture  dated  as  of  August  13,  1997 between  the   Company  and  Norwest   Bank
                                     Minnesota, N.A., as trustee, the Guarantors party  thereto,  Jefferies & Company,  Inc.
                                     and  Ladenburg  Thalmann  & Co.  Inc.  (see Exhibit  4.2 to Current  Report on Form 8-K
                                     filed  with the  Commission  on August  18, 1997, Commission File No. 0-21430)

4.2*                                 Form of the Company's 10% Senior Notes due 2004 (included in Exhibit 4.1)

5.1*                                 Opinion  of  Dechert  Price  &  Rhoads  re: legality  (see Exhibit 5.1 to Amendment No.
                                     1 to  Registration  Statement  on Form  S-4 filed with the  Commission  on  December 9,
                                     1997, Commission File No. 0-21430)

10.1*                                Registration Rights Agreement dated as of August 13, 1997 by and among
                                     the Company, the Guarantors party thereto, Jefferies & Company, Inc.
                                     and Ladenburg Thalmann & Co. Inc. (see Exhibit 4.1 to Current Report
                                     on Form 8-K filed with the Commission on August 18, 1997, Commission
                                     File No. 0-21430)

10.2*                                Purchase  Agreement  dated  August  8, 1997 among the  Company,  the  Guarantors  party
                                     thereto,  Jefferies  &  Company,  Inc.  and Ladenburg Thalmann & Co., Inc. (see Exhibit
                                     1.1 to  Current  Report  on Form 8-K  filed with the  Commission  on August  18,  1997,
                                     Commission File No. 0-21430)

10.3*                                Lease Agreement between Riviera, Inc. and Mardi Gras Food Court, Inc.
                                     dated April 1, 1990 (see Exhibit 10.1 to Form 10, Commission File No. 0-21430)

10.4*                                Amendment to Lease Agreement between Riviera, Inc. and Mardi Gras
                                     Food Court, Inc. dated April 1, 1990 (see Exhibit 10.2 to Registration
                                     Statement Form S-1 filed with the Commission on August 11, 1993, File No. 33-67206)

10.5*                                Lease Agreement between Riviera, Inc. and Leroy's Horse and Sports
                                     Place (see Exhibit 10.3 to Form 10, Commission File No. 0-21430)

10.6*                                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 Form S-1 filed
                                     with the Commission on August 11, 1993, File No. 33-67206)


                                                        62

<PAGE>

10.7*                                Indemnity Agreement, dated June 30, 1993, from the Company in favor
                                     of IBJ Schroder Bank & Trust Company (see Exhibit 10.8 to Registration
                                     Statement Form S-1 filed with the Commission on August 11, 1993, File
                                     No. 33-67206)

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

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

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

10.11*                               Howard Johnson & Company  Regional  Defined Contribution  Plan,  dated  March 16,  1990
                                     (adopted  by the  Company  pursuant  to the Adoption  Agreement  filed as Exhibit 10.17
                                     to  Registration  Statement  Form S-1 filed with the  Commission  on August  11,  1993,
                                     File No. 33-67206)

10.12*                               Employment Agreement between Riviera, Inc. and William L.
                                     Westerman, dated January 6, 1993 (see Exhibit 10.18 to Form 10,
                                     Commission File No. 0-21430)

10.13*                               Form of Agreement between the Company and Directors (see Exhibit
                                     10.19 to Form 10, Commission File No. 0-21430)

10.14*                               Form of Termination Fee Agreement (see Exhibit 10.20 to Form 10,
                                     Commission File No. 0-21430)

10.15*                               Restricted Account Agreement, dated June 30, 1993, among Riviera
                                     Operating Corporation, IBJ Schroder Bank & Trust Company and Bank
                                     of America Nevada (see Exhibit 10.22 to Registration Statement Form S-1
                                     filed with the Commission on August 11, 1993, File No. 33-67206)

10.16*                               Disbursement  Agreement,   dated  June  30, 1993,  between the Company and IBJ Schroder
                                     Bank & Trust  Company (see Exhibit 10.23 to Registration  Statement Form S-1 filed with
                                     the Commission on August 11, 1993, File No. 33-67206)

10.17*                               Tax Sharing Agreement between the Company and Riviera Operating
                                     Corporation dated June 30, 1993 (see Exhibit 10.24 to Amendment No. 1

                                                        63

<PAGE>
                                     to Registration Statement Form S-1 filed with the Commission on August
                                     19, 1993, File No. 33-67206)

10.18*                               The Registrant's 1993 Stock Option Plan (see Exhibit 10.25 to
                                     Amendment No. 1 to Registration Statement Form S-1 filed with the
                                     Commission on August 19, 1993, File No. 33-67206)

10.19*                               Form of Stay Bonus  Agreement  (see Exhibit 10.27   to  Form   10-Q   filed   with  the
                                     Commission on November 9, 1994,  Commission File No. O-21430)

10.20*                               Amendment dated February 19, 1995, to Lease Agreement between
                                     Riviera, Inc. and Mardi Gras Food Court, Inc. (filed with Exhibits 10.3
                                     and 10.4)

10.21*                               Amendment dated September 30, 1994, to Employment Agreement
                                     between Riviera, Inc. and William L. Westerman (filed with Exhibit 10.12)

10.22*                               Management Agreement by and between Elsinore Corporation, Four
                                     Queens, Inc. and Riviera Gaming Management Corp. -- Elsinore (see
                                     Exhibit 10.30 to Form 10-K for the fiscal year ended December 31, 1996,
                                     Commission File No. 000-21430)

