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 June 30, 2011
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                 to

Commission File No: 0-17529
 


DIAMONDHEAD CASINO CORPORATION
 (Exact name of registrant as specified in charter)

Delaware
59-2935476
(State of Incorporation)
(I.R.S. EIN)

1301 Seminole Boulevard, Suite 142, Largo, Florida 33770
(Address of principal executive offices)
Registrant's telephone number, including area code:  727/674-0055

Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the Issuer's classes of common equity as of the latest practicable date: Number of shares outstanding as of August 5, 2011: 34,560,200.
 
 
 

 
 
TABLE OF CONTENTS

PART I:
FINANCIAL INFORMATION
 
     
ITEM 1:
Financial Statements (Unaudited)
 
     
 
Condensed Consolidated Statements of Loss for the Three Months
 
 
Ended June 30, 2011 and June 30, 2010
1
     
 
Condensed Consolidated Statements of Loss for the Six Months
 
 
Ended June 30, 2011 and June 30, 2010
2
     
 
Condensed Consolidated Balance Sheets as of June 30, 2011
 
 
and December 31, 2010
3
     
 
Condensed Consolidated Statements of Cash Flows for the Six Months
 
 
ended June 30, 2011 and June 30, 2010
4
     
 
Notes to Condensed Consolidated Financial Statements
5-11
     
ITEM 2:
Management’s Discussion and Analysis of Financial Condition and
 
 
Financial Results
11-17
     
ITEM 3:
Quantitative and Qualitative Disclosures about Market Risk
17
     
ITEM 4:
Controls and Procedures
17
     
PART II:
OTHER INFORMATION
 
     
ITEM 1:
Legal Proceedings
17
     
ITEM 1A:
Risk Factors
18-19
     
ITEM 2:
Unregistered Sales of Equity Securities and Use of Proceeds
19
     
ITEM 3:
Default Upon Senior Securities
19
     
ITEM 4:
“Removed and Reserved”
19
     
ITEM 5:
Other Information
19
     
ITEM 6:
Exhibits
19-20
     
 
Signatures
21
 
 
i

 
 
DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)

   
Three Months Ended
June 30
 
   
2011
   
2010
 
Costs and Expenses:
           
General and Administrative
  $ 172,319     $ 212,974  
Other
    22,491       22,983  
    $ 194,810     $ 235,957  
                 
Other Income (Expense)
               
Amortization of debt discount
    (31,532 )     (181,532 )
Interest Earned On Invested Cash
    58       319  
Interest Expense
    (47,650 )     (35,172 )
      (79,124 )     (216,385 )
                 
Net Loss
    (273,934 )     (452,342 )
Preferred Stock Dividends
    (25,400 )     (25,400 )
Net Loss Applicable to Common Stockholders
  $ (299,334 )   $ (477,742 )
                 
Net Loss per Common Share Applicable to Common Stockholders Basic and Diluted
  $ (.009 )   $ (.014 )
                 
Weighted Average Number of Common Shares Outstanding, Basic and Diluted
    34,373,899       34,131,724  

See the accompanying notes to these condensed consolidated financial statements.
 
 
1

 
 
DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)

   
Six Months Ended
June 30
 
   
2011
   
2010
 
Costs and Expenses:
           
General and Administrative
  $ 348,364     $ 375,611  
Other
    46,593       54,319  
    $ 394,957     $ 429,930  
                 
Other Income (Expense)
               
Amortization of debt discount
    (312,992 )     (487,992 )
Interest Earned On Invested Cash
    244       374  
Interest Expense
    (92,970 )     (58,128 )
      (405,718 )     (545,746 )
                 
Net Loss
    (800,675 )     (975,676 )
Preferred Stock Dividends
    (50,800 )     (50,800 )
Net Loss Applicable to Common Stockholders
  $ (851,475 )   $ (1,026,476 )
                 
Net Loss per Common Share Applicable to Common Stockholders Basic and Diluted
  $ (.025 )   $ (.030 )
                 
Weighted Average Number of Common Shares Outstanding, Basic and Diluted
    34,344,450       34,096,502  

See the accompanying notes to these condensed consolidated financial statements.
 
 
2

 
 
DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
June 30, 2011
   
December 31, 2010
 
ASSETS
           
Current Assets:
           
Cash
  $ 54,273     $ 98,855  
Cash – Restricted in Escrow
    -       250,000  
Other Current Assets
    8,047       13,593  
Total Current Assets
    62,320       362,448  
                 
Land Held for Development
    5,476,097       5,476,097  
Deferred Financing Costs (net of accumulated amortization of $31,423 at June 30, 2011 and $21,264 at December 31, 2010)
    32,671       17,830  
Other
    80       80  
Total Assets
  $ 5,571,168     $ 5,856,455  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current Liabilities:
               
Current Portion of Long Term Debt
  $ 475,000     $ -  
Deposits Held in Escrow
    -       250,000  
Accounts Payable and Accrued Expenses
    655,971       552,443  
Total Current Liabilities
    1,130,971       802,443  
                 
Long-Term Debt (net of unamortized discount of $35,051 at June 30, 2011 and $48,043 at December 31, 2010) – Net of Current Portion
    1,477,449       1,639,457  
                 
Contingencies
               
                 
Stockholders' Equity:
               
