FORM 10-Q

                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ACT OF 1934

For the quarterly period ended                June 30, 2006
                               ------------------------------------------------
                                                         OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ACT OF 1934

For the transition period from          to
                              ----------  -----------------
                       Commission file number  000-21430
                                     ----------------------------

                         Riviera Holdings Corporation
------------------------------------------------------------------------------
          (Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number,
  including area code                                (702) 794-9527
---------------------------------------------------------------------

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

         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 whether the registrant is a large  accelerated  filer, an
accelerated filer, or a non-accelerated filer. (Check One)

Large accelerated filer ___   Accelerated filer _X_    Non-accelerated filer ___

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

                APPLICABLE ONLY TO ISSUER'S  INVOLVED IN BANKRUPTCY
                    PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

                 APPLICABLE ONLY TO CORPORATE ISSURERS

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

As of August 7, 2006, there were 12,463,755 shares of Common Stock, $.001 par
value per share, outstanding.



                             RIVIERA HOLDINGS CORPORATION

                                      INDEX

                                                                           Page
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

Condensed Consolidated Balance Sheets (Unaudited) at June 30, 2006 and
                                                                       
December 31, 2005                                                             3

Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended June 30, 2006 and 2005                             4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 2006 and 2005                                       5

Notes to Condensed Consolidated Financial Statements (Unaudited)              6

Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                      14

Item 3.  Quantitative and Qualitative Disclosures About Market Risk          25

Item 4.  Controls and Procedures                                             26

PART II. OTHER INFORMATION                                                   26

Item 1.  Legal Proceedings                                                   26

Item 1A. Risk Factors                                                        27

Item 6.  Exhibits                                                            28

Signature Page                                                               29

Exhibits                                                                     30











PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements


The accompanying unaudited Condensed Consolidated Financial Statements of
Riviera Holdings Corporation have been prepared in accordance with the
instructions to Form 10-Q, and therefore, do not include all information and
notes necessary for complete financial statements in conformity with generally
accepted accounting principles in the United States. The results from the
periods indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) that management considers necessary for a fair
presentation of operating results.

The results of operations for the three and six months ended June 30, 2006 and
2005 are not necessarily indicative of the results for the entire year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2005,
included in our Annual Report on Form 10-K.






RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS   (Unaudited)
(In Thousands, except share amounts)                   June 30       December 31
--------------------------------------------------------------------------------
                                                         2006           2005
ASSETS
CURRENT ASSETS:
                                                                 
   Cash and cash equivalents                           $ 25,260        $ 20,571
   Accounts receivable, net                               2,385           3,544
   Inventories                                            1,853           2,485
   Prepaid expenses and other assets                      3,451           4,197
                                                ----------------   -------------
       Total current assets                              32,949          30,797

PROPERTY AND EQUIPMENT, Net                             171,812         171,130
OTHER ASSETS, Net                                         6,557           7,396
DEFERRED INCOME TAXES, Net of valuation
       allowance of $17,081                               2,446           2,446
                                                ----------------   -------------
TOTAL                                                 $ 213,764       $ 211,769
                                                ================   =============

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
   Current portion of long-term debt                      $ 853           $ 824
   Current portion of obligation to officers              1,000           1,000
   Accounts payable                                       8,695          10,133
   Accrued interest                                       1,065           1,087
   Accrued expenses                                      14,083          12,261
                                                ----------------   -------------
     Total current liabilities                           25,696          25,305
                                                ----------------   -------------
OBLIGATIONS TO OFFICERS, Net of current portion           2,607           3,126
                                                ----------------   -------------
LONG-TERM DEBT, Net of current portion                  214,369         214,607
                                                ----------------   -------------
Commitments & Contingencies (Note 6)

SHAREHOLDERS'  DEFICIENCY:
   Common stock ($.001 par value; 60,000,000
     shares authorized;  17,131,824 and
     17,082,324 shares issued at June 30,
     2006 and  December 31, 2005, respectively)             17              17
   Additional paid-in capital                           17,758          17,301
   Treasury stock (4,762,393 and 4,859,091
      shares at June 30, 2006 and December 31,
      2005, respectively)                               (9,841)        (10,047)
   Accumulated Deficit                                 (36,842)        (38,540)
                                                ----------------   -------------
      Total shareholders' deficiency                   (28,908)        (31,269)
                                                ----------------   -------------
TOTAL                                                $ 213,764       $ 211,769
                                                ================   =============


See notes to condensed consolidated financial statements

                                        3



RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2006 AND 2005                     Three Months Ended   Six Months Ended
(In thousands, except per share  amounts)       June 30,            June 30,
--------------------------------------------------------------------------------
REVENUES:                                   2006      2005      2006     2005
                                                           
  Casino                                 $ 29,862  $ 28,577    56,944  $ 56,060
  Rooms                                    14,246    13,770    29,089    27,195
  Food and beverage                         8,746     9,368    17,644    18,211
  Entertainment                             3,860     4,230     7,541     9,112
  Other                                     1,733     2,248     3,436     4,285
                                         --------- ---------  -------- ---------
            Total revenues                 58,447    58,193   114,654   114,863
   Less - promotional allowances           (6,010)   (4,936)  (10,528)   (9,142)
                                         --------- ---------  -------- ---------
            Net revenues                   52,437    53,257   104,126   105,721
                                         --------- ---------  -------- ---------

COSTS AND EXPENSES:
 Direct costs and expenses of
  operating departments:
    Casino                                 15,222    14,996    29,042    28,860
    Rooms                                   6,895     7,196    13,684    13,754
    Food and beverage                       6,155     6,581    12,487    12,634
    Entertainment                           2,793     3,525     5,435     7,195
    Other                                     333       814       799     1,493
Other operating expenses:
    General and administrative:
        Equity compensation                   190       932       406       985
        Other general and administrative    9,984     9,587    20,001    19,592
    Mergers, acquisitions and development
          costs, net                          761       165       878      (502)
    Sarbanes-Oxley Act expenses                47       270       275       270
    Asset impairment                            3         0        16       198
    Depreciation and amortization           3,159     3,584     6,419     6,878
                                         --------- ---------  -------- ---------
            Total costs and expenses       45,542    47,650    89,442    91,357
                                         --------- ---------  -------- ---------
INCOME FROM OPERATIONS                      6,895     5,607    14,684    14,364
                                         --------- ---------  -------- ---------
     Interest expense, net                 (6,477)   (6,610)  (12,986)  (13,229)
                                         --------- ---------  -------- ---------
INCOME(LOSS) BEFORE PROVISION
      FOR INCOME TAXES                        418    (1,003)    1,698     1,135
PROVISION FOR INCOME TAXES                      0         0         0         0
                                         --------- ---------  -------- ---------
NET  INCOME (LOSS)                          $ 418  $ (1,003)  $ 1,698   $ 1,135
                                         ========= =========  ======== =========

INCOME (LOSS) PER SHARE DATA:
Income (Loss) per share:
   Basic                                   $ 0.03   $ (0.08)   $ 0.14   $ 0.09
                                         --------- ---------  -------- --------
   Diluted                                 $ 0.03   $ (0.08)   $ 0.14   $ 0.09
                                         --------- ---------  -------- --------
Weighted-average common shares
      outstanding                          12,040    12,182    12,001   11,986
                                         --------- ---------  -------- --------
Weighted-average common and common
      equivalent shares                    12,326    12,182    12,271   12,267
                                         --------- ---------  -------- --------