10.23*                               Employment Agreement dated as of November 21, 1996 by and between
                                     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. 000-21430)

10.24*                               Revolving  Line of  Credit  Loan  Agreement dated  February 28, 1997 by and between the
                                     Company,  Riviera Operating Corporation and  U.S.  Bank of Nevada (see Exhibit  10.32 to
                                     Form  10-K  for  the   fiscal   year  ended  December  31,  1996,  Commission
                                     File  No. 000-21430)

10.25*                               Letter  of  Intent   dated  March  4,  1997  between the Company and Eagle Gaming,  L.P.
                                     (see  Exhibit  10.33  to Form  10-K for the  fiscal  year  ended   December   31,  1996,
                                     Commission File No. 000-21430)

10.26*                               Deed of Trust, Assignment of Rents, Leases, Fixture  Filing  and  Security   Agreement,
                                     dated August 13, 1997,  executed by Riviera Holdings  Corporation  for the  benefit  of
                                     Norwest    Bank     Minnesota,     National Association  (see  Exhibit 10.1 to Form 8-K
                                     filed August 18, 1997, Commission File No. 000-21430)

10.27*                               Security Agreement, dated August 13, 1997, by and among Riviera
                                     Holdings Corporation, Riviera Operating Corporation, Riviera Gaming
                                     Management, Inc., Riviera Gaming Management of Colorado, Inc.,
                                     Riviera Gaming Management -- Elsinore, Inc. and Norwest Bank

                                                        64

<PAGE>
                                     Minnesota, National Association (see Exhibit 10.2 to Form 8-K filed
                                     August 18, 1997, Commission File No. 000-21430)

10.28*                               Stock Pledge and Security Agreement, dated August 13, 1997, executed
                                     by Riviera Holdings Corporation (see Exhibit 10.3 to Form 8-K filed
                                     August 18, 1997, Commission File No. 000-21430)

10.29*                               Stock Pledge and Security Agreement, dated August 13, 1997, executed
                                     by Riviera Operating Corporation (see Exhibit 10.4 to Form 8-K filed
                                     August 18, 1997, Commission File No. 000-21430)

10.30*                               Stock Pledge and Security Agreement, dated August 13, 1997, executed
                                     by Riviera Gaming Management, Inc. (see Exhibit 10.5 to Form 8-K filed
                                     August 18, 1997, Commission File No. 000-21430)

10.31*                               Restricted Account Agreement, dated August 13, 1997, by and among
                                     Riviera Holdings Corporation, Norwest Bank Minnesota, National
                                     Association and U.S. Bank of Nevada (see Exhibit 10.6 to Form 8-K filed
                                     August 18, 1997, Commission File No. 000-21430)

10.32*                               First Amendment to Revolving Line of Credit Loan Agreement, dated
                                     August 12, 1997, between Riviera Holdings Corporation, Riviera
                                     Operating Corporation and U.S. Bank (see Exhibit 10.7 to Form 8-K filed
                                     August 18, 1997, Commission File No. 000-21430)

10.33*                               Escrow Agreement, dated September 15, 1997, by and among R&E
                                     Gaming Corp., Riviera Holdings Corporation, and State Street Bank and
                                     Trust Company of California (see Exhibit 10.2 to Form 8-K filed
                                     September 29, 1997, Commission File No. 000-21430)

22.1*                                Subsidiaries of the Company (see Exhibit 21.1 to Registration Statement
                                     on Form S-4 filed with the Commission on September 10, 1997,
                                     Commission File No. 0-21430)

23.1*                                Consent of Deloitte & Touche LLP (see Exhibit 23.1 to Amendment No.
                                     1 to Registration Statement on Form S-4 filed with the Commission on
                                     December 9, 1997, Commission File No. 0-21430)

23.2*                                Consent of Dechert Price & Rhoads (included in Exhibit 5.1)

23.3*                                Consent of Schreck Morris (see Exhibit 23.3 to Amendment No. 1 to
                                     Registration Statement on Form S-4 filed with the Commission on
                                     December 9, 1997, Commission File No. 0-21430)

23.4*                                Consent of Holme Roberts & Owen LLP (see Exhibit 23.4 to Amendment
                                     No. 1 to Registration Statement on Form S-4 filed with the Commission
                                     on December 9, 1997, Commission File No. 0-21430)



                                                        65

<PAGE>



27.1                                 Financial Data Schedule for the period
                                     ended 12/31/97

27.2                                 Financial Data Schedule for the period
                                     ended 9/30/97

27.3                                 Financial Data Schedule for the period
                                     ended 6/30/97

27.4                                 Financial Data Schedule for the period
                                     ended 3/31/97

27.5                                 Financial Data Schedule for the period
                                     ended 12/31/96

27.6                                 Financial Data Schedule for the period
                                     ended 9/30/96

27.7                                 Financial Data Schedule for the period
                                     ended 6/30/96

27.8                                 Financial Data Schedule for the period
                                     ended 3/31/96

99.1                                 Letter, dated March 20, 1998, from R&E Gaming Corp. to the Company
                                     regarding the Company's Agreement and Plan of Merger
</TABLE>

*   The  exhibits  thus  designated  are  incorporated  herein by  reference  as
    exhibits  hereto.  Following the description of such exhibits is a reference
    to the copy of the exhibit  heretofore  filed with the Commission,  to which
    there have been no amendments or changes.



                                                        66

<PAGE>