10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2004

Commission file number 001-13641

PINNACLE ENTERTAINMENT, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization) 95-3667491 (IRS Employer Identification No.)

3800 Howard Hughes Parkway

Las Vegas, Nevada 89109

(Address of Principal Executive Offices) (Zip Code)

(702) 784-7777

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether 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, 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  x    NO  ¨

The number of outstanding shares of the registrant’s common stock, as of the close of business on May 7, 2004:  35,526,734.

PINNACLE ENTERTAINMENT, INC.

TABLE OF CONTENTS

PART I
Item 1.	Financial Information
	Unaudited Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2004 and 2003	1
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003	2
	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months ended March 31, 2004	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2004 and 2003	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Results of Operations	23
	Liquidity and Capital Resources	26
	Other Supplemental Data	29
	Contractual Obligations and Commitments	30
	Off Balance Sheet Arrangements	30
	Factors Affecting Future Operating Results	30
	Critical Accounting Policies	31
	Recently Issued and Adopted Accounting Standards	31
	Forward-looking Statements and Risk Factors	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II
Item 1.	Legal Proceedings	34
Item 6.	Exhibits and Reports on Form 8-K	35
Signatures		37

ITEM 1. FINANCIAL INFORMATION

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three months ended March 31,
	2004			2003
	(in thousands, except per share data, unaudited)
Revenues:
Gaming	$	114,991		$	113,508
Food and beverage		7,495			6,753
Truck stop and service station		4,581			4,647
Hotel and recreational vehicle park		3,299			3,121
Other operating income		3,991			4,063
		134,357			132,092
Expenses:
Gaming		66,677			65,168
Food and beverage		7,098			8,035
Truck stop and service station		4,283			4,325
Hotel and recreational vehicle park		1,760			2,064
General and administrative		28,972			27,866
Depreciation and amortization		11,705			11,479
Other operating expenses		1,725			2,433
Pre-opening and development costs		2,197			0
Gain on sale of assets		(13,181	)		0
		111,236			121,370
Operating income		23,121			10,722
Interest income		(867	)		(481	)
Interest expense, net of capitalized interest		13,571			12,357
Loss on early extinguishment of debt		8,254			0
Income (loss) before income taxes		2,163			(1,154	)
Income tax expense (benefit)		730			(307	)
Net income (loss)	$	1,433		$	(847	)
Net income (loss) per common share—basic	$	0.05		$	(0.03	)
Net income (loss) per common share—diluted	$	0.04		$	(0.03	)
Number of shares—basic		31,417			25,934
Number of shares—diluted		32,762			25,934

See accompanying notes to the unaudited condensed consolidated financial statements.

1

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2004			December 31, 2003
	(in thousands, except share data, unaudited)
ASSETS
Current Assets:
Cash and cash equivalents (exclusive of restricted cash items below)	$	154,287		$	100,107
Restricted cash		4,400			4,400
Accounts receivable, net		7,356			7,359
Inventories		5,252			5,518
Prepaid expenses and other assets		10,420			10,699
Deferred income taxes		5,378			5,378
Assets held for sale		4,408			12,160
Total current assets		191,501			145,621
Restricted cash—construction reserve accounts		175,835			124,529
Property and equipment, net		657,906			621,709
Goodwill, net		26,656			26,656
Gaming licenses, net		21,826			21,848
Debt issuance costs, net		17,676			15,864
Other assets		887			875
	$	1,092,287		$	957,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	24,536		$	15,958
Accrued interest		8,647			15,459
Accrued compensation		21,138			21,847
Other accrued liabilities		41,813			40,016
Current portion of notes payable		2,373			2,341
Total current liabilities		98,507			95,621
Notes payable, less current maturities		653,620			643,594
Deferred income taxes		17,028			17,028
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Common—$0.10 par value, 35,508,233 and 23,926,942 shares outstanding, net of treasury shares		3,752			2,594
Capital in excess of par value		343,792			224,377
Retained earnings		5,350			3,917
Accumulated other comprehensive loss		(9,672	)		(9,939	)
Treasury stock, at cost		(20,090	)		(20,090	)
Total stockholders’ equity		323,132			200,859
	$	1,092,287		$	957,102

See accompanying notes to the unaudited condensed consolidated financial statements.

2

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock			Total Stockholders’ Equity
	(in thousands, unaudited)
Balance as of January 1, 2004	$	2,594	$	224,377	$	3,917	$	(9,939	)	$	(20,090	)	$	200,859
Net income		0		0		1,433		0			0			1,433
Foreign currency translation income		0		0		0		267			0			267
Total comprehensive income														1,700
Common stock offering		1,150		118,628		0		0			0			119,778
Common stock options, net		8		787		0		0			0			795
Balance as of March 31, 2004	$	3,752	$	343,792	$	5,350	$	(9,672	)	$	(20,090	)	$	323,132

See accompanying notes to the unaudited condensed consolidated financial statements.

3

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended March 31,
	2004			2003
	(in thousands, unaudited)
Cash flows from operating activities:
Net income (loss)	$	1,433		$	(847	)
Depreciation and amortization		11,705			11,479
Amortization of debt issuance costs		795			654
Loss on early extinguishment of debt		8,254			0
Gain on sale of assets		(13,181	)		0
Changes in working capital:
Accounts receivable, net		3			610
Income tax receivable		0			300
Prepaid expenses and other assets		(98	)		2,632
Accounts payable		(1,204	)		(1,304	)
Accrued liabilities		(372	)		(6,109	)
Accrued interest		(6,812	)		(10,881	)
Income taxes		0			991
All other, net		58			740
Net cash provided by (used in) operating activities		581			(1,735	)
Cash flows from investing activities:
Restricted cash		(51,306	)		(146	)
Additions to property and equipment		(37,863	)		(8,501	)
Receipts from dispositions of assets and property and equipment		21,476			79
Net cash used by investing activities		(67,693	)		(8,568	)
Cash flows from financing activities:
Proceeds from senior subordinated notes		198,564			0
Payment of senior subordinated notes		(188,000	)		0
Payment of other secured and unsecured notes payable		(561	)		(685	)
Debt issuance costs		(9,864	)		0
Common stock offering		120,400			0
Common stock options exercised		795			0
Net cash provided by (used in) financing activities		121,334			(685	)
Effect of exchange rate changes on cash		(42	)		46
Increase (decrease) in cash and cash equivalents		54,180			(10,942	)
Cash and cash equivalents at the beginning of the year		100,107			114,286
Cash and cash equivalents at the end of period	$	154,287		$	103,344
Cash, cash equivalents and restricted cash at end of period	$	334,522		$	136,745
Supplemental Cash Flow Information:
Cash paid (received) during the period for:
Interest	$	19,809		$	22,384
Income taxes, net		173			(832	)
Non-cash currency translation rate adjustment		(74	)		(572	)

See accompanying notes to the unaudited condensed consolidated financial statements.

4

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—Summary of Significant Accounting Policies

General Pinnacle Entertainment, Inc. (the “Company” or “Pinnacle Entertainment”) owns and operates gaming entertainment facilities in numerous gaming markets. These include five properties in the United States, located in southeastern Indiana (“Belterra Casino Resort”); Reno, Nevada (“Boomtown Reno”); Bossier City and New Orleans, Louisiana (“Boomtown Bossier City” and “Boomtown New Orleans”, respectively); and Biloxi, Mississippi (“Casino Magic Biloxi”). The Company is also building a major casino resort in Lake Charles, Louisiana (“Lake Charles”). In addition, representative authorities of the City of St. Louis and St. Louis County chose the Company’s proposals for the development of a major casino in downtown St. Louis and another major casino in south St. Louis County, respectively (“St. Louis Development Proposals”). Finally, the Company operates casinos in Argentina (“Casino Magic Argentina”) and receives lease income from two card clubs.

Basis of Presentation The accompanying interim condensed consolidated financial statements include the accounts of Pinnacle Entertainment, Inc. and its subsidiaries and have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim condensed consolidated financial statements presented herein reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented and all inter-company accounts and transactions have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by the Company include, among other things, (i) the evaluation of the non-impairment of property, equipment and other long-term assets, (ii) the evaluation of the future realization of deferred tax assets, and (iii) the adequacy of reserves associated with asset sales, and in determining litigation reserves and other obligations. Actual results could differ from those estimates.

Gaming Revenues and Promotional Allowances The estimated cost of providing promotional allowances (which is included in gaming expenses) for the three months ended March 31, 2004 and 2003 was $10,481,000 and $10,034,000, respectively.

Pre-opening and Development Costs Pre-opening and development costs are expensed as incurred, consistent with Statement of Position 98-5 “Reporting on the Costs of Start-up Activities” (“SOP 98-5”). For the three months ended March 31, 2004, pre-opening and development costs were $2,197,000. There were no such costs in the 2003 first quarter.

Earnings per Share Diluted earnings per share assume exercise of in-the-money stock options (those options with exercise prices at or below the weighted average market price for the periods presented) outstanding at the beginning of the year or at the date of the issuance, unless the assumed exercises are antidilutive.

5

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three months ended March 31, 2003, the effect of stock options outstanding was not included in the diluted calculation as the Company incurred a loss for that period and such inclusion would have been antidilutive. In addition, there were no in-the-money stock options as of March 31, 2003.

Restricted Cash—Completion Reserve Accounts Restricted cash—completion reserve accounts at March 31, 2004 was $175,835,000, compared to $124,529,000 at December 31, 2003. The increase is primarily from the equity offering and land sale proceeds (see Notes 6 and 3, respectively), a portion of whose proceeds were required by the Company’s debt covenants to be deposited in the completion reserve account.

Debt Issuance Costs and Related Amortization Debt issuance costs at March 31, 2004 were $17,676,000, compared to $15,864,000 at December 31, 2003. The increase is primarily from the approximately $5,015,000 incurred for the new 8.25% Notes (defined below), offset by the write-off of the pro rata portion associated with the 9.25% Notes (defined below) repurchased (see Note 5). Amortization cost included in interest expense was $740,000 and $967,000 for the three months ended March 31, 2004 and 2003, respectively. Accumulated amortization as of March 31, 2004 and December 31, 2003 was $10,130,000 and $11,253,000, respectively.

Stock-based Compensation Pursuant to Statement of Financial Accounting Standard No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS No. 148”), the Company discloses the theoretical costs of employee stock-based compensation in the notes to the financial statements rather than in the consolidated income statement itself. The reason for this is that the costs as of the date of grant of stock option compensation are theoretical; if the stock price does not appreciate or the employee does not stay employed long enough to vest in the options, then the actual cost does not materialize.

In estimating the pro forma effect of stock-based compensation, the Company used an option-pricing model. Such model requires the use of subjective assumptions, including the expected life of the option, the expected volatility of the underlying stock, the expected dividend on the stock, and the risk-free interest rate (U.S. Treasury Strip Rates) for the expected life of the option.

In computing the stock-based compensation, the following assumptions were made:

	Risk-Free Interest Rate		Expected Life at Issuance	Expected Volatility		Expected Dividends
Options granted in the following quarterly periods:
March 31, 2004	2.9	%	5 years	54.1	%	None
March 31, 2003	3.0	%	5 years	54.4	%	None

The expected volatility is derived from the historical performance of the Company’s common stock over the past 10 years.

6

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following sets forth the pro forma costs and impact on net income (loss) due to the Company’s employee stock-based compensation plans if the estimated fair value at the date of grant of such options were to be charged to earnings over the vesting period of the options:

	For the three months ended March 31,
	2004		2003
	(in thousands, except per share data)
Income (loss) before stock-based compensation expense	$	1,433	$	(847	)
Theoretical stock-based compensation expense, net of taxes		397		567
Pro forma income (loss)	$	1,036	$	(1,414	)
Pro forma net income (loss) per share—basic	$	0.03	$	(0.05	)
Pro forma net income (loss) per share—diluted	$	0.03	$	(0.05	)
Number of shares—basic		31,417		25,934
Number of shares—diluted		32,762		25,934

Recently Issued Accounting Pronouncements Financial Accounting Standards Board Interpretation No. 46 (“FIN No. 46R”): In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” and subsequently revised the interpretation in December 2003 (“FIN No. 46R”). This interpretation of Accounting Research Bulletin No. 51, “Consolidation of Financial Statements” addresses consolidation by business enterprises of variable interest entities where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as “special purpose entities.” As revised, FIN No. 46R is now generally effective for financial statements for interim and annual periods ending after March 31, 2004. The Company does not have any such “special purpose entities” and therefore the adoption of FIN 46R did not have a material effect on its consolidated financial statements.