See notes to condensed consolidated financial statements

                                        4



RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005                Six Months Ended
(in thousands)                                                      June 30,
                                                              2006       2005
                                                            ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                   
Net income                                                    $1,698     $1,135
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation  and amortization                             6,419      6,878
    Provision for bad debts, net                                 221         95
    Stock Compensation - Restricted Stock                        392        985
    Stock Compensation - Stock Options                            14
    Asset Impairment                                              16        197
    Amortization of deferred loan fees                           979        981
    Changes in operating assets and liabilities:
      Decrease in accounts receivable                            938      1,252
      Decrease (increase) in inventories                         632       (233)
      Decrease in prepaid expenses
          and other assets                                       746        205
      Decrease in accounts payable                            (1,438)      (771)
      Decrease in accrued liabilities                           (178)    (1,607)
      Increase in deferred compensation plan liability            (2)       (48)
      Decrease in non-qualified pension plan obligation
          to CEO upon retirement                                (500)      (500)
                                                            ---------  ---------
       Net cash provided by operating activities               9,937      8,569
                                                            ---------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures  - Las Vegas, Nevada               (2,481)    (3,224)
      Capital expenditures - Black Hawk, Colorado             (2,621)    (2,921)
      Capitalized interest on construction projects                0         59
      Decrease in other assets                                     9         21
                                                            ---------  ---------
       Net cash used in investing activities                  (5,093)    (6,065)
                                                            ---------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

      Payments on long-term borrowings                          (412)    (1,044)
      Proceeds from exercise of stock options                    257        377

                                                            ---------  ---------
        Net cash used in financing activities                   (155)      (667)
                                                            ---------  ---------

INCREASE IN CASH AND CASH EQUIVALENTS                          4,689      1,837
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD              $ 20,571   $ 18,886
                                                            ---------  ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD                    $ 25,260   $ 20,723
                                                            =========  =========

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
  Property acquired with debt and accounts payable              $ 21      $ 397

  Cash paid for interest                                    $ 12,212   $ 12,332

See notes to condensed consolidated financial statements

                                        5

RIVIERA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Nature of Operations

Riviera Holdings Corporation ("RHC") and its wholly-owned subsidiary, Riviera
Operating Corporation ("ROC") (together with their wholly-owned subsidiaries,
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. The Company operates the Riviera Hotel &
Casino (the "Riviera Las Vegas") on the Strip in Las Vegas, Nevada. In February
2000, the Company opened its casino in Black Hawk, Colorado, which is owned
through Riviera Black Hawk, Inc. ("RBH"), a wholly-owned subsidiary of ROC.

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its direct and indirect wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.

Earnings Per Share

Basic per-share amounts are computed by dividing net income by weighted average
shares outstanding during the period. Diluted net income per share amounts are
computed by dividing net income by weighted average shares outstanding plus the
dilutive effect of common share equivalents. The effect of 273,652 options
outstanding was not included in diluted calculations for the three months ended
June 30, 2005 since the Company incurred a net loss and their effect would have
been antidilutive. There were no potentially dilutive options excluded from the
calculation for the three months ended June 30, 2006 and 18,000 and  24,000 for
the six months ended June 30, 2005 and 2006, respectively.

Income Taxes

The income tax provisions for the six months ended June 30, 2006 and 2005, as
well as the three months ended June 30, 2006 were fully offset by the
utilization of loss carryforwards for which a valuation allowance had been
previously provided. The estimates used to determine the remaining valuation
allowance are based upon recent operating results and budgets for future
operating results. Remaining deferred tax assets are net of valuation allowance
that reduces the asset to amounts that approximate AMT credits that do not
expire. These estimates are made using assumptions about the economic, social
and regulatory environments in which we operate. These estimates could be
impacted by numerous unforeseen events including changes to regulations
affecting how we operate the business, changes in the labor market or economic
downturns in the areas where we operate.

                                        6


Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires our 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 allowances for receivables
and deferred tax assets. Actual results may differ from estimates.

Stock Based Compensation

On January 1, 2006, we adopted Statement of Financial Accounting Standards
("SFAS") No.123(R), using the modified prospective application. Accordingly,
prior amounts have not been restated. In the first quarter of 2006, our adoption
of SFAS No. 123 (R) resulted in no incremental stock-based compensation expense,
as we had no non-vested options outstanding at January 1, 2006. However, as
required by SFAS No. 123 (R), upon adoption, we reclassified $3.6 million of
deferred compensation as additional paid in capital.

As of June 30, 2006, we had outstanding options under three stock option plans.
Prior to January 1, 2006 we had adopted the disclosure-only provisions of SFAS
No. 123, Accounting for Stock-Based Compensation. Under our 2005 Stock Option
Plan for Non-Employee Directors (the "Directors Plan") we granted options for
24,000 shares to our non-employee directors on May 22, 2006 at an exercise price
of $21.60 per share. For the three months ended June 30, 2006 approximately
$14,000 of compensation expense was recognized on the new options granted and is
recorded as a component of general and administrative expenses.

The following table details the effect on net income and earnings per share had
compensation expense for the employee stock-based awards been recorded in the
first half of 2005 based on the fair value method under SFAS No. 123 (R) (in
thousands, except per share amounts):



                                                     Three months     Six months
                                                        ended           ended
                                                       June 30,        June 30,
                                                         2005           2005
                                                                
Net income (loss)                                    $ (1,003)       $ 1,135
Less: Total stock-based employee compensation
  expense determined under fair value-based
  methods for awards net of related tax effects           (11)          (22)
Net Income (loss) pro forma                         $  (1,014)    $    1,113

Basic Income (loss) per common share as reported    $   (0.08)    $     0.09
Basic Income (loss) per common share pro forma      $   (0.08)    $     0.09
Diluted Income (loss) per common and common
  share equivalent as reported                      $   (0.08)    $     0.09
Diluted Income (loss) per common and common share
  equivalent pro forma                              $   (0.08)    $     0.09


                                        7


We estimated  the fair value of each option grant on the date of grant using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for grants in 2003:  dividend yield of 0%; expected  volatility
of 52%;  risk-free  interest rate of 4.49%;  and expected lives of 10 years. All
outstanding  options were vested as of December  31, 2005.  During the three and
six months ended June 30,  2006,  24,000  options  were granted to  non-employee
directors.

Recent Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), Accounting for
Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 provides guidance on the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating the
impact of this standard on the Condensed Consolidated Financial Statements.

2. OTHER ASSETS

Other assets at June 30, 2006 and December 31, 2005 include  deferred  loan fees
of approximately $5.4 million and $6.2 million respectively, associated with the
refinancing of our debt in 2002.

3. LONG TERM DEBT AND COMMITMENTS

On June 26, 2002, we issued 11% Senior Secured Notes with a principal amount of
$215 million, substantially all of which were later exchanged for our registered
Senior Secured Notes with substantially the same terms (collectively, the "11%
Notes"). The 11% Notes were issued at a discount of $3.2 million. The discount
is being amortized over the life of the 11% Notes. We incurred fees of
approximately $9.3 million in connection with the issuance of the 11% Notes,
which are included in other assets and are being amortized to interest expense
over the life of the 11% Notes.

Effective July 26, 2002, we entered into a $30 million, five-year revolving
credit arrangement with a financial institution. Terms of the arrangement
include interest at prime plus .75 percent or a LIBOR-derived rate. There were
no advances outstanding on this revolver at June 30, 2006. We incurred loan fees
of approximately $1.5 million, which are being expensed over the life of the
arrangement. A 0.5 percent annual fee is payable in monthly installments on the
unused portions of the revolver plus a $3,000 monthly service fee.

4. STOCK REPURCHASES

There were no shares of our common stock purchased by our Deferred Compensation
Plan for the six months ended June 30, 2006 or 2005. The Deferred Compensation
Plan distributed to participants 96,698 and 187,983 shares for the six months
ended June 30, 2006 and 2005, respectively.