Preferred Stock: $.01 par value; shares authorized: 5,000,000, 2,086,000 issued and outstanding at June 30, 2011 and December 31, 2010; (aggregate liquidation preference $2,519,080 at June 30, 2011 and December 31, 2010)
    20,860       20,860  
Common Stock: $.001 par value; shares authorized: 50,000,000, issued: 37,136,924 at June 30, 2011 and 37,030,339 at December 31, 2010, outstanding: 34,421,801 at June 30, 2011 and 34,275,443 at December 31, 2010
    37,137       37,030  
Additional Paid-In-Capital
    34,949,649       34,609,390  
Unearned ESOP Shares
    (3,973,184 )     (4,032,486 )
Accumulated   Deficit
    (28,064,055 )     (27,212,580 )
Treasury Stock, at Cost, 50,346 Shares
    (7,659 )     (7,659 )
Total Stockholder’s Equity
    2,962,748       3,414,555  
Total Liabilities and Stockholder’s Equity
  $ 5,571,168     $ 5,856,455  
 
See the accompanying notes to these condensed consolidated financial statements.

 
3

 
 
DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Six Months Ended
 
   
June 30
 
 
 
2011
   
2010
 
Operating Activities:
           
Net Loss
  $ (800,675 )   $ (975,676 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Amortization
    10,159       4,817  
Release of ESOP Shares
    23,468       31,819  
Amortization of debt discount
    312,992       487,992  
                 
Decrease in:
               
Other Prepaid Expenses
    5,546       3,987  
                 
Increase in:
               
Accounts Payable and Accrued Expenses
    128,928       30,518  
                 
Net cash used in Operating Activities
    (319,582 )     (416,543 )
                 
Investing Activities:
               
Purchase of Land Held for Development
    -       (1,184 )
                 
Net cash used in Investing Activities
    -       (1,184 )
                 
Financing Activities:
               
Proceeds from Private Placement
    300,000       475,000  
Restricted Cash in Escrow
    (250,000 )     -  
Deposits Held in Escrow
    250,000       -  
Payment of Deferred Financing Costs
    (25,000 )     -  
Payment on Note payable
    -       (8,538 )
Payment of Preferred Stock dividends
    -       (15,000 )
                 
Net cash provided by Financing Activities
    275,000       451,462  
                 
Net increase (decrease) in cash
    (44,582 )     33,735  
                 
Cash beginning of period
    98,855       42,410  
                 
Cash end of period
  $ 54,273     $ 76,145  

See the accompanying notes to these condensed consolidated financial statements.
 
 
4

 
 
DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.  Basis of Presentation
 
These condensed consolidated financial statements contain unaudited information as of June 30, 2011 and for the three and six month periods ended June 30, 2011 and 2010. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America are not included herein. In management’s opinion, these unaudited financial statements include all adjustments necessary for a fair presentation of the information when read in conjunction with our audited consolidated financial statements and the related notes thereto filed with our 2010 Annual Report on Form 10-K. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2010 Annual Report on Form 10-K. The financial results for the interim period presented are not necessarily indicative of the results to be expected for the full year.

Note 2.  Going Concern

The condensed consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses over the past several years, has no operations, generates no revenues, and as reflected in the accompanying condensed consolidated financial statements, incurred a loss applicable to common stockholders of $851,475 for the six months ended June 30, 2011. Our auditors have expressed substantial doubt about the Company’s ability to continue as a going concern in their audit report on our consolidated financial statements included with the Annual Report on Form 10-K for the year ended December 31, 2010.

The Company has had no operations since it ended its gambling cruise ship operations in 2000. Since that time, the Company has concentrated its efforts on the development of its Diamondhead, Mississippi property. That development is dependent upon the Company obtaining the necessary capital, in conjunction with one or more partners, through either equity and/or debt financing, to master plan, design, obtain permits for, construct, open, and operate a casino resort.

In an effort to raise capital to continue to pay on-going costs and expenses, the Company has borrowed funds from various sources in the past as more fully described in Note 6 to these condensed consolidated financial statements. Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum,  together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Note is convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. Interest on the notes is payable either in cash or common stock at the option of the Company. The Company ultimately accepted subscriptions totaling $450,000 from unrelated subscribers and an additional $25,000 for one Unit purchased by a Director of the Company. The offering of these Units expired on June 29, 2010 pursuant to the terms of the Private Placement Memorandum.

Pursuant to an additional Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Notes bear interest at 9% per annum and are convertible into 50,000 shares of common stock of the Company. Interest on the notes is payable either in cash or common stock at the option of the Company. As of June 30, 2011, the Company had accepted subscriptions totaling $512,500 from unrelated accredited investors and paid finders commissions of $25,000 to an unrelated third party. The offering of these Units expired on June 29, 2011 pursuant to the terms of the Private Placement Memorandum.
 
 
5

 

 
The Company used the proceeds from both of these offerings to pay certain current liabilities, to pay partial accrued, but unpaid salaries, for general corporate purposes and to sustain the Company while it sought additional financing.

The Company is currently engaged in discussions with third parties with respect to obtaining funding to develop the project and for the Company to sustain itself on a short term basis. The Company is also seeking funds which would allow the Company to move forward by retaining architects and engineers whose work is required to obtain permits for any type of development on the property. Even assuming the Company was successful in obtaining some funding, the Company would still require major financing to construct any development on the property . As of the date of the filing of this report, the Company does not have a definitive agreement in place with any party.