Note 2—Property and Equipment

Property and equipment held at March 31, 2004 and December 31, 2003 consisted of the following:

	March 31, 2004		December 31, 2003
	(in thousands)
Land and land improvements	$	110,339	$	110,313
Buildings		366,045		355,745
Equipment		242,621		236,735
Vessel and barges		116,737		116,706
Construction in progress		91,465		60,330
		927,207		879,829
Less accumulated depreciation		269,301		258,120
	$	657,906	$	621,709

Construction in progress relates primarily to the Lake Charles and Belterra expansion projects (see Note 4) and includes interest capitalized based on an imputed interest rate estimating the Company’s average cost of borrowed funds for the projects. Capitalized interest for the three months ended March 31, 2004 and 2003 was $735,000 and $166,000, respectively.

7

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Depreciation expense for the three months ended March 31, 2004 and 2003 was $11,609,000 and $11,386,000, respectively.

Note 3—Assets Held For Sale

The Company’s assets held for sale at March 31, 2004 consist of 60 acres of surplus land in Inglewood, California with a book value of $4,408,000, compared to 97 acres at December 31, 2003 with a book value of $12,160,000. On February 27, 2004, the Company sold 37 of acres for approximately $22 million in cash to a regional homebuilder and recorded a gain on the sale of $13,181,000. The Company does not anticipate paying any current income tax on the land sale based on its federal net operating loss carry-forwards.

On February 13, 2004, the Company amended and reinstated its agreement (which had been terminated by its terms in December 2003) to sell the remaining 60 acres to a retail development company for $36 million in cash. Among other things, the amendment extended the time for closing the transaction until April 30, 2004 in consideration of a non-refundable payment received by the Company of $2 million. The amendment also granted the buyer the option to further extend the closing until May 31, 2004 upon payment of an additional non-refundable payment of $1 million, which payment was received April 29, 2004. The non-refundable payments will be credited against the purchase price at the transaction’s closing. There can be no assurance that such sale will ultimately be completed on a timely basis, or at all.

Note 4—Expansion and Development

Lake Charles Project: In early September 2003, the Company commenced construction of its $325 million Lake Charles casino resort, which the Company believes will be larger, and offer more amenities, than any other resort in the southwest Louisiana/east Texas market. The Company’s resort will feature approximately 700 guestrooms (including four villas, 41 full two-bay suites and 59 junior suites), several restaurants, approximately 28,000 square feet of meeting space, a championship golf course designed by Tom Fazio, an expansive outdoor pool area, retail shops and a full-service spa. Unlike most other riverboat casinos, the Company’s Lake Charles casino will be entirely on one level and surrounded on three sides by the hotel facility, providing convenient access to approximately 1,500 slot machines and 60 table games. Issuance of the gaming license from the Louisiana Gaming Control Board is subject to continued compliance with gaming regulations and other conditions. The Company expects the casino resort to be completed in the Spring of 2005, and has incurred construction and other capitalized costs of approximately $66,320,000 as of March 31, 2004.

Belterra: On May 1, 2004, the Company opened its new 300-guestroom tower at the Belterra Casino Resort, the centerpiece of the $37 million expansion project commenced in February 2003. In addition to increasing the guestroom base to a total of 608 guestrooms, the expansion project adds approximately 33,000 square feet of meeting and conference space, a year-round swimming pool and other amenities. As of March 31, 2004, construction and other capitalized costs were approximately $34,400,000.

St. Louis Development Proposals: In January 2004, the City of St. Louis (through affiliated entities) selected the Company to develop a proposed $208 million casino and luxury hotel project in downtown St. Louis near Laclede’s Landing. A redevelopment agreement for such project was executed on April 22. As proposed, the project would be located near the Edward Jones domed stadium, the America’s Center convention center, the famed Gateway Arch and the central business district on approximately 7.3 acres owned by the Company.

In February 2004, the St. Louis County (through an affiliated entity) also selected the Company to negotiate a lease and development agreement based on its proposal for a casino complex to be located in the County in the

8

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

community of Lemay. As proposed, this $300 million project would feature many non-gaming amenities alongside the casino, including a first-class hotel, retail shops, a multiplex movie theater and a bowling alley.

In each case, the Missouri Gaming Commission (“MGC”) will make the final decision in its discretion on whether and to whom to issue one or more gaming licenses in the St. Louis market. The Company anticipates such decisions will be made in the second or third quarter of 2004 and will be based in part on the exclusive recommendations of the City and County imbedded in the development agreements, as well as past and future presentations made by the Company and other applicants competing for the licenses. If the MGC ultimately were to approve the Company for either or both development opportunities, it is anticipated that construction would begin as soon as the Company receives all necessary building approvals and permits. There can be no assurance either project will ultimately be approved by the MGC and other relevant governmental authorities.

Casino Magic Argentina: On April 28, 2004, the Company awarded a construction contract for a replacement facility of the existing Neuquen casino, the principal Casino Magic Argentina property. The new facility will include a casino, restaurants and an entertainment venue on land owned by the company approximately 1 mile from the existing facility at a cost of approximately US$14 million. The Company will fund the expansion project utilizing Casino Magic Argentina’s existing cash resources and its retained earnings through 2006. Depending on the subsidiary’s profitability through 2006, the Company may develop additional phases of the planned expansion. Under the Company’s concession agreement with the Province of Neuquen, reinvestment of Casino Magic Argentina’s financial resources (defined as existing cash and retained earnings through 2006) will extend the existing concession agreement from December 2006 to December 2016. The investment of 5 million pesos (or approximately US$1,736,000 based on March 31, 2004 exchange rates) to build a hotel facility with a minimum of 10 guestrooms will enable further extension of the agreement to December 2021.

Note 5—Notes Payable

Notes payable at March 31, 2004 and December 31, 2003 consisted of the following:

	March 31, 2004		December, 31, 2003
	(in thousands)
Secured Credit Facility	$	147,000	$	147,000
Unsecured 8.25% Notes due 2012 (net of OID)		198,564		0
Unsecured 8.75% Notes due 2013 (net of OID)		132,911		132,856
Unsecured 9.25% Notes due 2007		162,000		350,000
Hollywood Park-Casino capital lease		14,197		14,746
Other secured notes payable		1,221		1,233
Other unsecured notes payable		100		100
		655,993		645,935
Less current maturities		2,373		2,341
	$	653,620	$	643,594

Secured Credit Facility: In December 2003, the Company entered into a $300 million credit facility (the “Credit Facility”) which provides for a five-year $75 million revolving credit facility and a six-year $225 million term loan facility, of which $147 million was drawn immediately with the remainder available on a delayed-draw basis. In February 2004, the term loan facility was reduced to approximately $215 million, with the delayed-draw commitment balance reduced to approximately $68 million, in connection with the Inglewood land sale (see Note

9

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3). Upon the sale of the remaining 60 acres of Inglewood land (see Note 3), the delayed-draw commitment balance will be reduced by 50% of the net cash proceeds or, to the extent the delayed-draw commitment balance is less than 50% of the net cash proceeds, such commitment will be reduced to zero and the funded term loan will be repaid with the difference.

The Credit Facility requires that the Company first expend $36,579,000 of its excess cash on the Lake Charles resort before the proceeds of the term loans and certain other amounts in the completion reserve account are permitted to be withdrawn for Lake Charles construction. As of March 31, 2004, $23,835,000 of such amount has been spent. The Company anticipates it will begin drawing on the completion reserve account in the 2004 second quarter.

Unsecured 8.25% Notes: On March 15, 2004, the Company privately placed $200 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2012 (the “8.25% Notes”), which notes were issued at 99.282% of par to yield 8.375% to maturity. Net proceeds of the offering plus cash on hand were used to repurchase $188 million in aggregate principal amount of the Company’s 9.25% Senior Subordinated Notes due 2007 (see below).

The 8.25% Notes are redeemable, at the option of the Company, in whole or in part, on the following dates, at the following redemption prices (expressed as percentages of par value):

8.25% Notes redeemable:
On and after March 15,	At a percentage of par value equal to
2008	104.125	%
2009	102.063	%
2010 and thereafter	100.000	%

The 8.25% Notes are unsecured obligations of the Company, guaranteed by all material restricted subsidiaries (excluding foreign subsidiaries) of the Company, as defined in the indenture. The indenture contains certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interests in its subsidiaries, or enter into certain mergers and consolidations. Among other things, the Company is permitted to amend, restate, modify, renew, refund, replace or refinance its senior indebtedness up to a maximum of $475 million (which amount is $350 million under the Company’s other two senior subordinated note indentures) of such debt outstanding. It is also permitted to put up to 50% of its undeveloped real estate, measured in acres, into an unrestricted subsidiary. The proceeds of any subsequent sale of the land would also remain unrestricted. The Inglewood land currently under contract (see Note 3) to be sold comprises less than half of the Company’s undeveloped land.

9.25% Notes Repurchase: On March 19, 2004, the Company repurchased $188 million aggregate principal amount of its $350 million 9.25% Senior Subordinated Notes due 2007 (the “9.25% Notes”) pursuant to a cash tender offer using proceeds from the Company’s offering of 8.25% Notes plus cash on hand. The indenture governing the remaining $162 million aggregate principal amount of 9.25% Notes was unchanged and the 9.25% Notes continue to be unsecured obligations of the Company, guaranteed by all material restricted subsidiaries.

In connection with the repurchase, the Company incurred a loss on early extinguishment of debt for the three months ended March 31, 2004 of $8,254,000, including paying a tender offer premium of $6,031,000 and expensing a pro rata portion of unamortized debt issuance costs of $1,863,000.

10

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 6—Stockholders’ Equity

Common Stock: In February 2004, the Company consummated the public offering of 11,500,000 shares of its common stock at $11.15 per share and received approximately $120,400,000 of net proceeds. Under the terms of the Credit Facility, the Company deposited 25% of the net proceeds of the equity offering into a completion reserve account. The remaining proceeds will be used for general corporate purposes, which may include the Lake Charles construction, the remaining Belterra expansion costs and new capital projects, including the St. Louis Development Proposals.

Shelf Registration: As of March 31, 2004, availability under the Company’s shelf registration statement with the Securities and Exchange Commission was $236,775,000, reduced from $365,000,000 at December 31, 2003 in connection with the common stock offering discussed above. There can be no assurance the Company will be able to issue any additional securities under the shelf registration statement on terms acceptable to the Company.

Note 7—Commitments and Contingencies

Belterra Hotel Tower Expansion: As discussed in Note 4, the Company opened the 300-guestroom tower on May 1, 2004. The Company therefore anticipates the imminent release of a $5 million deposit previously placed into escrow and scheduled to be released to the Company on the opening of the expansion prior to July 29, 2004.

Construction Commitments: As described in Note 4, the Company is building a project in Lake Charles, Louisiana, substantially completed the expansion project at Belterra Casino Resort in the second quarter and awarded a construction contract for the replacement casino in Neuquen, Argentina. In aggregate for these projects, the Company has agreements related to the design, development and construction for approximately $232,086,000, $95,392,000 of which was expended as of March 31, 2004.

Redevelopment Agreement: Also as described in Note 4, the Company entered into a redevelopment agreement for the Company’s proposed St. Louis City development project. Such agreement commits, among other things, the Company to: (a) invest $208 million (including the approximate $8 million previously spent to acquire the 7.3 acre proposed site) to construct a gaming and multi-use facility that will include a 75,000 square- foot casino and 200-guestroom luxury hotel; (b) invest, potentially with one or more development partners, a minimum of $50 million in residential housing, retail, or mixed-use developments in the City of St. Louis within five years of the opening of the casino and hotel; (c) pay, beginning after the facility opens, the City of St. Louis annual and other services fees; and, (d) pay substantial penalties to the City of St. Louis if the project fails to open on certain projected dates. In addition, execution of the redevelopment agreement provided the Company with an option to lease approximately seven additional acres from the City.