                                        8


5. SHARED-BASED PAYMENTS

Effective March 10, 2005, we approved and authorized the grant of 337,500 shares
of Common Stock under our Restricted Stock Plan to 19 executives at no cost,
subject to their execution of appropriate acceptances. We granted those shares
in substitution for stock options that we attempted to grant on July 15, 1993
under our 1993 Employee Stock Option Plan (the "1993 Option Plan"). The 1993
Option Plan expired on July 1, 2003, rendering those options null and void. The
grant of restricted Common Stock was intended to compensate those executives for
the value of the options that we attempted to grant. The restricted shares are
subject to a five-year vesting schedule, vesting 20% each March 10, commencing
March 10, 2006. We are amortizing the $4,584,000 fair market value of those
shares over the vesting period of 60 months. Of the total shares granted, 54,300
shares vested during the six month period ended June 30, 2006 and $391,796 was
charged to expense in the first six months of 2006 and is recorded as a
component of general and adminstrative expenses. In May 2006, 48,000 shares were
forfeited due to the resignation of two of our officers. As of June 30, 2006, we
have 169,200 Restricted Stock Plan shares outstanding and $2,540,776 remaining
to be recognized. These shares immediately vest upon death, disability,
retirement at age 62, termination of employment other than for cause, or in the
event of a change in control of the Company.

At June 30, 2006, we had two active stock option plans and two expired stock
option plans, which are described below. Options granted prior to the adoption
of SFAS No. 123(R) on January 1, 2006 were accounted for in accordance with
Accounting Principles Board Opinion No. 25. Under the 1993 Option Plan, we were
authorized to grant options to employees for up to one million shares of Common
Stock. Under the Non-Qualified Stock Option Plan for Non-Employee Directors (the
"1996 Option Plan"), we were authorized to grant options to non-employee
directors for up to 150,000 shares of our stock. Under these plans, the exercise
price of each option equaled the market price of our stock on the date of grant
(110% of market value in the case of an incentive option granted to an owner of
more than 10% of our stock) and an option's maximum term was 10 years (5 years
in the case of an incentive option granted to a an owner of more than 10% of our
stock). Under the 1993 Option Plan, options vest 25% on the date of grant and
25% each subsequent year. All options have become vested under the 1996 Option
Plan. Although the 1993 Option Plan and 1996 Option Plan have expired, some
options granted under these plans remain outstanding.

Effective May 17, 2005, we implemented two new stock option plans and reserved a
total of 1,150,000 shares for options issuable under the plans. We allocated
150,000 shares to the Directors Plan. We will grant options for 6,000 shares to
each non-employee director on each anniversary of the effective date of the
Directors Plan. Also, we will grant options for 6,000 shares to each person who
becomes a non-employee director after May 17, 2005. The option exercise price
will be the closing market price of our stock on the date of the option grant.
The options will vest over five years at 20% per year, commencing on the first
anniversary of the grant. The non-employee directors were granted 24,000 shares
on May 22, 2006 at an exercise price of $21.60. The grant date fair value of the
options was $14.32 per share and as of June 30, 2006 we had $244,000 remaining
to be amortized. We estimated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2006: dividend yield of 0%;
expected volatility of 59%; risk-free interest rate of 4.93%; and expected lives
of 7 years.

Also, we allocated one million shares to our 2005 Incentive Stock Option Plan
for our officers and key employees. Our Stock Option Committee has discretion as
to whom those options will be granted and the number of shares to be allocated
to each option grant. The option exercise price will be the closing market price
of our stock (110% of market value in the case of an incentive option granted to
an owner of more than 10% of our stock) on the date of the option grant. The
options will vest over four years, with 20% vesting on the date of grant, and an
additional 20% on each anniversary of the grant.

                                        9


The total intrinsic value of options exercised during the three and six months
ended June 30, 2006 was $1,140,150 and $1,614,495, respectively. The following
table summarizes information about options outstanding as of June 30, 2006.

The activities of all stock option plans are as follows:



                                                        Weighted Average Aggregate
                                   Shares    Share Exercise Remaining    Intrinsic
                                                 Price        Life         Value
                                                               
Outstanding, December 31, 2005     310,500   $   2.44
  Exercised                        (37,500)  $   3.07
  Expired                           (3,000)  $   2.45
                                  ----------
Outstanding, March 31, 2006         270,000  $   2.35
  Issued                             24,000  $  21.60
  Exercised                         (60,000) $   2.36
  Expired                               -
                                -------------
Outstanding, June 30, 2006          234,000  $   4.33    6.20 years   $3,852,775
                                =============
Exercisable June 30, 2006           210,000   $  2.35    4.91 years   $3,852,775
                                =============


6. COMMITMENTS AND CONTINGENCIES

Salary Continuation Agreements

Approximately 60 officers and significant employees (excluding Mr. Westerman and
Mr. Vannucci) have salary continuation agreements effective through December 31,
2006, under which they will be entitled to receive (1) either six months' or one
year's base salary if their employment is terminated, without cause, within 12
or 24 months of a change of control of the Company; and (2) group health
insurance for periods of either one or two years. The base salary payments would
be made in bi-weekly installments, subject to the employee's duty to mitigate by
making best efforts to find other employment. In addition, one officer and one
significant employee have salary continuation agreements effective through
December 31, 2006, under which each of them would be entitled to receive two
years' base salary and certain benefits for two years, if their employment is
terminated without cause within 24 months of a change of control of the Company.
These two salary continuation agreements are not subject to a duty to mitigate.
As of June 30, 2006, the total amount that would be payable under all such
agreements if all payment obligations were to be triggered was approximately
$5.8 million.

Legal Proceedings

On June 19, 2006, a complaint (the "Consolidated Complaint") captioned "In Re
Riviera Holdings Corporation Shareholders' Litigation" was filed against RHC and
its directors in the District Court of Clark County, Nevada (the "Court") (Case
No. A520100), as a consolidation of four class action complaints previously
filed against RHC (the "Prior Complaints"). The Consolidated Complaint was
served on RHC on June 20, 2006 pursuant to a Stipulation and Pretrial Order
entered by the Court, and is substantially similar to the Prior Complaints. The
plaintiffs request the Court to do the following, among other things: (i)
declare that the case is maintainable as a class action; (ii) declare that the
Agreement and Plan of Merger, dated April 5, 2006 (the "Merger Agreement"),
among Riv Acquisition Holdings Inc.("RAHI"), Riv Acquisition Inc. and RHC is
unlawful; (iii) enjoin  consummation of the merger contemplated by the Merger

                                        10


Agreement  "unless and until  ...[RHC]  adopts and  implements  a  procedure  or
process to obtain the highest possible price for shareholders";  (iv) direct the
defendants  to disclose  all material  information  before  seeking  shareholder
approval of "any acquisition;" and (v) impose a constructive  trust, in favor of
the plaintiffs,  on any benefits improperly received by the defendants.  A Court
hearing on the  plaintiffs'motion  to enjoin RHC's meeting of shareholders for a
vote on the Merger Agreement has been scheduled for Ausgust 24, 2006. We believe
the  allegations  in the  Consolidated  Complaint and the Prior  Complaints  are
without merit.

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

Main Street Extension in Black Hawk

On June 29, 2006 the Main Street extension opened in Black Hawk, Colorado, which
is expected to provide increased traffic past our casino. We are obligated,
based on the Fourth Addendum to Subdivision Agreement with the City of Black
Hawk and the Main Street Cost Allocation Study, to pay 21.45% of the cost of the
project, once the City of Black Hawk has finalized the costs. Our estimated
share of the cost will be at least $2 million, which has been capitalized as a
land improvement.