As of June 30, 2011, the Company had $54,273 of operating cash on hand and current accounts payable and accrued expenses totaling $655,971. In addition, a Line of Credit in the amount of $1,000,000 obtained in October 2008 is payable in November 2012. The Convertible Notes issued via the Private Placements discussed above total $987,500 in aggregate and become payable beginning in March 2012 and extending at various dates through June 2013.

The Company does not have the financial resources to develop its proposed casino resort. There can be no assurance that the Company can successfully develop its Diamondhead, Mississippi property and in the event that the Company is unsuccessful in raising sufficient cash or finding alternative means to meet its future obligations, it could have a significant adverse impact on the Company’s ability to continue as a going concern and ultimately develop the property.
 
Note 3.  Net Loss per Common Share

Net loss per common share applicable to common stockholders is based on the net loss applicable to common stockholders divided by the weighted average number of common shares outstanding during each period. Common shares outstanding consist of issued shares, including allocated and committed shares held by the ESOP trust, less shares held in treasury.

Basic net loss per share applicable to common stockholders is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share is calculated by using the weighted average number of common shares outstanding plus other potentially dilutive securities. As of June 30, 2011 and 2010, potentially dilutive securities included 6,175,000 and 4,775,000 respectively of potential, additional common shares. The foregoing, potentially dilutive securities are excluded from diluted net loss per share applicable to common stockholders as their effect would be antidilutive.

The table below summarizes the components of potentially dilutive securities at June 30, 2011 and 2010.
 
 
6

 

 
Description
 
June 30, 2011
   
June 30, 2010
 
             
Convertible Preferred Stock
    260,000       260,000  
Options to Purchase Common Shares
    1,965,000       2,615,000  
Private Placement Warrants
    1,975,000       950,000  
Convertible Promissory Notes
    1,975,000       950,000  
                 
Total
    6,175,000       4,775,000  

The table below summarizes the outstanding common shares.

   
June 30, 2011
   
December 31, 2010
 
Common Shares outstanding includes:
           
Issued Shares
    37,136,924       37,030,339  
Less: Treasury Shares
    (50,346 )     (50,346 )
Unallocated, uncommitted ESOP Shares
    (2,664,777 )     (2,704,550 )
Outstanding Shares
    34,421,801       34,275,443  

Note 4.  Fair Value
 
The Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurement” for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Input other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable input that reflects   management’s own assumptions.

Current assets and current liabilities are financial instruments and management believes that their carrying amounts are reasonable estimates of their fair values due to their short term nature.

The fixed interest Line of Credit approximates fair value since the interest rate inherent in the instrument approximates interest rates currently available to the Company.

The long-term debt approximates fair value based on Level 1 and Level 2 inputs, as further discussed in Note 6.
 
 
7

 
 
Note 5.  Impairment of Long-Lived Assets

The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the assets to the estimated undiscounted future cash flows projected to be generated by the assets. If such assets are considered impaired, the impairment to be recognized is measured by the amount the carrying value exceeds the fair value of such assets determined by appraisal, discounted cash flow projections, or other means.

The Diamondhead, Mississippi property was last appraised in August 2003 at a value of $108,900,000. The appraisal was subject to certain material assumptions and was predicated on the site being fully permitted and zoned as a legally permissible, water-based casino site. In addition, the Company rejected an offer to purchase the entire 404 acre site for $100 million in July 2007 as not being in the best interest of the shareholders. Management of the Company stays informed of property values in close proximity to the Company’s Diamondhead, Mississippi property and based on Level 2 inputs, the fair value of the land held for development exceeds the carrying value of $5.5 million and, therefore, no impairment exists at June 30, 2011.

Note 6.  Long Term Debt

Line of Credit

On October 23, 2008, the Company entered into an agreement with an unrelated third party for an unsecured Line of Credit up to a maximum of $1,000,000. The Line of Credit provided for funds to be drawn as needed and carries an interest rate on amounts borrowed of 9% per annum originally payable quarterly based on the pro rata number of days outstanding. All funds originally advanced under the facility are due and payable by November 1, 2012. As an inducement to provide the facility, the lender was awarded an immediate option to purchase 50,000 shares of common stock of the Company at $1.75 per share. In addition, the lender received an option to purchase a maximum of 250,000 additional shares of common stock of the Company at $1.75 per share. The options expire on the earlier of November 1, 2012 or following repayment in full by the Company of the amount borrowed.

As of December 31, 2009, the Company had borrowed all of the $1,000,000 available to it under the Line of Credit. In addition, the Company and the lender had verbally agreed that payment of all interest accrued subsequent to June 30, 2009 would be deferred until the date payment in full is due. The lender is now deceased and it is unclear if his estate will honor that verbal agreement. If it is not honored, the Company could be considered to be in default for non-payment of interest due on the note which totaled $178,299 at June 30, 2011. Interest on this debt incurred prior to June 30, 2009 has been paid in full.

The Company valued the first option to purchase 50,000 shares of common stock at $39,094 using the Black-Scholes option pricing model. The value of this option is recorded as deferred financing cost and will be amortized over the expected life of the debt. Amortization of deferred financing cost amounted to $2,422 and $4,817 for each of the three and six month periods ending June 30, 2011 and 2010 respectively.