Employment and Severance Agreement: The Company has entered into employment agreements with key employees, including its Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”) and General Counsel. These agreements generally grant the employee the right to receive his or her annual salary for up to the balance of the employment agreement, plus extension of certain benefits and the immediate vesting of stock options, if the employee terminates his or her employment for good reason or the Company terminates the employee without cause (both as defined in the respective agreements). Upon certain events (including the employee’s termination of his or her employment after a diminution of his or her responsibilities or after the Company’s failure to pay a minimum bonus, or the Company’s termination of the employee) (each a “Severance Trigger”) following a change in control (as defined in the various agreements), the employee is entitled to (i) a lump-sum payment equal to two times the largest annual salary and incentive compensation that was paid to the employee during the two years preceding the change in control (or in the case

11

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of the CEO, CFO and General Counsel, a lump sum payment equal to their annual salary through the end of the term, or if the balance of the contract is less than one year, for one year), (ii) the extension of certain benefits for at least one year after termination, and (iii) the immediate vesting of the employee’s stock options. In the case of the CEO, he may terminate his employment following a change of control and receive such payments, benefits and option vesting without the requirement that there be a subsequent Severance Trigger.

City Annexation Costs: During 2002, the 569 acres owned by the Company at Boomtown Reno were annexed into the City of Reno, Nevada. The City is extending the municipal sewer line to the Boomtown property. The Company estimates the sewer hook-up fees to Boomtown could approximate $1,500,000. When the project is completed in 2004, the annual sewer service fees are estimated to be approximately $250,000 higher than the costs incurred in 2003 to operate the Company’s own sewage treatment plant. In addition, the Company anticipates the annual city licenses and taxes will be an additional $350,000 over such costs before the annexation. At the time Boomtown Reno is connected to the municipal sewer system, it will cease to operate the existing sewer treatment plant on the property. The annexation of the property by the City of Reno and the extension of city services, particularly sewage treatment capability, make it considerably more feasible to develop the Company’s approximately 500 acres of surplus land. If the land is developed, the Company has not determined whether it will develop such land itself, sell such land to others who may develop it, or a combination of the two.

Self-Insurance Reserves: The Company self-insures various levels of general liability, property, workers’ compensation and medical coverage. Insurance reserves include accruals of estimated settlements for known claims, as well as accruals of estimates of incurred but not reported claims.

Legal

Astoria Entertainment Litigation: In November 1998, Astoria Entertainment, Inc. filed a complaint in the United States District Court for the Eastern District of Louisiana. Astoria, an unsuccessful applicant for a license to operate a riverboat casino in Louisiana, attempted to assert a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), seeking damages allegedly resulting from its failure to obtain a license. Astoria named several companies and individuals as defendants, including Hollywood Park, Inc. (the predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc. (“LGE”), then a wholly owned subsidiary of Pinnacle Entertainment, and an employee of Boomtown, Inc. The Company believed the claims had no merit and, indeed, Astoria voluntarily dismissed its claims against Hollywood Park, LGE, and the Boomtown employee.

On March 1, 2001, Astoria amended its complaint, adding new claims and renaming Boomtown, Inc. and LGE as defendants. Astoria asserted that the defendants (i) conspired to corrupt the process for awarding licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting the process, (iii) violated federal and Louisiana antitrust laws, and (iv) violated the Louisiana Unfair Trade Practices Act. Astoria asserted that it would have obtained a license to operate a riverboat casino in Louisiana, but for these alleged improper acts. On August 21, 2001, the court dismissed Astoria’s federal claims with prejudice and its state claims without prejudice. In May 2002, Astoria refiled its state claims in the Civil District Court for the Parish of Orleans, Louisiana, and the matter is still pending. While the Company cannot predict the outcome of this litigation, management intends to defend it vigorously.

Poulos Lawsuit: A class-action lawsuit was filed on April 26, 1994, in the United States District Court, Middle District of Florida (the “Poulos Lawsuit”), naming as defendants 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including Casino Magic. The lawsuit alleges that

12

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people to play such games based on false beliefs concerning the operation of the gaming machines and the extent to which there is an opportunity to win. The suit alleges violations of RICO, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a second class-action lawsuit was filed in the United States District Court, Middle District of Florida (the “Ahern Lawsuit”), naming as defendants the same defendants who were named in the Poulos Lawsuit and adding as defendants the owners of certain casino operations in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into one case file (the “Poulos/Ahern Lawsuit”) in the United States District Court, Middle District of Florida. On December 9, 1994 a motion by the defendants for change of venue was granted, transferring the case to the United States District Court for the District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted motions to dismiss filed by Casino Magic and other defendants and dismissed the complaint without prejudice. The plaintiffs then filed an amended complaint on May 31, 1996 seeking damages against Casino Magic and other defendants in excess of $1 billion and punitive damages for violations of RICO and for state common law claims for fraud, unjust enrichment and negligent misrepresentation.

At a December 13, 1996 status conference, the Poulos/Ahern Lawsuit was consolidated with two other class-action lawsuits (one on behalf of a smaller, more defined class of plaintiffs and one against additional defendants) involving allegations substantially identical to those in the Poulos/Ahern Lawsuit (collectively, the “Consolidated Lawsuits”) and all pending motions in the Consolidated Lawsuits were deemed withdrawn without prejudice. The plaintiffs in the Consolidated Lawsuits filed a consolidated amended complaint on February 14, 1997, which the defendants moved to dismiss. On December 19, 1997, the court granted the defendants’ motion to dismiss certain allegations in the RICO claim, but denied the motion as to the remainder of such claim; granted the defendants’ motion to strike certain parts of the consolidated amended complaint; denied the defendants’ remaining motions to dismiss and to stay or abstain; and permitted the plaintiffs to substitute one of the class representatives. On January 9, 1998, the plaintiffs filed a second consolidated amended complaint containing claims nearly identical to those in the previously dismissed complaints. The defendants answered, denying the substantive allegations of the second consolidated amended complaint. On June 21, 2002, the court denied plaintiffs’ motion for class certification. On July 11, 2002, the plaintiffs’ filed a petition for permission to appeal the court’s denial of the plaintiffs’ motion for class certification. On August 15, 2002, the United States Court of Appeals for the Ninth Circuit granted plaintiffs’ petition. On August 23, 2002, the plaintiffs filed their notice of appeal with the U.S. District Court for the District of Nevada. On or about April 30, 2003, the plaintiffs filed their opening brief on appeal. Defendants’ answering brief was filed on September 18, 2003. The plaintiffs’ reply brief was filed on October 20, 2003. Oral argument on the appeal of the order denying class certification was heard on January 15, 2004 and a decision is pending.

The claims are not covered under the Company’s insurance policies. While the Company cannot predict the outcome of this action, management intends to defend it vigorously.

Casino Magic Biloxi Patron Incident: In February 2004, Casino Magic Biloxi settled the lawsuit that was originally filed on August 17, 2001. An Order of Dismissal with prejudice was entered on February 20, 2004. The settlement has been paid by the Company’s applicable insurance carriers.

On February 13, 2002, a third injured patron and her husband filed a subsequent complaint in the Circuit Court of Harrison County, Mississippi, Second Judicial District. The allegations in the complaint are substantially similar to those contained in the August 2001 lawsuit. No trial date has been set for the subsequent suit.

13

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

While the Company cannot predict the outcome of this action, the Company, together with its applicable insurers, intends to defend it vigorously.

Alanis Suit: On or about December 3, 2002, Paul Alanis, the Company’s former Chief Executive Officer and President and a former Company director, filed a lawsuit in the Superior Court of California for Los Angeles County against the Company, R.D. Hubbard and Daniel R. Lee, claiming, among other things, wrongful termination and defamation and seeking unspecified compensatory and punitive damages. On February 10, 2003, the court granted the Company’s motion to send the matter to binding arbitration, with the exception of the defamation claims, and stayed the action pending completion of the arbitration. On December 29, 2003, the arbitrator granted summary judgment in favor of the Company and Mr. Hubbard. (No claims were asserted against Mr. Lee in the arbitration.) The arbitrator also determined that the Company and Mr. Hubbard were entitled to reimbursement from Mr. Alanis for their costs, expenses and attorneys’ fees. The Company’s legal fees incurred in this matter through March 31, 2004 (including 2003 costs) were approximately $1,100,000. The trial on the defamation claims has been continued and a new trial date has not been set.

Indiana State Tax Dispute. The State of Indiana conducted a sales and use tax audit at the Company’s Belterra entity in 2001. In October 2002, the Company received a proposed assessment in the amount of $3,070,000 with respect to the Miss Belterra casino riverboat, including interest and a penalty. A protest was filed by the Company in December of 2002. On June 16, 2003, the Indiana Tax Court issued two favorable rulings for other taxpayers with claims similar to the Company’s. While the court’s rulings and the similarity of the issues suggest that the Company would receive a similar result from that court, one of these rulings is currently being appealed by the state. The Company’s protest has been stayed pending the outcome of this appeal. The Company intends to pursue this matter vigorously.

Other. The Company is party to a number of other pending legal proceedings, though management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial results.

14

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8—Consolidating Condensed Financial Information

The Company’s subsidiaries (excluding Casino Magic Argentina and certain non-material subsidiaries) have fully and unconditionally and jointly and severally guaranteed the payment of all obligations under the 8.25% Notes, 8.75% Notes and 9.25% Notes. Separate financial statements and other disclosures regarding the subsidiary guarantors are not included herein because management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:

	Pinnacle Entertainment, Inc.			Wholly Owned Guarantor Subsidiaries(a)			Wholly Owned Non-Guarantor Subsidiaries(b)			Consolidating and Eliminating Entries			Pinnacle Entertainment, Inc. Consolidated
							(in thousands)
As of and for the three months ended March 31, 2004
Balance Sheet
Current assets	$	119,181		$	64,219		$	8,101		$	0		$	191,501
Property and equipment, net		18,105			637,309			2,492			0			657,906
Other non-current assets		200,609			29,459			1,961			10,851			242,880
Investment in subsidiaries		488,411			4,806			0			(493,217	)		0
Inter-company		210,641			4,140			0			(214,781	)		0
	$	1,036,947		$	739,933		$	12,554		$	(697,147	)	$	1,092,287
Current liabilities	$	32,130		$	62,769		$	3,608		$	0		$	98,507
Notes payable, long term		652,451			1,169			0			0			653,620
Other non-current liabilities		29,234			0			0			(12,206	)		17,028
Inter-company		0			210,641			4,140			(214,781	)		0
Equity		323,132			465,354			4,806			(470,160	)		323,132
	$	1,036,947		$	739,933		$	12,554		$	(697,147	)	$	1,092,287
Statement of Operations
Revenues:
Gaming	$	0		$	111,754		$	3,237		$	0		$	114,991
Food and beverage		0			7,239			256			0			7,495
Equity in subsidiaries		12,528			804			0			(13,332	)		0
Other		1,500			10,371			0			0			11,871
		14,028			130,168			3,493			(13,332	)		134,357
Expenses:
Gaming		0			65,801			876			0			66,677
Food and beverage		0			6,806			292			0			7,098
Administrative and other		(5,977	)		30,804			929			0			25,756
Depreciation and amortization		789			10,743			173			0			11,705
		(5,188	)		114,154			2,270			0			111,236
Operating income (loss)		19,216			16,014			1,223			(13,332	)		23,121
Loss on early extinguishment of debt		8,254			0			0			0			8,254
Interest expense (income), net		13,526			(814	)		(8	)		0			12,704
Income (loss) before inter-company activity and taxes		(2,564	)		16,828			1,231			(13,332	)		2,163
Management fee & inter-company interest expense (income)		(3,979	)		3,979			0			0			0
Income tax (benefit) expense		303			0			427			0			730
Net income (loss)	$	1,112		$	12,849		$	804		$	(13,332	)	$	1,433
Statement of Cash Flows
Net cash provided by (used in) operating activities	$	(36,970	)	$	35,321		$	2,230		$	0		$	581
Net cash provided by (used in) investing activities		(29,235	)		(37,494	)		(964	)		0			(67,693	)
Net cash provided by (used in) financing activities		121,346			(12	)		0			0			121,334
Effect of exchange rate changes on cash		0			0			(42	)		0			(42	)