Guarantor Information

The 11% Notes and the $30 million line of credit are guaranteed by all of our
restricted subsidiaries. These guaranties are full, unconditional, and joint and
several. RHC's unrestricted subsidiaries, which have no operations and do not
significantly contribute to our financial position or results of operations, are
not guarantors of the 11% Notes or the revolving credit arrangement.

7. SUBSEQUENT EVENTS

On August 8, 2006,  William L.  Westerman,  our  Chairman of the Board and Chief
Executive Officer ("CEO"),  is expected to sell  substantially all of his shares
of Common Stock to certain  affiliates of RAHI (the  "Buyers") for $15 per share
pursuant to a December 22, 2005 Stock Purchase  Agreement between the Buyers and
Mr. Westerman.  We have been informed that as a result of this transaction,  the
Buyers and their  affiliates will  beneficially own  approximately  18.3% of the
outstanding  Common Stock and Mr. Westerman will  beneficially own approximately
0.04% of the outstanding Common Stock.

On August 8, 2006,  we  announced  that we received an  unsolicited,  competing
takeover proposal from International Gaming & Entertainment,  LLC ("IGE"), which
is a  newly-formed,  special-purpose  acquisition  company  affiliated  with  BT
Enterprises,  LLC, a  Boston-based  merchant  equity fund. The principals of IGE
include  Jeffrey  Wu,  Michael  Signorelli  and  Bagus  Tjahjono.  Mr. Wu is the
majority shareholder and a director of United International Bank in New York.

IGE has informed us that it is offering to acquire all of our outstanding Common
Stock for $20 per share on substantially the same terms and conditions set forth
in the  Merger  Agreement,  subject  to IGE's  satisfactory  review  of  certain
disclosure  schedules.  IGE has  further  informed  us that its  investors  have
committed a sufficient  amount of equity capital to complete the  acquisition of
RHC as  contemplated,  but IGE does not yet have a financing  commitment for the
portion of the  acquisition  price that it intends to  finance.  IGE's  proposed
acquisition, however, would not be subject to a financing contingency.

                                        11

If the Board of Directors  determine that the IGE proposal is a superior  offer,
the Company may be required to pay a Topping Fee of  approximately  $7.9 million
to RAHI.

The  Merger  Agreement,  which  provides  for RAHI's  acquisition  of all of our
outstanding  Common Stock at $17 per share, was scheduled for a shareholder vote
on August 8, 2006 at our annual meeting of shareholders.

In accordance with the our board of directors'  fiduciary  duties,  our board is
giving proper  consideration  to all aspects of IGE's proposal and is evaluating
it in comparison to the Merger Agreement.

In order for us to give  IGE's  proposal  proper  consideration  and to consult
further with our legal and financial advisors and with IGE's  representatives,
as  appropriate,  we have postponed a shareholder  vote on the Merger  Agreement
until August 29, 2006 at 1:00 p.m., PDT.

In the meantime, our board of directors maintains its support for the Merger
Agreement.



                                        12



8. SEGMENT DISCLOSURES

We determines  our segments  based upon the review process of our chief decision
maker who reviews by geographic  gaming market  segments:  Riviera Las Vegas and
Riviera Black Hawk.  The key indicator  reviewed by our chief  decision maker is
property  EBITDA,  as  defined  below.  All  intersegment   revenues  have  been
eliminated.



                                   Three months ended     Six months ended
                                        June 30,               June 30,
(Dollars in thousands)             2006        2005         2006      2005
Net revenues:
                                                          
  Riviera Las Vegas              $39,662      $40,501     $78,088     $79,848
  Riviera Black Hawk              12,775       12,756      26,038      25,873
                               ----------   ---------- ----------- -----------
      Total net revenues        $ 52,437     $ 53,257   $ 104,126   $ 105,721
                               ==========   ========== =========== ===========

Property EBITDA (1):
  Riviera Las Vegas               $8,350       $7,616     $16,817     $16,469
  Riviera Black Hawk               3,716        4,088       7,904       8,027
                               ----------   ---------- ----------- -----------
       Total property EBITDA     $12,066      $11,704     $24,721     $24,496
                               ==========   ========== =========== ===========

Other Costs and Expenses
  Corporate Expenses
       Equity compensation           176          932         392         985
       Other corporate expenses    1,011        1,146       2,043       2,303
  Depreciation and amortization    3,159        3,584       6,419       6,878
  Mergers, Acquitions and
         Development Costs, net      761          165         878        (502)
  Sarabanes-Oxley Act expenses        47          270         275         270
  Asset impairment                    17            -          30         198
  Interest Expense, net            6,477        6,610      12,986      13,229
                               -----------  ----------------------- -----------
       Total Other Costs and
              Expenses             11,648       12,707      23,023      23,361
                               ----------   ---------- ----------- -----------
       Net Income (loss)           $ 418     $ (1,003)    $ 1,698     $ 1,135
                               ==========   ========== =========== ===========


(1)Property   EBITDA  consists  of  earnings  before  interest,   income  taxes,
depreciation,  and  amortization.  Property  EBITDA  is  presented  solely  as a
supplemental  disclosure  because we believe that it is 1) a widely used measure
of operating  performance in the gaming  industry,  and 2) a principal basis for
valuation  of  gaming  companies  by  certain  analysts  and  investors.  We use
property-level  EBITDA (property EBITDA before corporate expense) as the primary
measure  of  our  business  segment  properties'   performance,   including  the
evaluation of operating personnel. Property EBITDA should not be construed as an
alternative to operating income,  as an indicator of our operating  performance,
as an  alternative  to cash flows  from  operating  activities,  as a measure of
liquidity,  or as any other  measure  determined in  accordance  with  generally
accepted  accounting  principles.  We  have  significant  uses  of  cash  flows,
including capital expenditures, interest payments and debt principal repayments,
which are not reflected in property  EBITDA.  Also,  other companies that report
property EBITDA  information may calculate property EBITDA in a different manner
than we do. A reconciliation of property EBITDA to net income (loss) is included
in the following financial schedules.

                                        13



Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overall Outlook and Recent Developments

We own and operate the Riviera Hotel and Casino on the Strip in Las Vegas,
Nevada ("Riviera Las Vegas"), and the Riviera Black Hawk Casino in Colorado
("Riviera Black Hawk").

Our capital expenditures for Riviera Las Vegas are geared to maintain the hotel
rooms and amenities in sufficient condition to compete for customers in the
convention market and the mature adult customer. Room rates and slot revenues
are the primary factors driving our operating margins. We use technology to
maintain labor costs at a reasonable level, including kiosks for hotel check-in
and slot club redemptions as well as coinless ticket-in ticket-out ("TITO") slot
machines. At June 30, 2006, approximately 774, or 70.1%, of our slot machines in
Las Vegas were on the TITO system.

In Black Hawk, the $5 maximum bet restricts table games to a minimum, and the
area is basically a "locals" slot customer market. Our capital expenditures in
Black Hawk are geared to maintain competitive slot machines compared to the
market.

On June 29, 2006 the Main Street extension opened in Black Hawk, which will
provide increased traffic directly past our casino. We are obligated, based on
the Fourth Addendum to Subdivision Agreement with the City of Black Hawk and the
Main Street Cost Allocation Study, to pay 21.45% of the cost of the project,
once the costs are finalized. Our estimated share of the cost will be at least
$2 million and will be capitalized as a land improvement, a non-depreciable
asset.

On April 6, 2006,  we announced  that we entered  into an Agreement  and Plan of
Merger (the "Merger Agreement") with Riv Acquisition  Holdings Inc. ("RAHI"),  a
company owned by a private  investment group comprised  principally of four real
estate  developers and investors.  Consummation of the merger as contemplated by
the Merger Agreement (the "Merger") would result in our  shareholders  receiving
$17 in cash for each share of Riviera Holdings Corporation common stock ("Common
Stock") they hold.  Also,  holders of options under our stock option plans would
receive a cash payment  equal to the excess of $17 over the  per-share  exercise
price of their  options,  multiplied  by the  number  of shares  subject  to the
options.