While the Lender has not exercised any options pursuant to the Line of Credit Agreement, the Company valued the additional options to purchase 250,000 shares of common stock using the Black-Scholes option pricing model on the date of each draw.
 
Amortization of debt discount applicable to this loan amounted to $6,532 and $12,992 for the three and six month periods ended June 30, 2011 and 2010 respectively.
 
 
8

 
 
Convertible Notes and Warrants

Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum,  together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Note is convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. Interest on the notes is payable either in cash or common stock at the option of the Company. The Company ultimately accepted subscriptions totaling $450,000 from unrelated subscribers and an additional $25,000 for one Unit purchased by a Director of the Company.  The offering of these Units expired on June 29, 2010 pursuant to the terms of the Private Placement Memorandum.

The Company valued the warrants issued under the subscriptions at $649,712 using the Black-Scholes option pricing model. In addition, the Company is required to determine if a beneficial conversion feature is present for the convertible notes issued under “ASC 470-20” “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” using the intrinsic value in the convertible notes adjusted for amounts allocated to the warrant valuation. The intrinsic value of the convertible notes amounted to $923,500 based on the fair market value of common stock on the date of issuance.

Since the combined value of the warrants ($649,712) plus the intrinsic value of the convertible notes ($923,500) exceeds the fair value of the proceeds received from the sale of the Units ($475,000), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of $196,169 and the remainder to the beneficial conversion feature in the amount of $278,831. The Company immediately amortized the debt discount for this Private Placement in the amount of $475,000 in the first six months of 2010.

Pursuant to an additional Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Notes bear interest at 9% per annum and are convertible into 50,000 shares of common stock of the Company. Interest on the notes is payable in either cash or common stock at the option of the Company. The Company accepted subscriptions totaling $212,500 from unrelated accredited investors in 2010 and accepted an additional $300,000 of subscriptions from unrelated accredited investors in 2011. The Company paid a finders commission of $25,000 to an unrelated third party during the six months ended June 30, 2011 before the offering terminated June 29, 2011.

The Company valued the warrants issued under the subscriptions accepted as of December 31, 2010 at $179,766 using the Black-Scholes option pricing model. The intrinsic value of the convertible notes issued by December 31, 2010 amounted to $281,250 based on the fair market value of common stock on the date of issuance.

Since the combined value of the warrants ($179,766) plus the intrinsic value of the convertible notes ($281,250) exceeds the fair value of the proceeds received from the sale of the Units ($212,500 as of December 31, 2010), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of $82,861 and the remainder to the beneficial conversion feature in the amount of $129,639. The Company immediately amortized additional debt discount of $212,500 during the year ended December 31, 2010.
 
 
9

 
 
The Company valued the warrants issued under the subscriptions accepted subsequent to December 31, 2010 at $330,078 using the Black-Scholes option pricing model. The intrinsic value of the convertible notes issued subsequent to December 31, 2010 amounted to $485,000 based on the fair market value of common stock on the date of issuance.

Since the combined value of the warrants ($330,078) plus the intrinsic value of the convertible notes ($485,000) exceeds the fair value of the proceeds received from the sale of the Units ($300,000 subsequent to December 31, 2010), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of $121,489 and the remainder to the beneficial conversion feature in the amount of $178,511. The Company immediately amortized additional debt discount of $300,000 during the six months ending June 30, 2011.

The table below summarizes the Company’s long-term debt at June 30, 2011:

         
Unamortized Debt
   
Net
 
Loan Facility
 
Gross Amount Owed
   
Discount
   
Long-Term Debt
 
                   
Line of Credit
  $ 1,000,000     $ 35,051     $ 964,949  
                         
Private Placements:
                       
   March 1, 2010
    475,000       -       475,000  
   Less Current Portion
     (475,000 )      -        (475,000 )
      -       -       -  
   October 25, 2010
     512,500        -        512,500  
                         
Total Private Placements
     512,500        -        512,500  
                         
Totals
  $ 1,512,500     $ 35,051     $ 1,477,449  

Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company uses projected volatility rates, which are based upon historical volatility rates trended into future years. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s options.

Note 7.  Contingencies

Related Parties

The Company has agreements with various current Officers and Directors which would give rise to payment of a fee under certain conditions.   The Company has agreements with various related and unrelated persons and entities that would be entitled to substantial commissions if the Company enters into an agreement relating to the development of its Diamondhead property as a result of their efforts.

 
10

 

Note 8. Payment of Preferred Dividends

During the first six months of 2011, the Company paid $35,800 of the total preferred dividends due for the first and second quarter of 2011 with 57,194 shares of its common stock. In addition, in January of 2011, the Company paid $40,400 of preferred dividends due for the third and fourth quarter of 2010 with 49,391 shares of its common stock.

During the first six months of 2010, the Company paid $20,800 of the total preferred dividends due for the first and second quarter of 2010 with 30,009 shares of its common stock. In addition, in January 2010, the Company paid $10,400 of preferred dividends due for the fourth quarter of 2009 with 18,909 shares of its common stock.

Note 9. Subsequent Events

In July 2011, the Company issued 60,097 common shares to holders of Convertible Notes in satisfaction of $43,965 of interest accrued on those notes through December 31, 2010. Included in the above issue, were 3,105 common shares issued to a Director of the Company in satisfaction of $2,268 of accrued interest.