15

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Pinnacle Entertainment, Inc.			Wholly Owned Guarantor Subsidiaries(a)			Wholly Owned Non-Guarantor Subsidiaries(b)			Consolidating and Eliminating Entries			Pinnacle Entertainment, Inc. Consolidated
For the three months ended March 31, 2003
Statement of Operations
Revenues:
Gaming	$	0		$	111,274		$	2,234		$	0		$	113,508
Food and beverage		0			6,589			164			0			6,753
Equity in subsidiaries		10,176			227			0			(10,403	)		0
Other		1,500			10,321			10			0			11,831
		11,676			128,411			2,408			(10,403	)		132,092
Expenses:
Gaming		0			64,558			610			0			65,168
Food and beverage		0			7,881			154			0			8,035
Administrative and other		4,524			31,134			1,030			0			36,688
Depreciation and amortization		595			10,733			151			0			11,479
		5,119			114,306			1,945			0			121,370
Operating (loss) income		6,557			14,105			463			(10,403	)		10,722
Interest expense (income), net		12,058			(181	)		(1	)		0			11,876
(Loss) income before inter-company activity and income taxes		(5,501	)		14,286			464			(10,403	)		(1,154	)
Management fee & inter-company interest expense (income)		(4,110	)		4,110			0			0			0
Income tax (benefit) expense		(544	)		0			237			0			(307	)
Net (loss) income	$	(847	)	$	10,176		$	227		$	(10,403	)	$	(847	)
Statement of Cash Flows
Net cash provided by (used in) operating activities	$	(12,814	)	$	10,211		$	868		$	0		$	(1,735	)
Net cash provided by (used in) investing activities		(346	)		(7,840	)		(382	)		0			(8,568	)
Net cash provided by (used in) financing activities		(520	)		(165	)		0			0			(685	)
Effect of exchange rate changes on cash		0			0			46			0			46

16

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Pinnacle Entertainment, Inc.		Wholly Owned Guarantor Subsidiaries(a)		Wholly Owned Non-Guarantor Subsidiaries(b)		Consolidating and Eliminating Entries			Pinnacle Entertainment, Inc. Consolidated
					(in thousands)
As of December 31, 2003
Balance Sheet
Current assets	$	72,821	$	66,241	$	6,559	$	0		$	145,621
Property and equipment, net		18,808		600,780		2,121		0			621,709
Other non-current assets		147,491		29,448		1,982		10,851			189,772
Investment in subsidiaries		485,060		3,735		0		(488,795	)		0
Inter-company		190,279		4,072		0		(194,351	)		0
	$	914,459	$	704,276	$	10,662	$	(672,295	)	$	957,102
Current liabilities		41,955		50,811		2,855		0			95,621
Notes payable, long term		642,412		1,182		0		0			643,594
Other non-current liabilities		29,233		0		0		(12,205	)		17,028
Inter-company		0		190,279		4,072		(194,351	)		0
Equity		200,859		462,004		3,735		(465,739	)		200,859
	$	914,459	$	704,276	$	10,662	$	(672,295	)	$	957,102

(a) The following subsidiaries are treated as guarantors of the 8.25% Notes, the 8.75% Notes and the 9.25% Notes: Belterra Resort Indiana LLC, Boomtown, LLC, PNK (Reno), LLC, Louisiana—I Gaming, PNK (Lake Charles), LLC, Casino Magic Corp., Biloxi Casino Corp., PNK (Bossier City), Inc., Casino One Corporation, HP/Compton, Inc. and Crystal Park Hotel and Casino Development Company, LLC.

(b) The Company’s only material non-guarantor of the 8.25% Notes, the 8.75% Notes and the 9.25% Notes is Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services.

17

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 9—Segment Information

The following table reconciles the Company’s segment activity to its consolidated results of operations for the three months ended March 31, 2004 and 2003 and financial position as of March 31, 2004 and December 31, 2003:

	For the three months ended March 31,
	2004			2003
	(in thousands)
Revenues and expenses
Boomtown New Orleans
Revenues	$	28,609		$	26,858
Expenses, excluding depreciation and amortization		20,117			19,406
Depreciation and amortization		1,613			1,629
Net operating income—Boomtown New Orleans	$	6,879		$	5,823
Belterra Casino Resort
Revenues	$	35,483		$	31,080
Expenses, excluding depreciation and amortization		28,726			26,296
Depreciation and amortization		3,586			3,341
Net operating income—Belterra Casino Resort	$	3,171		$	1,443
Boomtown Bossier City
Revenues	$	26,949		$	28,747
Expenses, excluding depreciation and amortization		20,747			23,689
Depreciation and amortization		1,713			1,953
Net operating income—Boomtown Bossier City	$	4,489		$	3,105
Casino Magic Biloxi
Revenues	$	20,794		$	21,952
Expenses, excluding depreciation and amortization		16,806			17,305
Depreciation and amortization		1,956			1,934
Net operating income—Casino Magic Biloxi	$	2,032		$	2,713
Boomtown Reno
Revenues	$	17,469		$	19,487
Expenses, excluding depreciation, and amortization		16,953			16,814
Depreciation and amortization		1,854			1,776
Net operating (loss) income—Boomtown Reno	$	(1,338	)	$	897

18

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	For the three months ended March 31,
	2004			2003
	(in thousands)
Casino Magic Argentina
Revenues	$	3,493		$	2,408
Expenses, excluding depreciation and amortization		2,097			1,794
Depreciation and amortization		173			151
Net operating income—Casino Magic Argentina	$	1,223		$	463
Card Clubs
Revenues	$	1,560		$	1,560
Expenses, excluding depreciation and amortization		62			63
Depreciation and amortization		740			677
Net operating income—Card Clubs	$	758		$	820
Total Reportable Segments
Revenues	$	134,357		$	132,092
Expenses, excluding depreciation and amortization		105,508			105,367
Depreciation and amortization		11,635			11,461
Net operating income—Total Reportable Segments	$	17,214		$	15,264
Reconciliation to Consolidated Net Income
Total net operating income for reportable segments	$	17,214		$	15,264
Unallocated income and expenses
Corporate expense		5,077			4,542
Pre-opening and development costs		2,197			0
Gain on sale of assets		(13,181	)		0
Loss on early extinguishment of debt		8,254			0
Interest income		(867	)		(481	)
Interest expense, net of capitalized interest		13,571			12,357
Income (loss) before income taxes		2,163			(1,154	)
Income tax expense (benefit)		730			(307	)
Net income (loss)	$	1,433		$	(847	)
EBITDA (a)
Boomtown New Orleans	$	8,492		$	7,452
Belterra Casino Resort		6,757			4,784
Boomtown Bossier City		6,202			5,058
Casino Magic Biloxi		3,988			4,647
Boomtown Reno		516			2,673
Casino Magic Argentina		1,396			614
Card Clubs		1,498			1,497
Corporate		(5,007	)		(4,524	)
		23,842			22,201
Pre-opening and development costs		(2,197	)		0
Gain on sale of assets		13,181			0
	$	34,826		$	22,201

19

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(a) The Company defines EBITDA as earnings before interest expense and income, provision for income taxes, depreciation, amortization and loss on early extinguishment of debt. EBITDA is not a measure of financial performance under the promulgations of the accounting profession known as GAAP. Management uses EBITDA adjusted for certain non-routine items to analyze the performance of the Company’s business segments. EBITDA is relevant in evaluating large, long-lived hotel casino projects because it provides a perspective on the current effects of operating decisions separated from the substantial, non-operational depreciation charges, financing costs and other non-routine costs of such projects. Additionally, management believes some investors consider EBITDA to be a useful measure in determining a company’s ability to service or incur indebtedness and for estimating a company’s underlying cash flow from operations before capital costs, taxes, capital expenditures and other non-routine costs. EBITDA, subject to certain adjustments, is also a measure used in debt covenants in the Company’s debt agreements. Unlike net income, EBITDA does not include depreciation or interest expense and therefore does not reflect past, current or future capital expenditures or the cost of capital. Management compensates for these limitations by using EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance and to measure cash flow generated by ongoing operations. Such GAAP measurements include operating income (loss), net income (loss), cash flow from operations and cash flow data. EBITDA is not calculated in the same manner by all companies and accordingly, may not be an appropriate measure of comparing performance amongst different companies. The following table is a reconciliation of net income (loss) to EBITDA:

	For the three months ended March 31,
	2004		2003
	(in thousands)
Net income (loss)	$	1,433	$	(847	)
Income tax expense (benefit)		730		(307	)
Income (loss) before income taxes		2,163		(1,154	)
Loss on early extinguishment of debt		8,254		0
Interest expense, net of capitalized interest and interest income		12,704		11,876
Operating income		23,121		10,722
Depreciation and amortization		11,705		11,479
EBITDA	$	34,826	$	22,201

20

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	March 31, 2004		December 31, 2003
	(in thousands)
Total Assets
Boomtown New Orleans	$	79,558	$	80,569
Belterra Casino Resort		230,863		227,409
Boomtown Bossier City		130,572		127,617
Casino Magic Biloxi		100,444		103,181
Boomtown Reno		84,426		87,139
Casino Magic Argentina		12,554		10,662
Card Clubs		5,953		5,904
Lake Charles		67,470		34,735
St. Louis		7,373		7,373
Corporate		373,074		272,513
Total Reportable Segments, Corporate and Other	$	1,092,287	$	957,102

21

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

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto and other financial information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and other filings with the Securities and Exchange Commission.

Overview and Summary

The Company is a diversified, multi-jurisdictional owner and operator of gaming entertainment facilities. The Company owns and operates casinos in Nevada, Mississippi, Louisiana, Indiana and Argentina. In addition, the Company receives lease income from two card clubs in southern California. The Company is also building a $325 million casino resort in Lake Charles, Louisiana and has been selected to develop two new casino hotel projects in St. Louis, Missouri.

The Company recently entered into a new credit facility (December 2003), issued approximately $120,400,000 (net of expenses) of common stock and sold some surplus land in Inglewood, California (February 2004) and refinanced a significant portion of its long-term debt (September 2003 and March 2004). As a result, the Company believes it has the resources, together with its cash on hand and its expected ongoing earnings, to fund the remaining construction costs of the $325 million Lake Charles resort without having to depend on asset sales, additional financing or other infusions of cash.

The Company has also undertaken several initiatives designed to increase earnings from its existing operations. In early May 2004, the Company opened its 300-guestroom tower at Belterra in Indiana. The Company also is gradually upgrading the slot machines at most of its facilities to the new “ticket-in, ticket-out” technology and has corporate-wide efforts to centralize certain services and control staffing levels. Such improvements are expected to be partially offset during the first half of 2004 by the competitive effect on the Company’s Reno property of large Native American casinos that recently opened in northern California.