The Merger Agreement  provides for Riv Acquisition Inc. ("Merger Sub"), which is
a wholly-owned  subsidiary of RAHI and is also a party to the Merger  Agreement,
to merge into  Riviera  Holdings  Corporation  (the  "Company"),  whereupon  the
separate  existence  of Merger Sub would  cease and the Company  would  become a
wholly-owned subsidiary of RAHI. Under the Merger Agreement, RAHI and Merger Sub
have agreed to deposit  funds  necessary  to redeem our  outstanding  11% Senior
Secured Notes (the "11% Notes") prior to  consummation  of the Merger.  RAHI has
made a $15 million  escrow  deposit to secure its  obligations  under the Merger
Agreement to consummate the Merger.

Consummation of the Merger is subject to approval by holders of at least 60% of
the outstanding Common Stock and various other closing conditions, including
approval or clearance by gaming regulators.

                                        14


The deadline for  consummation  of the Merger is eight months from the date that
our shareholders  approve the Merger.  However this deadline may be extended for
one  three-month  period if RAHI and  Merger Sub are still  awaiting  the gaming
approvals required to consummate the Merger and have a reasonable expectation of
obtaining those approvals by the extended deadline.  If RAHI and Merger Sub wish
to extend  the  deadline  for that  three-month  period,  they are  required  to
increase  the amount of their  escrow  deposit by $3 million and deliver to us a
financing commitment from a reputable financial institution for the funds needed
to consummate the Merger.

On August 4, 2006, we received an unsolicited,  competing takeover proposal from
International  Gaming &  Entertainment,  LLC ("IGE"),  which is a  newly-formed,
special-purpose  acquisition  company  affiliated  with BT  Enterprises,  LLC, a
Boston-based  merchant  equity fund. The  principals of IGE include  Jeffrey Wu,
Michael Signorelli and Bagus Tjahjono.  Mr. Wu is the majority shareholder and a
director of United International Bank in New York.

IGE  informed us that it is offering  to acquire all of our  outstanding  Common
Stock for $20 per share on substantially the same terms and conditions set forth
in the  Merger  Agreement,  subject  to IGE's  satisfactory  review  of  certain
disclosure  schedules.  IGE has  further  informed  us that its  investors  have
committed a sufficient  amount of equity capital to complete the  acquisition of
the Company as  contemplated,  but IGE does not yet have a financing  commitment
for the  portion of the  acquisition  price that it  intends to  finance.  IGE's
proposed acquisition, however, would not be subject to a financing contingency.

In accordance with our board of directors' fiduciary duties, our board is giving
proper  consideration  to all aspects of IGE's  proposal and is evaluating it in
comparison to the Merger Agreement.

In order for us to give  IGE's  proposal  proper  consideration  and to  consult
further with our legal and financial advisors and with IGE's representatives, as
appropriate,  we have postponed a shareholder vote on the Merger Agreement until
August 29, 2006 at 1:00 p.m., PDT.

In the meantime, our board of directors maintains its support for the Merger
Agreement.

The Merger  Agreement  appears in  Appendix A to our  revised  definitive  proxy
statement for our 2006 annual meeting of shareholders  (our "Proxy  Statement"),
which we filed with the Securities and Exchange  Commission  (the "SEC") on July
3,  2006 and  which  is  incorporated  as an  exhibit  to this  Form  10-Q.  The
statements in this Form 10-Q  concerning  the Merger  Agreement are qualified in
their entirety by reference to the complete Merger Agreement.

Information in this Form 10-Q concerning IGE and its related parties has been
provided to us by IGE.

If our  shareholders  do not  approve the Merger,  the Merger  Agreement  can be
terminated,  which would also  terminate  RAHI's and Merger Sub's  obligation to
deposit funds for  redemption of the 11% Notes.  The Merger  Agreement  contains
representations  and warranties,  which the parties made to, and solely for, the
benefit of each other.  Those  representations  and  warranties are qualified by
information  contained in a  confidential  disclosure  schedule that the parties
exchanged in connection  with signing the Merger  Agreement  and that  modifies,
qualifies and creates exceptions to the representations and warranties.

                                        15


On or  shortly  after  the date of our  filing  of this Form  10-Q,  William  L.
Westerman,  our Chairman of the Board and Chief Executive  Officer  ("CEO"),  is
expected  to sell  substantially  all of his  shares of Common  Stock to certain
affiliates of RAHI (the  "Buyers") for $15 per share  pursuant to a December 22,
2005 Stock Purchase Agreement between the Buyers and Mr. Westerman. We have been
informed that as a result of this  transaction,  the Buyers and their affiliates
will  beneficially own approximately  18.3% of our outstanding  Common Stock and
Mr.  Westerman will  beneficially  own  approximately  0.04% of our  outstanding
Common Stock.

Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005

The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Income from Operations
includes intercompany management fees.





                                      Second Quarter      Incr       Incr
             (In Thousands)           2006      2005     (Decr)    (Decr)%
                                       ----      ----    ------    -------
Net revenues:
                                                         
   Riviera Las Vegas                $39,662   $40,501     $(839)    -2.1%
   Riviera Black Hawk                12,775    12,756        19      0.1%
                                     ------    ------      ----
      Total Net Revenues            $52,437   $53,257     $(820)    -1.5%
                                    =======   =======    =======

Income from Operations
   Riviera Las Vegas                 $6,567    $5,647      $920     16.3%
   Riviera Black Hawk                 2,340     2,473      (133)    -5.4%
                                      -----     -----  ----------
   Property Income from Operations    8,907     8,120       787      9.7%
   Corporate Expenses
         Equity Compensation -
             Restricted Stock         (190)     (932)       742      79.6%
         Other Corporate Expenses   (1,011)   (1,146)       135      11.8%
   Mergers Acquisitions and
             Development Costs, net   (761)     (165)      (596)   -361.2%
   Asset Impairment                     (3)                  (3)
   Sarbanes-Oxley Act Expenses         (47)     (270)       223      82.6%
                                      ----    -------  ---------
       Total Income from Operations  $6,895   $5,607    $ 1,288      23.0%
                                     ======   =======  =========

Operating Margins (1)
   Riviera Las Vegas                   16.6%   13.9%      2.7%
   Riviera Black Hawk                  18.3%   19.4%     -1.1%



 (1) Operating margins represent income from operations as a percentage of net
revenues by property.

Riviera Las Vegas

Revenues

         Net revenues decreased $839,000 or 2.1% in the second quarter 2006
compared to the same period last year.

           Casino revenues increased $1.3 million or 7.8% due to an increase in
slot revenue, driven by the increased casino marketing efforts in the quarter,
and increased coin-in as a result of the customer mix in the hotel.

         Room revenue increased $476,000, or 3.5%, from $13.8 million in 2005 to
$14.2 million in 2006 due to an increase in slot player complimentary room
revenue. Hotel occupancy increased to 96.0%, up from last year's 95.6% and the
average daily room rate increased $2.95 from $73.04 in 2005 to $75.99 in 2006.
Rev Par (revenue per available room) increased 4.6% or $3.18 to $72.97 for the
three months ended June 30, 2006.

                                        16


         Food and beverage revenue decreased $660,000, or 8.2%, from $8.1
million in 2005 to $7.4 million in 2006 primarily due to decreased covers in our
dinner buffet, which was changed to BB's Prime Rib and BBQ this year, and lower
banquet revenue resulting from fewer events (which in 2005 included our 50th
Anniversary parties).