In addition, the holder of a Promissory Note issued on November 10, 2010 in the principal amount of $25,000 exercised his right to convert the Promissory Note into 50,000 shares of common stock of the Company which the Company issued on or about July 21, 2011.

Note 10. Supplemental Cash Flow Information
 
Supplemental cash flow information for the six months ended June 30, 2011 and 2010 is as follows:
 
   
June 30, 2011
   
June 30, 2010
 
             
Cash paid for interest
  $ -     $ 123  
                 
Non-cash financing activities:
               
   Common stock issued:
               
      For purchase of land
  $ -     $ 65,000  
                 
Preferred stock dividends satisfied with shares of common stock
  $ 76,200     $ 31,200  
                 
Unpaid Preferred Stock dividends included in accounts payable and accrued expenses
  $ 15,000     $ 30,000  

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS

This section should be read together with the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as well as the condensed consolidated financial statements for the six month period ended June 30, 2011 and accompanying notes included elsewhere in this document.
 
 
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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally relate to our strategies, plans and objectives for future operations and are based upon management's current plans and beliefs or estimates of future results or trends. Forward-looking statements also involve risks and uncertainties, including, but not limited to, the risks and uncertainties described in Part II, Item 1A of this report, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict.

The reader should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we will not update these forward-looking statements, even if our situation changes in the future. We caution the reader that a number of important factors discussed herein, and in other reports filed with the Securities and Exchange Commission, could affect our actual results and cause actual results to differ materially from those discussed in forward-looking statements.

Overview

The Company’s current priority is the development of a casino resort on its 404-acre property located on Bay St. Louis in Diamondhead, Mississippi. The Company's management, financial resources and assets will be devoted towards the development of this property. There can be no assurance that the property can be developed or, that if developed, the project will be successful.

Liquidity

The Company has incurred continued losses over the past several years and certain conditions raise substantial doubt about the Company’s ability to continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company incurred a loss applicable to common shareholders of $851,475 and $1,026,476 for the six month periods ending June 30, 2011 and 2010 respectively and expects continued losses for the foreseeable future. The Company recorded amortization of debt discount in the amount of $300,000 and $475,000 for the six month periods ending June 30, 2011 and 2010 respectively in connection with convertible notes and warrants issued pursuant to subscription acceptances of two Private Placements originating in 2010 and described more fully in Note 6 of the accompanying condensed consolidated financial statements.  General and administrative expenses incurred totaled $348,364 and $375,611 for the six month periods ending June 30, 2011 and 2010 respectively. The table below depicts the major categories comprising those expenses:

DESCRIPTION
 
June 30, 2011
   
June 30, 2010
 
             
Payroll and Related Taxes
  $ 227,646     $ 233,978  
Legal, Audit and Other Contracted Services
    64,148       85,896  
Rents and Insurances
    16,620       16,793  
Telephone, Office and Other Expenses
     39,950        38,944  
                 
Total General and Administrative Expense
  $ 348,364     $ 375,611  

The Company has had no operations since it ended its gambling cruise ship operations in 2000. Since that time, the Company has concentrated its efforts on the development of its Diamondhead, Mississippi property. That development is dependent upon the Company obtaining the necessary capital, in conjunction with one or more partners, through either equity and/or debt financing, to master plan, design, obtain permits for, construct, open, and operate a casino resort.
 
 
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In an effort to raise capital to continue to pay on-going costs and expenses, the Company has borrowed funds from various sources in the past as more fully described in Note 6 to these condensed consolidated financial statements. Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum,  together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Note is convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. Interest on the notes is payable either in cash or common stock at the option of the Company. The Company ultimately accepted subscriptions totaling $450,000 from unrelated subscribers and an additional $25,000 for one Unit purchased by a Director of the Company. The offering of these Units expired on June 29, 2010 pursuant to the terms of the Private Placement Memorandum.

Pursuant to a second Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Notes bear interest at 9% per annum and are convertible into 50,000 shares of common stock of the Company. Interest on the notes is payable either in cash or common stock at the option of the Company. As of June 30, 2011, the Company had accepted subscriptions totaling $512,500 from unrelated accredited investors and paid finders commissions of $25,000 to an unrelated third party. The offering of these Units expired on June 29, 2011 pursuant to the terms of the Private Placement Memorandum.

The Company used the proceeds from both of these offerings to pay certain current liabilities, to pay partial accrued, but unpaid salaries, for general corporate purposes and to sustain the Company while it sought additional financing. The President of the Company is owed deferred salary in the amount of $184,609 as of June 30, 2011. The Vice-President of the Company is owed deferred salary in the amount of $86,144 as of June 30, 2011.  The President and Vice-President are key employees of the Company. There can be no assurance that either or both of them will continue to work for the Company without pay.

The Company is currently engaged in discussions with third parties with respect to obtaining funding to develop the project and for the Company to sustain itself on a short term basis. The Company is also seeking funds which would allow the Company to move forward by retaining architects and engineers whose work is required to obtain permits for any type of development on the property. Even assuming the Company was successful in obtaining some funding, the Company would still require major financing to construct any development on the property. As of the date of the filing of this report, the Company does not have a definitive agreement in place with any party.