22

RESULTS OF OPERATIONS

The following table highlights the Company’s results of operations for the three months ended March 31, 2004 and 2003:

	For the three months ended March 31,
	2004			2003
	(in thousands)
Revenues
Boomtown New Orleans	$	28,609		$	26,858
Belterra Casino Resort		35,483			31,080
Boomtown Bossier City		26,949			28,747
Casino Magic Biloxi		20,794			21,952
Boomtown Reno		17,469			19,487
Casino Magic Argentina		3,493			2,408
Card Clubs		1,560			1,560
Total Revenues	$	134,357		$	132,092
Operating income (loss)
Boomtown New Orleans	$	6,879		$	5,823
Belterra Casino Resort		3,171			1,443
Boomtown Bossier City		4,489			3,105
Casino Magic Biloxi		2,032			2,713
Boomtown Reno		(1,338	)		897
Casino Magic Argentina		1,223			463
Card Clubs		758			820
Corporate		(5,077	)		(4,542	)
Pre-opening and development costs		(2,197	)		0
Gain on sale of assets		13,181			0
Operating income	$	23,121		$	10,722
Depreciation and amortization	$	11,705		$	11,479
Revenue by Property as % of Total Revenue
Boomtown New Orleans		21.3	%		20.3	%
Belterra Casino Resort		26.4	%		23.5	%
Boomtown Bossier City		20.0	%		21.8	%
Casino Magic Biloxi		15.5	%		16.6	%
Boomtown Reno		13.0	%		14.8	%
Casino Magic Argentina		2.6	%		1.8	%
Card Clubs		1.2	%		1.2	%
		100.0	%		100.0	%
Operating margins (a)
Boomtown New Orleans		24.0	%		21.7	%
Belterra Casino Resort		8.9	%		4.6	%
Boomtown Bossier City		16.7	%		10.8	%
Casino Magic Biloxi		9.8	%		12.4	%
Boomtown Reno		(7.7	)%		4.6	%
Casino Magic Argentina		35.0	%		19.2	%
Card Clubs		48.6	%		52.6	%

(a) Operating margin by property is calculated by dividing operating income (loss) by revenue by location.

23

Comparisons of the Three Months Ended March 31, 2004 and 2003

The following commentary reflects the Company’s results in accordance with several GAAP measures. An additional, supplemental analysis of the Company’s results using EBITDA, including the Company’s definition of EBITDA and a reconciliation of such EBITDA to GAAP accounting measures, is provided in the “Other Supplemental Data” section below.

Operating Results Operating income increased to $23,121,000 in the 2004 first quarter from $10,722,000 in the 2003 first quarter, largely due to the $13,181,000 asset sale gain offset by pre-opening and development costs of $2,197,000. Revenues for the three months ended March 31, 2004 increased to $134,357,000 from $132,092,000 in the 2003 comparable period. Each property’s contribution to these results is as follows:

Boomtown New Orleans achieved one of the highest quarterly revenues and operating income in its 10-year history. Net revenues increased by $1,751,000, or 6.5%, to $28,609,000 for the three months ended March 31, 2004, compared to $26,858,000 in the 2003 comparable period. Benefiting from the strong revenue growth and controlled operating costs, Boomtown New Orleans improved its quarterly operating income by 18.1% to $6,879,000 from $5,823,000, and its operating margin to 24.0% from 21.7%.

Belterra Casino Resort recorded its ninth consecutive quarter of improved revenues and operating income over the prior-year period. Revenues increased 14.2% to $35,483,000 from $31,080,000 a year earlier. Operating income for the quarter more than doubled to $3,171,000 from $1,443,000 in the year-earlier period, despite $400,000 in additional marketing costs related to the opening of the 300-guestroom tower in the second quarter and $205,000 in additional depreciation charges from the opening of the new meeting and convention space in February 2004 (see Note 4 to the Condensed Consolidated Financial Statements).

Boomtown Bossier City reported improved operating results despite a decrease in revenues caused by market-wide competitive pressures. Quarterly revenues declined 6.3% to $26,949,000 from $28,747,000 in the first quarter of 2003, as the Bossier City/Shreveport market experienced competition primarily from expanded Native American gaming in Oklahoma. For the quarter, operating income increased 44.6% to $4,489,000 from $3,105,000 a year earlier, mainly as a result of cost-control initiatives.

At Casino Magic Biloxi, first quarter 2004 revenues were $20,794,000 compared to $21,952,000 in the 2003 period, reflecting the highly competitive market conditions. Operating income was $2,032,000 for the 2004 period versus $2,713,000 in the three months ended March 31, 2003.

At Boomtown Reno, competition from Native American casinos in California that opened in mid-2003 continued to affect results. Boomtown Reno’s revenues for the quarter ended March 31, 2004 declined 10.4% to $17,469,000, compared to $19,487,000 for the first quarter of 2003. The property reported an operating loss for the quarter of $1,338,000, versus operating income of $897,000 in the first quarter of 2003. The Reno market is seasonal, favoring the summer.

Casino Magic Argentina continues to benefit from a stronger peso and an improved economic and political environment. Revenues improved to $3,493,000 in the 2004 first quarter from $2,408,000, while operating income improved to $1,223,000 from $463,000.

Card Clubs revenue and operating income were consistent with prior-year quarterly results, as there was no change in the monthly lease income from either facility.

Corporate costs for the three months ended March 31, 2004 were $5,077,000 compared to $4,542,000 for the three months ended March 31, 2003.

Pre-opening and Development Costs: The majority of pre-opening and development costs relate to the Lake Charles project ($749,000) and to the St. Louis development opportunities ($701,000).

24

Gain on Sale of Assets: As discussed in Note 3 to the Condensed Consolidated Financial Statements, on February 27, 2004, the Company sold 37 acres of surplus land for approximately $22 million. After deducting for the net book value of the land and for sales and other transaction-related costs, the Company recorded a gain of $13,181,000.

Interest Income Interest income for the first three months of 2004 of $867,000 almost doubled from $481,000 earned in the 2003 period. Additional cash generated from the equity offering in early February led to the increased interest income.

Interest Expense Interest expense for the three months ended March 31, 2004 before capitalized interest was $14,306,000, compared to $12,523,000 for the 2003 period, with the increase primarily due to the funding of the term loan facility. Capitalized interest was $735,000 and $166,000 for the three months ended March 31, 2004 and 2003, respectively.

Loss on Early Extinguishment of Debt During the 2004 first quarter, the Company repurchased $188 million in aggregate principal amount of its 9.25% Notes (see Note 5 to the Condensed Consolidated Financials Statements). In connection with the resulting early extinguishment of debt, the Company incurred a charge of $8,254,000.

Income Tax Expense/Benefit The effective tax rate for the three months ended March 31, 2004 was 33.7%, or a tax expense of $730,000, compared to an effective rate of 26.6% in the prior year period, or a tax benefit of $307,000.

25

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2004, the Company had $334,522,000 of cash, cash equivalents and restricted cash. Management currently estimates that approximately $45 million is used to fund the Company’s casino cages, slot machines, operating accounts and day-to-day working capital needs. By consolidating certain accounts and services, and introducing more “ticket-in, ticket-out” slot machines, management believes that it can gradually reduce the required operating cash balances to less than $45 million, despite the Company’s anticipated growth.

Included in cash, cash equivalents and restricted cash at March 31, 2004 and December 31, 2003 is restricted cash of $180,235,000 and $128,929,000, respectively, which increase comes from depositing 25% of the net cash proceeds from the equity offering and all of the land sale net cash proceeds (see Notes 6 and 3 to the Condensed Consolidated Financial Statements, respectively) into the completion reserve account pursuant to the Credit Facility (defined below).

Working capital for the Company (current assets less current liabilities) was $92,994,000 at March 31, 2004, versus $50 million at December 31, 2003. The increase is attributable to the balance of equity offering net cash proceeds, offset by capital spending primarily for the Lake Charles and Belterra projects.

For the three months ended March 31, 2004, cash provided from financing activities was $121,334,000, primarily from the equity offering of $120,400,000. Also during the quarter, the Company generated cash proceeds from assets sales of $21,476,000, primarily from the 37 acres sold in February. Offsetting these sources of cash was the investment of $37,863,000 in property and equipment (primarily Lake Charles and Belterra development projects) and depositing of $51,306,000 into the completion reserve restricted cash account. Cash flow from operations was consistent with prior first quarters at $581,000. Interest payments on the majority of the Company’s debt are made in the first and third quarters, decreasing cash flows from operations in those periods. Overall, as a result of the equity offering and land sale proceeds, less funds invested in property and equipment and deposited into the completion reserve account, cash and cash equivalents increased by $54,180,000.

For the three months ended March 31, 2003, the Company invested $8,501,000 in property and equipment, primarily for the Lake Charles and Belterra projects. During the 2003 first quarter, cash used by operations was $1,735,000, reflecting in part the timing of interest payments on the Company’s senior subordinated bond issues. As a result of the investment in the Company’s properties and the timing of cash flow from operations, cash and cash equivalents declined $10,942,000 from the 2002 year-end balance.

As of March 31, 2004, the Company’s debt consists primarily of the term loan portion of the Credit Facility (defined below) of $147 million and the three issues of senior subordinated indebtedness: $200 million aggregate principal amount of 8.25% Senior Subordinated Notes due March 2012 (the “8.25% Notes”), $135 million aggregate principal amount of 8.75% Senior Subordinated Notes due October 2013 (the “8.75% Notes”) and $162 million aggregate principal amount of 9.25% Senior Subordinated Notes due February 2007 (the “9.25% Notes”).

In December 2003, the Company entered into a $300 million credit facility (the “Credit Facility”) which provides for a five-year $75 million revolving credit facility and a six-year $225 million term loan facility, of which $147 million was drawn immediately with the remainder available on a delayed-draw basis. In February 2004, the term loan facility was reduced to approximately $215 million, with the delayed-draw commitment balance reduced to approximately $68 million, in connection with the Inglewood land sale (see Note 3 to the Condensed Consolidated Financial Statements). Upon the sale of the remaining 60 acres of Inglewood land (see Note 3 to the Condensed Consolidated Financial Statements), the delayed-draw commitment balance will be reduced by 50% of the net cash proceeds or, to the extent the delayed-draw commitment balance is less than 50%

26

of the net cash proceeds, such commitment will be reduced to zero and the funded term loan will be repaid with the difference. The delayed-draw facility can be drawn in increments of at least $25 million through September 30, 2004.

As of March 31, 2004, the Company maintained approximately $171,086,000 in a completion reserve account, established pursuant to the Credit Facility. These funds, subject to satisfying certain conditions to withdrawal, are permitted to be used to pay a portion of the construction costs of the Lake Charles resort and to pay up to $20 million in capital expenditures for the Belterra hotel tower expansion. Proceeds of the delayed-draw term loan facility are required to be funded into the completion reserve account and are also available subject to satisfying conditions to withdrawal from such account. The proceeds of the revolving credit facility may be used for general corporate purposes.

Under the Credit Facility, the term loan matures in December 2009 and the revolving credit facility matures in December 2008. These maturity dates will advance to August 15, 2006 if the Company has not before such date repaid, refinanced or extended the maturity of the 9.25% Notes beyond the term loan maturity date. In addition, the term loans are repayable in quarterly installments of 0.25% of the principal amount of the term loans outstanding on October 1, 2004, commencing in March 2005.

The Credit Facility requires that the Company first invest $36,579,000 of its excess cash into the Lake Charles resort before the proceeds of the term loans and certain other amounts in the completion reserve account are permitted to be withdrawn for Lake Charles construction. As of March 31, 2004, $23,835,000 of such amount has been invested. The Company anticipates it will begin drawing on the completion reserve account in the 2004 second quarter.

On March 15, 2004, the Company closed on a private offering of $200 million aggregate principal amount of 8.25% Notes, which notes were issued at 99.282% of par to yield 8.375% to maturity. Net proceeds of the offering plus cash on hand were used to repurchase $188 million aggregate principal amount of the Company’s 9.25% Notes.

The 8.25% Notes become callable at a premium over their face amount on March 15, 2008; the 8.75% Notes become callable at a premium over their face amount on October 1, 2008; and, the 9.25% Notes became callable at a premium over their face amount on February 15, 2003. Such premiums decline periodically as the bonds near their respective maturities. None of the notes has any required sinking fund or other principal payments prior to their maturities.

On March 19, 2004, the Company repurchased $188 million aggregate principal amount of its $350 million aggregate principal amount of 9.25% Notes pursuant to a cash tender offer using proceeds from the Company’s offering of 8.25% Notes plus cash on hand.