         Entertainment revenue decreased $354,000, or 8.4%, from $4.2 million in
2005 to $3.9 million in 2006 primarily due to lower ticket sales for Splash and
other entertainment venues.

         Other revenues decreased $542,000, or 26.4%, from $2.1 million in 2005
to $1.5 million in 2006 primarily due to the lease of the gift shops to ABC
Stores and lower telephone revenue. The gift shop lease began in February 2006
and is recorded as rental income.

         Promotional allowances increased by approximately $1.0 million, or
26.4%, from $3.9 million during 2005 to $4.9 million during 2006 primarily due
to increases in the number of complimentary rooms related to casino activity.

Costs and Expenses

         Hotel expenses decreased $301,000, or 4.2% due to the credit for
complimentary rooms provided to the casino.

         Food and beverage departmental costs and expenses decreased by 7.0% in
the quarter, due to reduced sales and number of covers. 2005 costs were impacted
by lower cost of sales associated with complimentary banquet revenue related to
our 50th Anniversary being classified as casino expense; and the impact of a
significant convention in 2005 that was not here in 2006.

         Entertainment departmental costs and expenses decreased by $737,000, or
20.9% in the quarter, primarily due to lower ticket sales, which resulted in
reduced payments to producers, decreased advertising for Splash and other cost
reductions for other entertainment venues.

         Other departmental expenses decreased $480,000 as a result of the lease
of the gift shops to ABC Stores mentioned above.

Income from Operations

            Income from operations in Las Vegas increased $920,000, or 16.3%,
from $5.6 million in 2005 to $6.6 million in 2006 due principally to increased
slot revenues, the decrease in casino promotional expenses associated with our
50th anniversary in 2005 and cost reductions in entertainment as discussed
above.


                                        17


Riviera Black Hawk

Revenues

         Net revenues remained flat at $12.8 million in 2005 and 2006. Food and
beverage revenues were approximately $1.3 million in 2006, of which $1.1 million
was complimentary (promotional allowance).

Income From Operations

         Income from operations at Riviera Black Hawk decreased $133,000, or
5.4%, from $2.5 million in 2005 to $2.3 million in 2006, primarily due to the
increase in casino expenses. Our operating margins decreased from 19.4% in the
second quarter of 2005 to 18.3% in the second quarter of 2006.

Consolidated Operations

Other Income (Expense)

            Corporate expenses decreased $135,000 or 11.8% from $1.1
million in 2005 to $1.0 million in 2006 as a result of reduced payroll benefits.

Net Income (Loss)

            Net income increased $1.4 million from a net loss of $1.0 million in
2005 to net income of $418,000 in 2006 due primarily to the factors described
above, reduced expenses in 2006 associated with compliance with the
Sarbanes-Oxley Act and lower depreciation costs.
















                                        18



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005

The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Operating Income includes
intercompany management fees.




                                            Six Months        Incr      Incr
            (In Thousands)                 2006     2005     (Decr)   (Decr)%
                                           ----     ----     ------   -------
Net revenues:
                                                             
   Riviera Las Vegas                    $78,088  $79,848   $(1,760)     -2.2%
   Riviera Black Hawk                    26,038   25,873       165       0.6%
                                         ------   ------       ---
      Total Net Revenues               $104,126 $105,721   $(1,595)     -1.5%
                                       ========  =======   ========

Income from Operations
   Riviera Las Vegas                    $13,209  $12,755      $454       3.6%
   Riviera Black Hawk                     5,093    4,863       230       4.7%
                                          -----    -----   -------
   Property Income from Operations       18,302   17,618       684       3.9%
   Corporate Expenses
       Equity Compensation -
            Restricted Stock              (406)    (985)       579      58.8%
       Other Corporate Expenses         (2,043)  (2,303)       260      11.3%
   Mergers, Acquisitions and
            Development
            Costs, net                    (878)      502    (1,380)   -274.9%
   Asset Impairment                        (16)    (198)       182      91.9%
   Sarbanes-Oxley Act Expenses            (275)    (270)        (5)     -1.9%
                                          -----    -----   -------
          Total Income from Operations  $14,684  $14,364   $   320       2.2%
                                       ========= =======   =======

Operating Margins (1)
   Riviera Las Vegas                     16.9%    16.0%     0.9%
   Riviera Black Hawk                    19.6%    18.8%     0.8%


 (1) Operating margins represent income from operations as a percentage of net
revenues by property.

Riviera Las Vegas

Revenues

         Net revenues decreased approximately $1.8 million, or 2.2%, from $79.8
million in 2005 to $78.1 million in 2006 due primarily to reduced retail,
telephone, entertainment and food and beverage.

         Slot revenue increased $1.2 million (5.5%) over the prior year due to
increased coin-in brought about by new marketing programs, which provided
complimentary hotel rooms to slot players. Table games revenue was down 9% due
to lower volume of play and hold percent while poker contributed $253,000
increase over prior year.

         Room revenue increased $1.9 million, or 7.0%, from $27.2 million in
2005 to $29.1 million in 2006 due to an increase in slot player complimentary
room revenue and an overall increase in average room rate. Hotel occupancy
decreased to 93.5%, from last year's 94.8% and average daily room rate increased
$6.76 to $79.70 in 2006 from $72.94 in 2005. Rev Par (revenue per available
room) increased 7.8% or $5.36 to $74.48.

                                        19


         Food and beverage revenues decreased $488,000, or 3.2%, from $15.0
million in 2005 to $15.5 million in 2006, due to decreased covers due to the
shift from a dinner buffet to BB's Prime Rib & BBQ restaurant, and a decrease in
banquets covers, which were down 16.2%.

         Entertainment revenues decreased by approximately $1.6 million, or
17.1%, from $9.1 million during 2005 to $7.5 million during 2006 due primarily
to a decrease in ticket sales associated with our Splash show.

         Other revenues decreased by approximately $881,000, or 22.3%, from $4.0
million in 2005 to $3.1 million in 2006 primarily due to the lease of the gift
shops to ABC Stores, which began in February 2006, and lower telephone revenue.

         Promotional allowances increased by approximately $1.4 million or
20.6%, from $6.9 million during 2005 to $8.3 million during 2006 primarily due
to increases in complimentary room revenue as a result of an increase in
complimentary room rates and an increase in slot marketing activity.

Costs and Expenses

         Casino expenses increased $221,000 or 1.3% from $17.0 million in 2005
to $17.2 million in 2006 due to increased costs of complimentary room nights.

         Entertainment costs decreased $1.8 million, or 24.5%, primarily due to
lower ticket sales, which resulted in reduced payments to producers, decreased
advertising for Splash and other cost reductions for other entertainment venues.

         Other departmental expenses decreased $694,000 or 46.5% from $1.5
million in 2005 to $799,000 in 2006 as a result of the lease of the gift shops
to ABC Stores. The gift shop lease began in February 2006 and is recorded as
rental income.

Income from Operations

         Income from operations in Las Vegas increased $454,000, or 3.6%, from
$12.8 million in 2005 to $13.2 million in 2006 due to increased slot revenue,
and lower expenses in entertainment as discussed above. Operating margins in Las
Vegas increased from 16.0% in 2005 to 16.9% in 2006 as a result of the factors
described above.

Riviera Black Hawk

Revenues

         Net revenues increased by approximately $165,000, or 0.6%, from $25.9
million in 2005 to $26.0 million in 2006. Casino revenues increased $188,000, or
0.8%, from $25.0 million in 2005 and $25.2 million in 2006.

Income from Operations

           Income from operations in Black Hawk increased $230,000, or 4.7%,
from $4.9 million in 2005 to $5.1 million in 2006 primarily as a result of the
adverse effects of the rockslide that impacted 2005 revenues. Operating margins
in Black Hawk increased from 18.8% in 2005 to 19.6% in 2006 as a result of more
targeted marketing promotions and the impact in 2005 described above.