As of June 30, 2011, the Company had $54,273 of operating cash on hand and current accounts payable and accrued expenses totaling $655,971. In addition, a Line of Credit in the amount of $1,000,000 obtained in October 2008 is payable in November 2012. The Convertible Notes issued via the Private Placements discussed above total $987,500 in aggregate and become payable beginning in March 2012 and extending at various dates through June 2013. The Company does not have the financial resources to develop its proposed casino resort. There can be no assurance that the Company can successfully develop its Diamondhead, Mississippi property, and in the event that the Company is unsuccessful in raising sufficient cash or finding alternative means to meet its future obligations, it could have a significant adverse impact on the Company’s ability to continue as a going concern and ultimately develop the property.
 
 
13

 
 
Off Balance Sheet Arrangements:

Permits

On October 17, 2005, Mississippi passed new legislation which allows casinos in certain statutorily-described areas to be built on land up to 800 feet from the mean high water line of certain bodies of water, including Bay St. Louis. Given the fact that the Company intends to take advantage of the new law and construct its casino resort on land rather than in, on, or above the water, the extent to which various permits, authorizations, and approvals, as well as studies and assessments in support thereof, will be required is unknown at this point. The Company believes that permitting for the project and plans for ultimate development will require significant capital expenditures for engineering, architectural, accounting, and legal services. The amount ultimately required is unknown at this time, but the Company does not have sufficient funds required for this purpose.

The development of the Diamondhead, Mississippi property requires the Company to obtain permits and approvals from various federal, state, and local agencies, boards and commissions . The regulatory environment relating to these permits and approvals is uncertain and subject to constant change. There can be no assurance that all permits and approvals can be obtained, or that if obtained, they will be renewed.

In or about 2008, a petition was filed in the Chancery Court of Hancock County to permit Diamondhead to incorporate. In or about January of 2009, a hearing was held in the matter. On or about December 31, 2009, the Chancery Court ruled in favor of Diamondhead incorporation. An appeal was filed in the case.  Assuming the incorporation is affirmed on appeal, the Company’s Diamondhead property would be located within the newly-incorporated Diamondhead. What, if any, effect this incorporation would have on the Diamondhead project is unknown.  The Company believes that once the incorporation is final, most of the gaming tax revenues that would have gone to Hancock County would, instead, go to Diamondhead.

Management Agreement

On June 19, 1993, two subsidiaries of the Company, Casino World Inc. and Mississippi Gaming Corporation, entered into a Management Agreement with Casinos Austria Maritime Corporation (CAMC). Subject to certain conditions, under the Management Agreement, CAMC would operate, on an exclusive basis, all of the Company’s proposed dockside gaming casinos in the State of Mississippi, including any operation fifty percent (50%) or more of which is owned by the Company or its affiliates. Unless terminated earlier pursuant to the provisions of the Agreement, the Agreement terminates five years from the first day of actual Mississippi gaming operations and provides for the payment of an annual operational term management fee of 1.2% of all gross gaming revenues between zero and $100,000,000; plus 0.75% of gross gaming revenue between $100,000,000 and $140,000,000; plus 0.5% of gross gaming revenue above $140,000,000; plus two percent of the net gaming revenue between zero and $25,000,000; plus three percent of the net gaming revenue above twenty-five million dollars $25,000,000.

Related Parties

The Company has agreements with various current Officers and Directors which would give rise to payment of a fee under certain conditions as follows:
 
 
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The Company has agreements with Directors Harrell, Harrison, Lewis and Blount in the event they are successful in obtaining funding for the Company and/or development of its Diamondhead property. The Company has agreed to pay a commission of between one percent (1%) and four percent (4%) of the amount of any debt financing obtained and a commission of between one and one-half percent (1.5%) and six percent (6%) of the amount of any equity investment obtained in connection with the development of the Diamondhead property as a result of their efforts.  The Company has agreed to pay a commission equal to six percent (6%) of the gross sales price for property sold or for any loan or line of credit that does not require that the property be pledged as security for a loan. In the event a loan or line of credit requires that the property be pledged as security, the commission would be reduced to three percent (3%). Payment of any commission is contingent on the signing of a loan and/or equity agreement, sales agreement, and/or joint venture agreement acceptable to the Company and payment of the loan proceeds, sales proceeds, or equity financing by the entity or person brought to the deal. The commission due will be paid at closing out of monies paid and upon receipt of good funds. If funds are received periodically, the commission due will be paid periodically upon receipt of said funds by the Company. The Company agreed that Mr. Blount may elect to convert a maximum of $750,000 of any commission due him into common shares at $ .75 per share.

Other

The Company has agreements with unrelated persons and entities that would be entitled to substantial commissions if the Company enters into a financial agreement relating to the development of its Diamondhead property as a result of their efforts.

Critical Accounting Policies:

Impairment of Long-Lived Assets

In accordance with generally accepted accounting principles, the Company currently carries the Diamondhead, Mississippi property on its balance sheet at cost in the amount of $5,476,097 and has reviewed this carrying value for impairment. In the opinion of management, the carrying value is not in excess of the estimated market value of the property or the anticipated cash flows to be generated from the property.

The Diamondhead, Mississippi property was last appraised in 2003 at $108,900,000. The appraisal was subject to certain material assumptions and was predicated on the site being fully permitted and zoned as a legally permissible, water-based casino site. In addition, the Company rejected an offer to purchase the entire 404 acre site for $100 million in July 2007 as not being in the best interest of the shareholders. Management of the Company stays informed of property values in close proximity to the Company’s Diamondhead, Mississippi property and believes the fair value of the land held for development exceeds the carrying value of $5.5 million and, therefore, no impairment exists at June 30, 2011.