The 8.25%, 8.75% and 9.25% Notes (the “Notes”) are unsecured obligations of the Company, guaranteed by all material restricted subsidiaries (excluding foreign subsidiaries) of the Company, as defined in the indentures. The indentures governing the Notes contain certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interests in its subsidiaries, or enter into certain mergers and consolidations. Among other things, the Company is permitted, under the most restrictive indentures, to amend, restate, modify, renew, refund, replace and refinance its senior indebtedness with up to a maximum of $350 million of such debt outstanding. The indentures governing the Notes permit the incurrence of additional indebtedness pursuant to certain baskets, such as the credit facility indebtedness described above. The indentures also permit the incurrence of additional indebtedness outside the baskets if at the time the indebtedness is proposed to be incurred, the Company’s consolidated coverage ratio on a pro forma basis, as defined in those indentures (essentially the ratio of EBITDA to interest), would be at least 2.00 to 1.00. The

27

Company’s consolidated coverage ratio is currently under 2.00 to 1.00 and the Company expects that this will remain the case at least until the Lake Charles resort has opened. Accordingly, without the consent of the holders of the required principal amount of the respective Notes, the Company’s ability to incur additional indebtedness is limited to the baskets outlined in the indentures. The Company is also permitted to put up to 50% of its undeveloped real estate, measured in acres, into an unrestricted subsidiary. The proceeds of any subsequent sale of the land would also remain unrestricted. The Inglewood land which is currently held for sale (see Note 3 to the Condensed Consolidated Financial Statements) comprises less than half of the Company’s undeveloped land.

The Company also has a $4,400,000 stand-by letter of credit outstanding at March 31, 2004, which letter of credit is cash-collateralized and for the benefit of the Company’s self-funded workers’ compensation insurance program.

On February 27, 2004, the Company closed on the sale of 37 acres it owns in Inglewood, California for approximately $22 million in cash, and recorded a gain on the sale of approximately $13,181,000.

On February 13, 2004, the Company amended and reinstated its agreement (which had been terminated by its terms in December 2003) to sell the remaining 60 acres to a retail development company for $36 million in cash. Among other things, the amendment extended the time for closing the transaction until April 30, 2004 in consideration of a non-refundable payment received by the Company of $2 million. The amendment also granted the buyer the option to further extend the closing until May 31, 2004 upon payment of an additional non-refundable payment of $1 million, which payment was received April 29, 2004. The non-refundable payments will be credited against the purchase price at the transaction’s closing. There can be no assurance that such sale will ultimately be completed on a timely basis, or at all.

In February 2004, the Company consummated the public offering of 11,500,000 shares of its common stock at $11.15 per share and received approximately $120,400,000 of net proceeds. Under the terms of the Credit Facility, the Company deposited 25% of the net proceeds of the equity offering into a completion reserve account. The remaining proceeds will be used for general corporate purposes, which may include the Lake Charles construction, the remaining Belterra expansion costs and new capital projects, including the St. Louis Development Proposals.

The Company intends to continue to maintain its current properties in good condition and estimates that this will require maintenance and miscellaneous capital spending of approximately $20 million to $25 million per year.

The Company currently believes that its existing cash resources and cash flows from operations and funds available under the Credit Facility, without regard to asset sales, will be sufficient to fund operations, maintain existing properties, make necessary debt service payments, fund remaining construction costs of the Belterra hotel tower expansion and to fund the construction costs anticipated for the Lake Charles resort.

28

OTHER SUPPLEMENTAL DATA

EBITDA: The Company defines EBITDA as earnings before interest expense and income, provision for income taxes, depreciation, amortization and loss on early extinguishment of debt. EBITDA is not a measure of financial performance under the promulgations of the accounting profession known as GAAP. Management uses EBITDA adjusted for certain non-routine items to analyze the performance of the Company’s business segments. EBITDA is relevant in evaluating large, long-lived hotel casino projects because it provides a perspective on the current effects of operating decisions separated from the substantial, non-operational depreciation charges, financing costs and other non-routine costs of such projects. Additionally, management believes some investors consider EBITDA to be a useful measure in determining a company’s ability to service or incur indebtedness and for estimating a company’s underlying cash flow from operations before capital costs, taxes, capital expenditures and other non-routine costs. EBITDA, subject to certain adjustments, is also a measure used in debt covenants in the Company’s debt agreements. Unlike net income, EBITDA does not include depreciation or interest expense and therefore does not reflect past, current or future capital expenditures or the cost of capital. Management compensates for these limitations by using EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance and to measure cash flow generated by ongoing operations. Such GAAP measurements include operating income (loss), net income (loss), cash flow from operations and cash flow data. EBITDA is not calculated in the same manner by all companies and accordingly, may not be an appropriate measure of comparing performance amongst different companies. For more financial information regarding the Company’s segment activity, please see Note 9 to the Condensed Consolidated Financial Statements. Below is a reconciliation of operating income (loss) to EBITDA:

	Operating Income (Loss)			Depreciation and Amortization		EBITDA
	(in thousands)
For the three months ended March 31, 2004
Boomtown New Orleans	$	6,879		$	1,613	$	8,492
Belterra Casino Resort		3,171			3,586		6,757
Boomtown Bossier City		4,489			1,713		6,202
Casino Magic Biloxi		2,032			1,956		3,988
Boomtown Reno		(1,338	)		1,854		516
Casino Magic Argentina		1,223			173		1,396
Card Clubs		758			740		1,498
Corporate		(5,077	)		70		(5,007	)
		12,137			11,705		23,842
Pre-opening and development costs		(2,197	)		0		(2,197	)
Gain on sale of assets		13,181			0		13,181
	$	23,121		$	11,705	$	34,826
For the three months ended March 31, 2003
Boomtown New Orleans		5,823			1,629		7,452
Belterra Casino Resort		1,443			3,341		4,784
Boomtown Bossier City		3,105			1,953		5,058
Casino Magic Biloxi		2,713			1,934		4,647
Boomtown Reno		897			1,776		2,673
Casino Magic Argentina		463			151		614
Card Clubs		820			677		1,497
Corporate		(4,542	)		18		(4,524	)
	$	10,722		$	11,479	$	22,201

29

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

There have not been any material changes to the Company’s contractual obligations and commitments disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, except for the closing of the private offering of $200 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2012 and the repurchase of $188 million aggregate principal amount of 9.25% Senior Subordinated Notes due 2007, which are both discussed in Note 5 to the Condensed Consolidated Financial Statements.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements except for the $4,400,000 cash-collateralized letter of credit for the Company’s self-funded workers’ compensation insurance program.

FACTORS AFFECTING FUTURE OPERATING RESULTS

California Gaming: In March 2000, California voters passed Proposition 1A, a ballot initiative that allows Native American groups to conduct various gaming activities, including slot machines, house-banked card games and lotteries. Each Native American group in California may operate slot machines, and up to two gaming facilities may be operated on any one reservation. The number of machines each Native American group is allowed to operate may be subject to agreements with the State of California. Some Native American groups have established or are developing large-scale hotel and gaming facilities in California.

In mid-2003, new Native American casino developments opened in California that compete with the Boomtown Reno property. These casino developments are significantly closer to several primary feeder markets. From the time these new Native American casinos opened through March 2004, revenues at Boomtown Reno declined approximately 13.0% compared to the corresponding 2003/2002 period. Numerous Native American groups are planning new or significantly expanded facilities in the northern California area.

An initiative has been introduced in California that, under certain circumstances, would legalize slot machines at certain California racetracks and card clubs, including the two card clubs owned by the Company. On April 16, 2004, the proponents of such initiative filed petitions with 1,176,617 signatures in support of the measure. State law requires 598,105 signatures to be certified in order for the initiative to be on the November 2004 ballot.

The adverse effect on the Reno gaming properties from expanded gaming in California is expected to continue, especially in the year-over-year comparisons in the first half of 2004. Boomtown Reno contributed approximately 13.0% of Pinnacle’s net revenues in the three months ended March 31, 2004. The Company has taken steps to reduce its cost structure at Boomtown Reno. The Company is also evaluating the possibility of selling its significant surplus land surrounding the Reno property, preferably to parties who would develop the land in ways that could be beneficial to the Company’s casino operations.

Lake Charles: The Company is building a $325 million (including capitalized interest and pre-opening costs) casino resort in Lake Charles, Louisiana. Under GAAP, capitalized interest is added to the property and equipment, while pre-opening costs are expensed as incurred. As of March 31, 2004, approximately $66,320,000 of this amount had been invested. The Company anticipates completion of the project in the Spring of 2005.

Belterra Casino Resort: The Company has completed its $37 million Belterra hotel tower expansion project, which added 300 guestrooms (opened on May 1), meeting and conference space (opened in February 2004) and other amenities. As of March 31, 2004, approximately $32,400,000 of this amount had been invested.

30

The Company expects the new hotel tower to result in higher income at the property during 2004, despite temporarily increased marketing costs to publicize its opening. The marketing program is designed to introduce the property to markets more distant than the property’s historical advertising range, as it will now have additional guestrooms to accommodate customers from more distant markets.

St. Louis Development Proposals: The Company has been selected by governmental authorities to develop two casino projects in St. Louis, Missouri. The Company expects to incur significant costs other than architectural and construction costs prior to opening these facilities, including costs for legal and consulting services, hiring and training employees and marketing. Such costs will be expensed as incurred, including the $701,000 expensed for the three months ended March 31, 2004. There is no certainty that the Company will receive final governmental approvals for either or both facilities, or that they will be built.

Assets Held for Sale: Assets held for sale at March 31, 2004 consists of 60 acres of unimproved land in Inglewood, California, the book value of which was approximately $4,408,000. On February 13, 2004, the Company amended and reinstated its agreement (which had been terminated by its terms in December 2003) to sell the 60 acres to a retail development company for $36 million in cash. Among other things, the amendment extended the time for closing the transaction until April 30, 2004 in consideration of a non-refundable payment received by the Company of $2 million. The amendment also granted the buyer the option to further extend the closing until May 31, 2004 upon payment of an additional non-refundable payment of $1 million, which payment was received April 29, 2004. The non-refundable payments will be credited against the purchase price at the transaction’s closing. There can be no assurance that such sale will ultimately be completed on a timely basis, or at all.

Indiana State Income Tax Matter: In April 2004, the Indiana Tax Court ruled that Indiana gaming taxes paid are not deductible for Indiana state income tax purposes. Such ruling does not have any current impact to the Company’s cash flow or deferred tax asset or liability accounts due to taxable losses incurred since the opening of Belterra Casino Resort in October 2000. This ruling was in connection with an unrelated third party that had been litigating the matter for several years. Due to the opportunity for appeals, the final outcome remains uncertain.

Contingencies: The Company assesses its exposures to loss contingencies including legal and income tax matters and provides for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be affected.

CRITICAL ACCOUNTING POLICIES

A description of the Company’s critical accounting policies and estimates can be found in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. For a more extensive discussion of the Company’s accounting policies, see Note 1, “Summary of Significant Accounting Policies,’ in the Notes to the Consolidated Financial Statements in the Company’s 2003 Annual Report on Form 10-K for the year ended December 31, 2003.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

There are no accounting standards issued before March 31, 2004 but effective after March 31, 2004 which are expected to have a material impact on our financial reporting (see Note 1 to the Consolidated Financial Statements).

31

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Words such as, but not limited to, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “could”, “may”, “should” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements, which may include, without limitation, statements regarding expansion plans, cash needs, cash reserves, liquidity, operating and capital expenses, financing options, expense reductions, operating results and pending regulatory matters, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company. From time to time, oral or written forward-looking statements are also included in the Company’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases and other materials released to the public.

Actual results may differ materially from those that might be anticipated from forward-looking statements. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that may cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements include, among others: (1) the gaming industry is very competitive and increased competition from the legalization or expansion of gaming in Alabama, Arkansas, California, Kentucky, Ohio, Oklahoma or Texas and the development or expansion of Native American casinos in the Company’s markets could adversely affect the Company’s profitability, (2) general construction risks and other factors, some of which are beyond the Company’s control, could prevent the Company from completing its construction and development projects as planned, (3) because the Company is highly leveraged, future cash flows may not be sufficient to meet its financial obligations and the Company might have difficulty obtaining additional financing and (4) the Lake Charles resort development, the Belterra hotel tower expansion, the proposed St. Louis projects, the Argentine replacement casino and other capital intensive projects could strain the Company’s financial resources and might not provide for a sufficient return. Additional factors that could cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements are detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. For more information on the potential factors that could affect the Company’s operating results and financial condition, see “—Factors Affecting Future Operating Results” above and review the Company’s other filings with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest rate on borrowings under the Credit Facility (see Note 5 to the Condensed Consolidated Financial Statements). At March 31, 2004, 22.4% of the aggregate principal amount of the Company’s funded debt obligations and virtually all of the Company’s invested cash balances had floating interest rates.