                                        20


Consolidated Operations

Interest Expense

     Interest expense decreased $122,000 due to reduced interest associated with
equipment  financing as most of our large equipment  leases were completed as of
March 2005. Interest expense on our $215 million 11% Notes of $11.8 million plus
related   amortization   of  loan  fees  and  other   financing   costs  totaled
approximately  $13.0  million in 2006.  Interest  expense on equipment and other
financing totaled approximately $191,000 for the first six months of 2006.

     Interest income increased $121,000 from $84,000 in 2005 to $205,000 in
2006 as a result of the higher cash balances available for investment and
increased investment interest rates.

Net Income

     Net income increased $563,000 from net income of $1.1 million in 2005 to
net income of $1.7 million in 2006 due primarily to reduced equity based
compensation, asset impairment costs (net of mergers and acquisition cost
recoveries) and costs associated with our 50th anniversary celebration in 2005.

Liquidity and Capital Resources

At June 30, 2006, we had cash and cash  equivalents of $25.3  million.  Our cash
and cash equivalents increased $4.7 million during the first six months of 2006,
as a result of $9.9 million of cash provided by operations, $5.1 million of cash
outflow for investing activities and $ 155,000 outflow for financing activities.
Our cash  balances  include  amounts  that  could be  required,  upon five days'
notice, to fund our CEO's (Mr. Westerman's) pension obligation in a rabbi trust.
We continue to pay Mr. Westerman  $250,000 per quarter from his pension plan. In
exchange  for  these  payments,   Mr.  Westerman  has  agreed  to  continue  his
forbearance of his right to receive full transfer of his pension fund balance to
the rabbi trust.  This does not limit his ability to give the five-day notice at
any time.  Although Mr. Westerman has expressed no current  intention to require
this  funding,  under  certain  circumstances  we may be  required  to  disburse
approximately $3.6 million for this purpose in a short period.

We believe that cash flow from operations, combined with the $25.3 million cash
and cash equivalents and the $30 million revolving credit facility, will be
sufficient to cover our current debt service and enable investment in budgeted
capital expenditures of $11.0 million for 2006 for both Riviera Las Vegas and
Riviera Black Hawk and assessments for the Main Street expansion in Black Hawk.

On June 26, 2002, we secured debt in the principal amount of $215 million in the
form of the 11% Notes with a maturity date of June 15, 2010. Interest on the 11%
Notes is at the annual rate of 11%, paid semiannually on each June 15 and
December 15. Our cash flow from operations is not expected to be sufficient to
pay 100% of the principal of the 11% Notes at maturity. Accordingly, our ability
to repay the 11% Notes at maturity will be dependent upon our ability to


                                        21


refinance the 11% Notes. There can be no assurance that we will be able to
refinance the principal amount of the 11% Notes at maturity. On or after June
15, 2006, we may redeem the 11% Notes from time to time at a premium beginning
at 105.5% and declining each subsequent year to par in 2009. If we consummate
the Merger, RAHI has agreed to redeem the 11% Notes prior to consummation.

The Indenture governing the 11% Notes (the "Note Indenture") provides that, in
certain circumstances, we must offer to repurchase the 11% 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, we would be unable to pay
the principal amount of the 11% Notes without a refinancing or withour
redemption by the party who acquires control.

The Note Indenture contains certain covenants, which limit our ability, subject
to certain exceptions, to: (1) incur additional indebtedness; (2) pay dividends
or other distributions, repurchase capital stock or other equity interests or
subordinated indebtedness; (3) enter into certain transactions with affiliates;
(4) create certain liens; (5) sell certain assets; and (6) enter into certain
mergers and consolidations. As a result of these restrictions, our ability 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, we would be required to curtail or defer certain of our
capital expenditure programs, which could have an adverse effect on operations.

On July 26, 2002, we entered into a $30 million, five-year senior secured credit
facility. The credit facility is secured by substantially the same collateral
that secures the 11% Notes. The lien on the collateral securing the credit
facility is senior to the lien on the collateral securing the 11% Notes. The
credit facility contains customary conditions to borrowing and certain
representations and warranties customary in gaming-related finance. The credit
facility also contains financial covenants and restrictions regarding, among
other things, indebtedness, distributions and changes in control. Under the
credit facility, we can obtain extensions of credit in the forms of cash and
letters of credit. We are required to pay interest on all outstanding cash
advances at the rate of interest announced by Wells Fargo at its principal
office in San Francisco at its prime rate plus 0.75% or at the rate at which
major international banks in London charge each other for borrowings in U.S.
dollars plus 3.00%. However, the minimum interest rate we will be charged on
outstanding cash advances is 4.50%. A 0.5 percent annual fee is charged in
monthly installments on the unused portions of the revolver plus a $3,000
monthly service fee.

At June 30, 2006, we are in compliance with the covenants of the 11% Notes and
the $30 million revolving credit facility.

Critical Accounting Policies

A description of our critical accounting policies and estimates can be found in
Item 7 of our Form 10-K for the year ended December 31, 2005. For a further
discussion of our accounting policies, see Note 1, Summary of Significant
Accounting Policies, in the Notes to the Condensed Consolidated Financial
Statements in this Form 10-Q.

Forward-Looking Statements

Throughout  this report we make  "forward-looking  statements,"  as that term is
defined in Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange  Act").
Forward-looking  statements include the words "may," "would," "could," "likely,"
"estimate,"  "intend," "plan,"  "continue,"  "believe," "expect" or "anticipate"
and similar words and include all discussions  about the Merger  Agreement,  the
competing  takeover  proposal from IGE, as well as our acquisition,  development
and expansion plans,  objectives or expectations and our liquidity  projections.


                                        22


We caution  you that there is no  assurance  that the Merger will be approved by
shareholders  and  regulatory  authorities  and  consummated,  nor is there  any
assurance that IGE's  competing  proposal will lead to a definitive  acquisition
agreement.  Moreover, even if we enter into a definitive agreement with IGE, the
acquisition  might not be  consummated  for a variety of reasons,  including the
failure  to  obtain  the  requisite   shareholder   and  regulatory   approvals.
Furthermore,  there is no assurance that any of the other transactions or events
described in this report will happen as  described  or that any positive  trends
suggested  or referred to in this report will  continue.  These  forward-looking
statements generally relate to our plans, objectives, prospects and expectations
for future  operations  and  results  and are based upon what we  consider to be
reasonable  future  estimates.  Although we believe that our plans,  objectives,
prospects and expectations  reflected in, or suggested by, such  forward-looking
statements  are  reasonable  at the present  time,  we may not achieve or we may
modify them from time to time.  You should read this report  thoroughly and with
the  understanding  that actual future results may be materially  different from
what we expect. We do not plan to update forward-looking  statements even though
our situation or plans may change in the future,  unless applicable law requires
us to do so.

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

          o   the possibility that our Merger will not be consummated due to our
              failure to obtain shareholder approval or due to other factors
              beyond our control;

         o    the uncertainties  associated with our recent receipt of a
              competing  takeover proposal by IGE, which requires additional
              time for us to consider and evaluate in comparison to the Merger
              Agreement;

         o    retirement or other loss of any of our senior officers;

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

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

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

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

         o    competition  in the gaming  industry,  including  the availability
              and success of  alternative  gaming venues and other entertainment
              attractions;

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

         o    changes or developments in laws, regulations or taxes in the
              gaming industry;

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

                                                23


         o    other changes in our personnel or their compensation, including
              those resulting from changes in minimum wage requirements;

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

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

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

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

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

         o    other risk factors discussed elsewhere in this report.