Management believes that use of the property as a gaming site represents the highest and best use of the property and provides for the greatest potential for shareholder value. In the event the Company was unable to obtain all of the permits required to develop a casino resort, the property could be used for other commercial or residential purposes.

 
15

 

Convertible Notes and Warrants

Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum,  together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Note is convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. Interest on the notes is payable either in cash or common stock at the option of the Company. The Company ultimately accepted subscriptions totaling $450,000 from unrelated subscribers and an additional $25,000 for one Unit purchased by a Director of the Company. The offering of these Units expired on June 29, 2010 pursuant to the terms of the Private Placement Memorandum.

The Company valued the warrants issued under the subscriptions at $649,712 using the Black-Scholes option pricing model. In addition, the Company is required to determine if a beneficial conversion feature is present for the convertible notes issued under “ASC 470-20” “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” using the intrinsic value in the convertible notes adjusted for amounts allocated to the warrant valuation. The intrinsic value of the convertible notes amounted to $923,500 based on the fair market value of common stock on the date of issuance.

Since the combined value of the warrants ($649,712) plus the intrinsic value of the convertible notes ($923,500) exceeds the fair value of the proceeds received from the sale of the Units ($475,000), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of $196,169 and the remainder to the beneficial conversion feature in the amount of $278,831. The Company immediately amortized the debt discount for this Private Placement in the amount of $475,000 in the first six months of 2010.

Pursuant to an additional Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Notes bear interest at 9% per annum and are convertible into 50,000 shares of common stock of the Company. Interest on the notes is payable in either cash or common stock at the option of the Company. The Company accepted subscriptions totaling $212,500 from unrelated accredited investors in 2010 and accepted an additional $300,000 of subscriptions from unrelated accredited investors and paid a finders commission of $25,000 to an unrelated third party during the six months ended June 30, 2011 before the offering terminated June 29, 2011.

The Company valued the warrants issued under the subscriptions accepted as of December 31, 2010 at $179,766 using the Black-Scholes option pricing model and the intrinsic value of the convertible notes issued by December 31, 2010 amounted to $281,250 based on the fair market value of common stock on the date of issuance.

Since the combined value of the warrants ($179,766) plus the intrinsic value of the convertible notes ($281,250) exceeds the fair value of the proceeds received from the sale of the Units ($212,500 as of December 31, 2010), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of $82,861 and the remainder to the beneficial conversion feature in the amount of $129,639. The Company immediately amortized additional debt discount of $212,500 during the year ended December 31, 2010.
 
 
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The Company valued the warrants issued under the subscriptions accepted subsequent to December 31, 2010 at $330,078 using the Black-Scholes option pricing model and the intrinsic value of the convertible notes issued subsequent to December 31, 2010 amounted to $485,000 based on the fair market value of common stock on the date of issuance.

Since the combined value of the warrants ($330,078) plus the intrinsic value of the convertible notes ($485,000) exceeds the fair value of the proceeds received from the sale of the Units ($300,000 subsequent to December 31, 2010), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of $121,489 and the remainder to the beneficial conversion feature in the amount of $178,511. The Company immediately amortized additional debt discount of $300,000 during the six months ending June 30, 2011.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company currently is not subject to any trading or non-trading market risk-sensitive instruments. The   note payable and the long-term debt listed on the Company’s balance sheet are at fixed interest rates and, therefore, are not market risk-sensitive.

Item 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
In connection with the preparation of this quarterly report on Form 10-Q, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls and other procedures that are designed to ensure that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s Rules and Forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the results of this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2011.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended) during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II:   OTHER INFORMATION

Item 1.  Legal Proceedings

None.
 
 
17

 
 
Item 1A.  Risk Factors

The Company’s property in Diamondhead, Mississippi is the only asset of material value held by the Company. The Company is entirely dependent on the successful development of and/or sale or lease of part or all of this property to generate future cash flow. The successful development of the property will require substantial financial resources. The Company does not have the financial resources to develop the property or any portion thereof. To date, the Company has not found a partner(s) with whom to develop the property on terms that are acceptable to the Company.
 
The ultimate development of the property is subject to risks and uncertainties which include, but are not limited to, those relating to permitting, financing, and the actions of federal, state, or local governments and agencies. In addition, the State of Mississippi could vote to prohibit gambling which would have an enormous, adverse effect on the value of the Company’s Diamondhead property, the development of the property, and any gaming operation that might be in operation at the time any such prohibition was instituted.

The design, construction, and on-time opening of a casino resort are subject to risks and uncertainties associated with cost overruns, contract-related contingencies, developer, contractor or subcontractor failures to perform, cost increases and availability of materials, supplies and equipment, labor shortages, strikes, walkouts and weather-related and other construction delays.  The occurrence of a natural disaster could disrupt operations on the property for elongated periods of time.  Any such occurrence could also alter the market for the project temporarily or permanently and have an adverse effect on the value of the property and the business of the Company.