The Company is also exposed to market risk from adverse changes in the exchange rate of the dollar to the Argentine Peso. The total assets of Casino Magic Argentina at March 31, 2004 were $12,554,000, or approximately 1% of the consolidated assets of the Company.

32

The table below provides the principal cash flows and related weighted average interest rates by contractual maturity dates for the Company’s debt obligations at March 31, 2004. At March 31, 2004, the Company did not hold any investments in market risk sensitive instruments of the type described in Item 305 of Regulation S-K.

Liabilities	2004			2005			2006			2007			2008			Thereafter			Total			Fair Value
	(in thousands)
Credit Facility (a)	$	0		$	1,470		$	1,470		$	1,470		$	1,470		$	141,120		$	147,000		149,205
Rate		4.59	%		4.59	%		4.59	%		4.59	%		4.59	%		4.59	%		4.59	%
8.25% Notes	$	0		$	0		$	0		$	0		$	0		$	200,000		$	200,000		194,500
Fixed rate		0	%		0	%		0	%		0	%		0	%		8.25	%		8.25	%
8.75% Notes	$	0		$	0		$	0		$	0		$	0		$	135,000		$	135,000		138,375
Fixed rate		0	%		0	%		0	%		0	%		0	%		8.75	%		8.75	%
9.25% Notes	$	0		$	0		$	0		$	162,000		$	0		$	0		$	162,000		164,430
Fixed rate		0	%		0	%		0	%		9.25	%		0	%		0	%		9.25	%
All Other (b)	$	2,373		$	2,508		$	2,598		$	2,747		$	2,905		$	2,385		$	15,515		15,515
All Other Avg. Interest rate		5.65	%		5.64	%		5.59	%		5.59	%		5.59	%		6.47	%		5.74	%

(a) Under the Company’s credit facilities, the term loan matures in December 2009. This maturity date would advance to August 15, 2006 if the Company has not, before such date, repaid, refinanced or extended the maturity of its 9.25% Notes beyond the term loan maturity date. The term loan facility is classified through the December 2009 maturity date in the above table based on the Company’s apparent ability and intent to repay, refinance or extend the maturity date of the 9.25% Notes. The term loan has a floating interest rate based on 3.5% over LIBOR. As of March 31, 2004, the rate is 4.59%.

(b) Primarily the Hollywood Park-Casino capitalized lease obligation of $14,197,000 with a fixed rate of 5.53%.

Item 4. Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2004. Based on this evaluation, the CEO and CFO concluded that, as of March 31, 2004, the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the CEO and CFO by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s management, including the CEO and CFO, does not expect that its disclosure controls and procedures or internal controls over financial reporting will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

33

PART II

Item 1. Legal Proceedings

There have been no material developments during the three months ended March 31, 2004 to the litigation entitled “Astoria Entertainment Litigation”, “Poulos Litigation”, “Action by Greek Authorities” or “Indiana State Tax Dispute” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 under the heading “Legal Proceedings.”

During the three months ended March 31, 2004, material developments occurred with respect to the following litigation, which is further described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 under the heading “Legal Proceedings” and to which reference should be made.

Casino Magic Biloxi Patron Incident. In February 2004, Casino Magic Biloxi settled the lawsuit that was originally filed on August 17, 2001. An Order of Dismissal with prejudice was entered on February 20, 2004. The settlement has been paid by the Company’s applicable insurance carriers.

The subsequent complaint filed by the third injured victim and her husband on February 13, 2002 is still pending, but no trial date has been set.

Alanis Suit. The trial on the defamation claims has been continued and a new trial date has not been set.

34

Item 6. Exhibits and Reports on Form 8-K

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
4.1		Indenture dated as of March 15, 2004 by and among Pinnacle Entertainment, Inc., the guarantors identified therein and The Bank of New York, is hereby incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 30, 2004.
4.2		Amended and Restated Hollywood Park, Inc. Directors Deferred Compensation Plan, is hereby incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 filed on August 31, 1999.
10.1		Registration Rights Agreement dated as of March 15, 2004 by and among Pinnacle Entertainment, Inc., the guarantors identified therein, Lehman Brothers Inc., Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc., SG Cowen Securities Corporation, UBS Securities LLC and Hibernia Southcoast Capital, Inc., is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 30, 2004.
10.2		Purchase Agreement dated as of February 27, 2004 by and among Pinnacle Entertainment, Inc., the guarantors identified therein, Lehman Brothers, Inc., Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc., SG Cowen Securities Corporation, UBS Securities LLC and Hibernia Southcoast Capital, Inc., is hereby incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 30, 2004.
10.3		Second Amendment to Purchase Agreement dated as of February 11, 2004 by and between the Company and Rothbart Development Corporation, is hereby incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
10.4	*	Separation and General Release Agreement dated January 14, 2003 by and between Bruce C. Hinckley and Pinnacle Entertainment, Inc.
11.1	*	Statement re Computation of Per Share Earnings.
31.1	*	Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
31.2	*	Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
32	*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—CEO and CFO.

* Filed herewith.

(b) Reports on Form 8-K

1. On January 26, 2004, a Form 8-K was filed indicating that the description of the Company’s common stock that was contained in the Company’s Registration Statement on Form 8-A filed November 21, 1997, as amended by Amendment No. 1 filed August 20, 2001, was updated.

2. On January 30, 2004, a Form 8-K was filed announcing the pricing of the Company’s proposed public offering of 10,000,000 shares of its common stock at $11.15 per share.

3. On February 3, 2004, a Form 8-K was filed announcing the Company’s results for the fiscal quarter and full year ended December 31, 2003.

4. On February 9, 2004, a Form 8-K was filed announcing that the underwriters of the Company’s public offering of 10,000,000 shares of common stock exercised in full their over-allotment option to purchase an additional 1,500,000 shares of common stock at $11.15 per share and that the Company closed its public offering of the 11,500,000 shares of common stock. This Form 8-K also included risk factors regarding the Company’s business.

35

5. On February 24, 2004, a Form 8-K was filed announcing the commencement of the Company’s tender offer and proposed private placement.

6. On March 3, 2004, a Form 8-K was filed regarding the pricing of the Company’s proposed private placement of $200 million aggregate principal amount of 8.25% senior subordinated notes due 2012.

7. On March 16, 2004, a Form 8-K was filed regarding the closing of the Company’s private placement of $200 million aggregate principal amount of 8.25% senior subordinated notes due 2012.

8. On March 30, 2004, a Form 8-K was filed containing certain exhibits relating to the completion of the private placement of 8.25% senior subordinated notes due 2012, as well as the disclosure of the repurchase on March 19, 2004 of $188 million aggregate principal amount of the Company’s 9.25% senior subordinated notes due 2007.

36

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

May 7, 2004	PINNACLE ENTERTAINMENT, INC. (Registrant)
	By:	/s/    STEPHEN H. CAPP
		Stephen H. Capp Executive Vice President and Chief Financial Officer (Authorized Officer, Principal Financial Officer and Chief Accounting Officer)

37

EX-10.4

Exhibit 10.4

SEPARATION AND GENERAL RELEASE AGREEMENT

The purpose of this Separation and General Release Agreement (“Agreement”) is to set forth the agreed-upon terms, conditions and arrangements regarding the separation of BRUCE C. HINCKLEY (“Hinckley”) from his employment with PINNACLE ENTERTAINMENT, INC., (the “Company”). Hinckley and Company may be hereinafter referred to collectively as “Parties.”

In consideration of the following promises, obligations, and commitments, the sufficiency of which is expressly acknowledged by the Parties, Hinckley and the Company agree as follows:

1. Hinckley’s last day of employment with the Company shall be the earlier of (i) the filing of the Company’s Form 10-K for the year ended 2002; (ii) termination of Hinckley’s employment by the Company’s Chief Executive Officer (which cannot occur before January 15, 2003); or (iii) March 31, 2003 (“Separation Date”). Notwithstanding the foregoing, the Company shall be free to hire and name a new Chief Financial Officer and Treasurer at any time at which point Hinckley’s title shall be changed to Accountant. Also notwithstanding the foregoing, Hinckley may be terminated “for cause” at any time. For purposes of this Agreement, termination for “cause” shall mean if Hinckley: (i) neglects to perform the material duties of his employment under this Agreement in a professional and businesslike manner after having received written notice specifying such failure to perform and a reasonable opportunity to perform; (ii) commits a material breach of this Agreement or a material breach of his fiduciary duty to Company; or (iii) is convicted of a felony involving acts of moral turpitude or commits fraud, misrepresentation, embezzlement or other acts of material misconduct against the Company (including violating or condoning the violation of any material rules or regulations of gaming authorities which could have a material adverse effect on the Company) that would make the continuance of his employment by Company materially detrimental to Company. Except as provided for herein, Hinckley has no present or future right to further employment with the Company and all of Hinckley’s Company-related benefits will cease on the Separation Date, except for the severance payments provided herein.

2. Following the Separation Date, Hinckley shall receive or be entitled to the following severance payments:

i. Payments equal to twelve (12) months salary to be paid in accordance with the Company’s current pay schedule until paid in full (the “Payment Period”);

ii. Health, dental, and vision benefits for Hinckley and his dependents for a period of twelve (12) months from the Separation Date at no greater costs than those paid by other senior executives for their coverages;

iii. Reimbursement of any reasonable out of pocket expenses related to the consulting services to be provided hereunder;

iv. Payment for accrued but unused paid time off;

v. Reimbursement of reasonable attorneys fees incurred by Hinckley in connection with the review of this agreement, not to exceed Two Thousand Dollars ($2,000); and

vi. Payment of a bonus in the amount of One Hundred Thousand Dollars ($100,000); Fifty Thousand Dollars ($50,000) of which has already been paid when other Corporate employees received their 2002 bonus, and the remaining Fifty Thousand Dollars ($50,000) of which shall be paid on the Separation Date.

Such sums payable by the Company will be less any applicable withholdings, which shall be remitted by the Company to appropriate taxing authorities in the ordinary course of business. Hinckley acknowledges that he is otherwise solely responsible for the payment of all taxes on such payments and on any other consideration received by him pursuant to this Agreement and shall indemnify Company and hold it harmless against all such taxes. In the event that the Company does not make any such payment(s) within ten (10) days of the due date, then interest shall accrue on such unpaid amount(s) at the rate of eight percent (8%) per annum until paid.

3. The Company wishes to consult with Hinckley during the Payment Period relative to various aspects of the Company’s business. Hinckley agrees to provide such services upon request and without additional payment so long as they do not interfere with his other professional or personal obligations or commitments and subject to any required or applicable gaming regulatory approvals.

4. On the Separation Date, Hinckley agrees to vacate his office and agrees to return to the Company all information and documents relating to the business of the Company or its subsidiaries and affiliates, (collectively “Protected Entities”) including but not limited to files, drawings, prints, customer lists, account lists, price lists, product designs, marketing plans or proposals, customer information, trade designs, trade secrets, trade practices, blank forms, memorandums, data, tables, magnetic tapes, computer disks, calculations, prototypes, models, manuals, letters, lists, notes, notebooks, reports and information, material or documents of a secret, confidential or proprietary nature (collectively “Company Information and Documents”) together with any and all copies thereof whether prepared by Hinckley or others. Hinckley also agrees to return all Company property including but not limited to computer and related equipment, cell phone, beeper and keys. Hinckley is to retain his computer and related equipment.

5. Any unvested stock options previously granted to Hinckley by the Company that would vest within the twelve (12) months following the Separation Date shall become One Hundred Percent (100%) vested on the Separation Date. The period of time for Hinckley to exercise his vested options shall be three (3) years from the Separation Date. Except as provided for in this Paragraph 5, all other terms and conditions of the Stock Option Plan under which the stock options were issued remain applicable to and control the exercise of such options.