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


                                        24


ITEM 3.  Quantitative and Qualitative Disclosure About Market Risk

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

As of June 30, 2006, we had $215.2 million in borrowings. The borrowings include
$215  million in 11% Notes  maturing  in 2010 and  capital  leases  maturing  at
various dates through 2009.  Interest  under the $215 million 11% Notes is based
on a fixed rate of 11%. The  equipment  loans and capital  leases have  interest
rates  ranging from 5.5% to 5.8%.  The  borrowings  also  include  $472,000 in a
special improvement  district ("SID") bond offering with the City of Black Hawk.
Our  share of the debt on the SID bonds of $1.2  million,  is  payable  over ten
years  beginning  in 2000.  The SID  bonds  bear  interest  at 5.5%.  We are not
susceptible  to  interest  rate risk  because our  outstanding  debt is at fixed
rates. Our $30 million senior secured revolving credit facility is at prime plus
three-quarters  of one  percent.  As of  June  30,  2006,  we  had no  borrowing
outstanding under our senior secured credit facility.


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

(Dollars in                                                                             Fair Value
thousands)                    2006     2007      2008     2009        2010     Total    at 6/30/06

Long-Term Debt, Including
   Current Portion

Equipment loans and
                                                                        
 capital leases - Las Vegas    $ 359     $ 751    $ 187    $ 54                $ 1,351    $ 1,351
Average interest rate           5.8%      5.8%     5.8%    5.5%

11% Notes                                                         $ 215,000   $215,000  $ 225,492
Less unamortized Discount                                          $ (1,601)  $ (1,601)  $ (1,601)
Average interest rate                                                11.8%

SID Bonds -
 Black Hawk, Colorado           $ 62     $ 129    $ 137   $ 144                 $ 472       $ 472
Average interest rate           5.5%      5.5%     5.5%    5.5%

Total long-term debt,
including current portions     $ 421     $ 880    $ 324   $ 198  $ 213,399  # $215,222  $ 225,715

 Other Long-Term Liabilities,
Including Current Portions

CEO pension plan obligation     $500    $1,000   $1,000  $1,000      $ 107     $ 3,607    $ 3,607
                               11.8%     11.8%    11.8%   11.8%      11.8%
                            ----------------------------------------------- ---------------------
Total long-term obligations    $ 921    $1,880   $1,324  $1,198  $ 213,506    $218,829  $ 229,322
                            =============================================== =====================


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ITEM 4.  Controls and Procedures

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

As of June 30, 2006, we carried out an evaluation, under the supervision and
with the participation of our management, including our CEO and CFO, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our CEO and CFO concluded that our
disclosure controls and procedures were effective.

During our last fiscal quarter there were no changes in our internal control
over financial reporting, (as defined in Exchange Act Rules 13a-15(f) and 15(d)-
15(f)), that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

Part II.  OTHER INFORMATION

Item 1. Legal Proceedings

On June 19, 2006, a complaint (the "Consolidated Complaint") captioned "In Re
Riviera Holdings Corporation Shareholders' Litigation" was filed against the
Company and its directors in the District Court of Clark County, Nevada (the
"Court") (Case No. A520100), as a consolidation of four class action complaints
previously filed against the Company (the "Prior Complaints"). The Consolidated
Complaint was served on the Company on June 20, 2006 pursuant to a Stipulation
and Pretrial Order entered by the Court, and is substantially similar to the
Prior Complaints. The plaintiffs request the Court to do the following, among
other things: (i) declare that the case is maintainable as a class action; (ii)
declare that the Merger Agreement is unlawful; (iii) enjoin consummation of the
Merger "unless and until the Company adopts and implements a procedure or
process to obtain the highest possible price for shareholders"; (iv) direct the
defendants to disclose all material information before seeking shareholder
approval of "any acquisition;" and (v) impose a constructive trust, in favor of
the plaintiffs, on any benefits improperly received by the defendants. A Court
hearing on the plaintiffs' motion to enjoin the shareholder vote on the Merger
Agreement has been scheduled for August 24, 2006. The Company believes the
allegations in the Consolidated Complaint and the Prior Complaints are without
merit.

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


                                        26



Item 1A.  Risk Factors.

Our annual report on Form 10-K (as amended) for the fiscal year ended December
31, 2005 (our "2005 Form 10-K") contains a detailed discussion of our risk
factors. The information below updates and should be read in conjunction with
the risk factors and other information disclosed in our 2005 Form 10-K.

 Our Common Stock Has Been Trading At Prices That Exceed The Merger Price.

Consummation of the Merger would result in our shareholders receiving $17.00 in
cash for each share of Common Stock they hold. Our Common Stock has been trading
on the American Stock Exchange ("Amex") at prices higher than $17.00. On August
3, 2006, the closing price of the Common Stock on Amex was $19.78.

If the conditions precedent to consummation of the Merger, including approval of
the Merger by holders of at least 60% of our outstanding Common Stock, are
satisfied and the Merger is consummated, then shareholders who purchase our
Common Stock at a price that exceeds $17.00 per share will incur a loss on their
investment.

The Competing Takeover Proposal By IGE May Cause Even Greater Volatility In Our
Stock Trading Price And Liability For An Approximately $7.9 Million Topping Fee.

Prior to our entry into the Merger  Agreement,  the trading  price of our Common
Stock had been  volatile,  as explained in our discussion of risk factors in our
2005 Form 10-K.  After we entered  into the Merger  Agreement,  that  volatility
continued,  as  shown  in  the  "Market  Price  Of  Common  Stock  And  Dividend
Information"  section of our Proxy Statement.  IGE's competing takeover proposal
at $20.00 per share,  which we received on August 4, 2006 and which we need time
to evaluate further,  may lead to even greater stock price volatility and market
speculation that is not within our control.

Furthermore, under certain circumstances IGE's proposal could ultimately lead to
our liability to RAHI for a topping fee of approximately  $7.9 million under the
Merger Agreement.  For example, if prior to a shareholder vote on the Merger, we
accept or support IGE's competing  takeover proposal or withdraw our support for
the Merger,  then we will be liable to RAHI for the topping  fee.  Also,  if our
shareholders  reject the Merger at a time when IGE's competing takeover proposal
has not been  withdrawn  and within 12 months  thereafter  we enter into another
agreement to consummate a takeover  proposal,  we will be liable to RAHI for the
topping fee.

   Recent Market Perceptions About Our Prospects Make It Particularly Difficult
             For Us To Replace Any Key Personnel If We Lose Them.

As explained in our discussion of risk factors in our 2005 Form 10-K, the
shortage of skilled management-level employees in the gaming industry, combined
with our relatively limited financial and marketing resources, competitive
position and market perceptions about our future prospects, makes it generally
difficult for us to attract and retain qualified executives and other key
personnel. More recent market perceptions about our prospects if shareholders
approve the Merger or if they do not approve it, or if we proceed with IGE's
competing takeover proposal, or if the Merger is not consummated for any other
reason, would likely add to our difficulties in finding suitable replacements if
we lose the services of any of our executives or other key personnel.


                                        27


Item 6.  Exhibits.

         See list of exhibits on page 30.













                                        28




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


                                          RIVIERA HOLDINGS CORPORATION


                                          By:/s/ William L. Westerman
                                          William L. Westerman
                                          Chairman of the Board and
                                          Chief Executive Officer

                                          By: /s/ Mark Lefever
                                          Mark Lefever
                                          Treasurer and
                                          Chief Financial Officer


                                          Date: August 7, 2006




                                        29









                            Exhibits



Exhibits:

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

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

10.3(A)  Employment Agreement between the Company and Mark B. Lefever.

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

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

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

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

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

(A) Management contract or compensatory plan or arrangement.



                                        30