The gaming industry is characterized by intense competition. Many companies, with which the Company will compete, are substantially larger and have significantly greater resources than the Company.  Furthermore, it is likely that other competitors will emerge in the future. Assuming the Company is successful in constructing a casino resort, the success of the project will be subject to risks and uncertainties, including but not limited to those relating to local, national, and worldwide competition, including competition with Native American casinos which enjoy significant tax advantages. The Company will also be subject to operational risks, including but not limited to those relating to operations in general, insurance coverage problems unique to the area in which the property is located, weather-related problems, including hurricanes and floods, and labor-related problems unique to the area. The operation will also be subject to risks relating to security, licensing and suitability findings unique to the gaming industry. Moreover, while the Company previously operated gambling ships, the Company has never operated a hotel or land-based casino. The Company’s proposed operations are also subject to all of the risks inherent in the establishment of a new business enterprise, including the absence of an operating history.

The Company incurs ongoing expenses, but has no current revenue and no revenue stream with which to pay ongoing expenses. The Company will not have any revenue stream unless the Company is able to successfully develop its Diamondhead property, obtain funds prior to development of the property, or generate cash from the sale of parts or all of the property.  The Company’s inability to raise cash to pay its expenses in the future could adversely affect its ability to continue in the future. Current economic conditions in the casino industry, as well as tight credit markets in general, could adversely affect the Company’s ability to obtain reasonable financing for development of the Diamondhead property. As of the date of this report, the Company has essentially exhausted all cash resources currently available to it. In addition, our auditors have expressed substantial doubt about the Company’s ability to continue as a going concern in their audit report included in our annual report on Form 10-K for the year ended December 31, 2010. The President of the Company is owed deferred salary in the amount of $184,609 as of June 30, 2011. The Vice-President of the Company is owed deferred salary in the amount of $86,144 as of June 30, 2011.  The President and Vice-President are key employees of the Company. There can be no assurance that either or both of them will continue to work for the Company without pay.
 
 
18

 
 
The market price of the Company’s common stock may be highly volatile. Announcements by the Company and its competitors may lead to wide swings in the market price of the common stock.
 
While the Company is not currently engaged in litigation, the Company is always subject to risk associated with contract-related, employee-related, environmental-related and other litigation.  Any such litigation would likely be expensive and time-consuming.

The foregoing are not intended to encompass and do not encompass every risk or uncertainty associated with investment in the Company. The Company may be affected by some or all of the foregoing and other risks and uncertainties, many of which are beyond the Company’s control.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 30, 2010 the registrant filed a Form 8-K with the Securities and Exchange Commission notifying them of the sale of Units and use of proceeds pursuant to a Private Placement Memorandum dated March 1, 2010 , which is incorporated herein by reference .

On November 10, 2010 the registrant filed a Form 8-K with the Securities and Exchange Commission notifying them of the sale of Units and use of proceeds pursuant to a Private Placement Memorandum dated October 25, 2010, which is incorporated herein by reference.

Item 3. Default Upon Senior Securities

None.

Item 4.  “Removed and Reserved”

Item 5.   Other Information

On June 1, 2011, Robert Zimmerman, the Chief Financial Officer of the Company since June of 1998, informed the Company that he would be retiring effective August 31, 2011.  Mr. Zimmerman is the only employee of the Company using the corporate office located in Largo, Florida. Therefore, in conjunction with Mr. Zimmerman's retirement, effective August 31, 2011, the Company will close its office in Largo, Florida.

Item 6.  Exhibits

Exhibits 31.1 and 31.2

Attached to this report is the certification of both the Chief Executive Officer and the Chief Financial Officer of the Company pursuant to Rule 13A–14 of the Securities and Exchange Commission Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
 
 
19

 
 
Exhibits 32.1 and 32.2
 
Attached to this report is the certification of both the Chief Executive Officer and the Chief Financial Officer of the Company as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
20

 
 
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
DIAMONDHEAD CASINO CORPORATION
     
DATE: August 15, 2011
/s/
Deborah A. Vitale
 
By:
Deborah A. Vitale
   
Chief Executive Officer
     
 
/s/
Robert L. Zimmerman
 
By:
Robert L. Zimmerman
   
Chief Financial Officer
 
 
21

 
CERTIFICATIONS
Exhibit 31.1

I, Deborah A. Vitale, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Diamondhead Casino Corporation;

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

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

4.  The  issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the issuer and we 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 issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the issuer’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 issuer’s internal control over financial reporting.

Date: August 15, 2011

/s/ Deborah A. Vitale
Deborah A. Vitale
Chief Executive Officer
 
 
 

 
CERTIFICATIONS
Exhibit 31.2

I, Robert L. Zimmerman, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Diamondhead Casino Corporation;

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

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

4.  The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the issuer and we 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 issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

(a)  all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the issuer’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 issuer’s internal control over financial reporting.
 
Date: August 15, 2011

/s/ Robert L. Zimmerman
Robert L. Zimmerman
Chief Financial Officer
 
 
 

 
EXHIBIT 32.1

CERTIFICATION

In connection with the Quarterly Report of Diamondhead Casino Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Deborah A. Vitale, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE: August 15, 2011
/s/
Deborah A. Vitale
 
By:
Deborah A. Vitale
   
Chief Executive Officer
 
 
 

 
EHIBIT 32.2
CERTIFICATION

In connection with the Quarterly Report of Diamondhead Casino Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L. Zimmerman, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

 
(2) 
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE: August 15, 2011
/s/
Robert Zimmerman
By:
Robert Zimmerman
 
Chief Financial Officer