2

6. Hinckley shall not at any time following the Separation Date, directly or indirectly, make available, show, display, release, or discuss with or to any competitor or potential competitor of the Protected Entities or divulge, disclose, or communicate to any person, firm, corporation or other business entity in any manner whatsoever, any Confidential Information or Company Information and Documents. For purposes of this Agreement “Confidential Information” means any information that is not generally known to the public that relates to the existing or reasonably foreseeable business of the Protected Entities which has been expressly or implicitly protected by the Protected Entities or which, from all of the circumstances, Hinckley knows or has reason to know that the Protected Entities intend or expect the secrecy of such information to be maintained. Confidential Information includes, but is not limited to, information contained in or relating to development plans or proposals, marketing plans or proposals, customer information, employee information, accounting, finances, know-how, trademarks, trade names, trade practices, trade secrets and other intellectual or proprietary information of the Protected Entities.

7. Hinckley shall not at any time prior to one (1) year following the Separation Date, (i) directly or indirectly, hire, solicit, induce, persuade, or attempt to hire, solicit, recruit, induce or persuade any employee of the Protected Entities to leave or abandon employment with the Protected Entities for any reason whatsoever; or (ii) knowingly solicit, recruit, induce, encourage or persuade any customers of Company or its affiliates or subsidiaries to leave the Company’s casinos or card clubs, or knowingly solicit, recruit, induce, encourage or persuade any such customers to use the facilities or services of any competitor of Company. Notwithstanding anything herein to the contrary, and subject to the provisions of this Section 7 and Sections 6, 10 and 11, this Agreement and the Company in no way prohibit Hinckley from employment within the gaming industry, whether future employers are competitors of the Company or not.

8. In consideration of the promises set forth in this Agreement and other good and valuable consideration, and except for the purpose of enforcing this Agreement, Hinckley, on behalf of himself, his spouse, children and all affiliates, hereby irrevocably and unconditionally releases, acquits, and forever discharges Company, Company’s parent companies, subsidiaries, affiliates, and divisions, as well as each of their respective present and former officers, directors, employees, consultants, and agents (being collectively referred to herein as the “Releasees”), or any of them, from any and all charges, complaints, claims (including but not limited to wages, commissions, and bonuses), liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, and expenses (including attorney’s fees and costs actually incurred), of any nature whatsoever, known or unknown, in law or equity (collectively “Claims”), which Hinckley, his spouse, children or affiliates now have, own, hold, or claim to have, own or hold, or which Hinckley, his spouse, children or affiliates, or any of them had, owned, held or claimed to own at any time before the execution of this Agreement against any or all of the Releasees, including without limitation any Claims arising out of Hinckley’s employment with the Company, the termination of his employment with Company, and/or actions or statements occurring prior to or concurrently with such termination, including, without limitation of the foregoing general terms, any and all claims arising from any alleged violation by the Releasees of any federal, state, or local statutes,

3

ordinances, or common law, including, but not limited to, the Age Discrimination in Employment Act (the “ADEA”), as amended by the Older Workers Benefit Protection Act (the “OWBPA”); the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964, as amended; 42 U.S.C. §1981, as amended; the Fair Labor Standards Act; the Equal Pay Act; the Employee Retirement Income Security Act; the Consolidated Omnibus Budget Reconciliation Act; the Rehabilitation Act of 1973; the Civil Rights Act of 1991; the Family Medical Leave Act; the Civil Rights Act of 1866; the Washington Civil Rights Act; and any other employment discrimination laws, as well as, any other claims, based on constitutional, statutory, common law, or regulatory grounds as well as any claims based on theories of breach of contract or implied covenant of fiduciary duty, deprivation of equity interest, conversion, defamation, slander, retaliation, wrongful or constructive discharge, fraud, misrepresentation, or intentional and/or negligent infliction of emotional distress. Hinckley acknowledges that neither he, his spouse, children or affiliates have suffered any physical or mental injuries arising out of his employment with Company or the termination of that employment or related matters. Hinckley acknowledges that he has not assigned any Claim or purported Claim released hereby to third parties.

9. In consideration of the covenants and agreements set forth herein, and except for the purpose of enforcing this Agreement, the Company, on behalf of its subsidiaries, affiliates and divisions (“Releasors”), hereby irrevocably and unconditionally releases, acquits, and forever discharges Hinckley from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, and expenses (including attorney’s fees and costs actually incurred), of any nature whatsoever, known or unknown, in law or in equity, which Releasors, or any of them, now have, own or hold, or claim to have, own or hold or which Releasors, or any of them had, owned or held or claimed to own at any time before the execution of this Agreement, against Hinckley, including without limitation, Claims arising out of Hinckley’s employment with Company, the termination of his employment with Company and/or actions or statements occurring prior to or concurrently with such termination, provided that such release shall not extend to any claim premised on willful misconduct or fraud which the Company may discover after the date hereof. Hinckley acknowledges that he has not assigned any Claim or purported Claim released hereby to third parties. The Company agrees to indemnify and hold harmless Hinckley from third party claims, charges, complaints, liabilities, controversies, damages, actions, causes of action, suits, demands, costs, losses, debts, and expenses arising out of Hinckley’s employment with Company or the providing of services as a consultant under this Agreement, including attorney’s fees and costs actually incurred, of any nature provided that such indemnification and hold harmless shall not extend to any claim premised on willful misconduct or fraud which the Company may discover after the date hereof.

10. Hinckley agrees that following the Separation Date he will act in a manner consistent with the best interest of the Protected Entities and refrain from making any disparaging comments with respect to the Protected Entities or the officers, directors or employees thereof. Hinckley acknowledges that the sale or unauthorized use or disclosure of any of the Protected Entities’ Confidential Information obtained by Hinckley by any means whatsoever, at any time

4

after the Separation Date, shall constitute unfair competition and not be consistent with the best interest of the Protected Entities. Hinckley agrees that he shall not engage in any unfair competition with Company after the Separation Date.

11. Hinckley and the Company mutually agree to maintain the confidential nature of this Agreement, provided, however that either party may discuss this Agreement with, or disclose this Agreement to, state or local gaming regulatory authorities or their personnel and that such discussions or disclosure shall not be viewed as being in contravention of this provision. The Company and Hinckley hereby agree that following the effective date of this Agreement, they will refrain from making any disparaging or derogatory comments or statements, written or oral, against the other.

12. If any provision contained in this Agreement is held to be invalid, void or illegal by any court of competent jurisdiction, the same shall be deemed severable from the remainder of this Agreement and in no way shall affect, impair or invalidate any other provision herein. If any such provision shall be determined invalid due to scope or breadth, such provision shall be deemed valid to the extent of the scope or breadth permitted by law.

13. Hinckley acknowledges that he has read and understands the contents of the Agreement, that he entered into the Agreement knowingly, freely and voluntarily and after having the opportunity to review its terms with a lawyer.

14. This Agreement constitutes the complete and only understanding and agreement between Hinckley and the Company concerning Hinckley’s employment with the Company and separation therefrom. Any modification of the terms specified herein must be in writing and executed by the Company.

15. The Parties expressly agree that the Agreement, and any dispute arising under the Agreement, shall be governed by the laws of the State of Nevada.

16. All disputes or claims arising out of or in any way relating to this Agreement and Hinckley’s employment shall be submitted to and determined by final and binding arbitration under the rules of the American Arbitration Association. This agreement to arbitrate shall survive the expiration of this Agreement and shall cover all issues relevant to this Agreement and the employment of Hinckley by Company. Arbitration proceedings may be initiated by either of the Parties to this Agreement upon notice to the other and to the American Arbitration Association and shall be conducted by three (3) arbitrators in Clark County, Nevada; provided, however, that the Parties may agree following the giving of such notice to have the arbitration proceedings conducted with a single arbitrator. The notice must specify in general the issues to be resolved in any such arbitration proceeding. The arbitrators shall be selected by agreement of the Parties from a list of five (5) or more arbitrators proposed by the American Arbitration Association or may be persons not on such list as agreed to by the Parties. If the Parties fail to agree on one (1) or more of the persons to serve as arbitrators within fifteen (15) days after delivery to the Parties of the list as proposed by the American Arbitration Association, then, at

5

the request of either Hinckley or the Company, such arbitrators shall be selected at the discretion of the American Arbitration Association. Where the arbitrators shall determine that an arbitration proceeding was commenced frivolously or without a basis or primarily for the purpose of harassment or delay, the arbitrators may assess that party the cost of such proceedings, including reasonable attorneys’ fees incurred by the other party. In all other cases, each of the Parties shall bear its own costs and its pro-rata share of the fees and expenses charged by the arbitrators and the American Arbitration Association in connection with any arbitration proceeding. Any award or equitable relief granted by the arbitrators shall be enforced in accordance with the provisions of Nevada Statutes. Notwithstanding the foregoing, nothing herein will prevent either of the Parties from seeking and obtaining equitable relief from a court of competent jurisdiction pending a final decision of the arbitrators and the proper filing of such decision with such court, in which event, each of the Parties (a) consents and submits to the jurisdiction of the Courts of the State of Nevada and of the Courts of the United States for a judicial district within the territorial limits of the State of Nevada for all purposes of this Agreement, including, without limitation, any action or proceeding instituted for the enforcement of any right, remedy, obligation or liability arising under or by reason hereof; and (b) consents and submits to the venue of such action or proceeding in Clark County, Nevada (or such judicial district of a Court of the United States as shall include the same.)

17. Hinckley understands and agrees that this Agreement is expressly conditioned upon, and subject to the approval of the Compensation Committee of the Company’s Board of Directors and Company warrants that this approval has been obtained.

6

18. Company and Hinckley acknowledge and agree that Hinckley has twenty-one (21) days to consider this Agreement, and that he is encouraged by Company to consult with counsel concerning this Agreement. Upon executing this Agreement, Hinckley shall have seven (7) days following his execution of this Agreement in which he may revoke this Agreement. This Agreement shall not be enforceable until this revocation period has expired. Notice of the revocation of this Agreement, or any other notice pertaining to this Agreement, must be in writing and delivered to:

John A. Godfrey

Senior Vice President and General Counsel

Pinnacle Entertainment, Inc.

3800 Howard Hughes Parkway

Suite 1800

Las Vegas, NV 89109

Dated this 14th day of January 2003.

	PINNACLE ENTERTAINMENT, INC.
	By:	/s/ JOHN A. GODFREY
		JOHN A. GODFREY
/s/ BRUCE C. HINCKLEY	Its:	Senior Vice President/General Counsel
BRUCE C. HINCKLEY

7

EX-11.1

Exhibit 11.1

Pinnacle Entertainment, Inc.

Computation of Per Share Earnings

	For the three months ended March 31,
	Basic					Diluted (a)
	2004		2003			2004		2003
	(in thousands, except per share data)
Average number of common shares outstanding		31,417		25,934			31,417		25,934
Average common shares due to assumed conversion of stock options		0		0			1,345		0
Total shares		31,417		25,934			32,762		25,934
Net income (loss)	$	1,433	$	(847	)	$	1,433	$	(847	)
Net income (loss) per share	$	0.05	$	(0.03	)	$	0.04	$	(0.03	)

(a) When the computed diluted values are anti-dilutive, the basic per share values are presented on the face of the consolidated statements of operations.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Daniel R. Lee, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pinnacle Entertainment, Inc.;

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

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

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

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

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

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

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

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

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

Date: May 7, 2004

/s/    DANIEL R. LEE        

Daniel R. Lee

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Stephen H. Capp, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pinnacle Entertainment, Inc.;

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

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

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

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

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

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

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

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

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

Date: May 7, 2004

/s/    STEPHEN H. CAPP        

Stephen H. Capp

Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his capacity as an officer of Pinnacle Entertainment, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

• The Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2004 as filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

• The information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

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

Dated: May 7, 2004

	/s/    DANIEL R. LEE
Name:	Daniel R. Lee
Title:	Chief Executive Officer

	/s/    STEPHEN H. CAPP
Name:	Stephen H. Capp
Title:	Chief Financial Officer