Diamondhead Casino (DHCC) 10QSB 2005 Q2 Quarterly report (small business)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

For the quarterly period ended June 30, 2005

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

150 153rd Avenue, Suite 201, Madeira Beach, Florida 33708
(Address of principal executive offices)

Registrant’s telephone number, including area code: 727/393-2885

     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. Yesþ Noo

     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 4, 2005: 29,808,077.

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements (Unaudited)
Condensed Consolidated Statements of Loss for the Three Months Ended June 30, 2005 and June 30, 2004	4
Condensed Consolidated Statements of Loss for the Six Months Ended June 30, 2005 and June 30, 2004	5
Condensed Consolidated Balance Sheet as of June 30, 2005	6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and June 30, 2004	7
Notes to Condensed Consolidated Financial Statements	8-11
ITEM 2: Management’s Discussion and Analysis of Financial Condition or Plan of Operation	12-13
ITEM 3: Controls and Procedures	13-14
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings	14
ITEM 4:Submission of Matters to a Vote of Security Holders	14
ITEM 5:Other Information	14
ITEM 6: Exhibits and Reports on Form 8-K	15
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

     The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of Management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal reoccurring nature. The Company has presented the financial statements contained in this report as if the Company were to be able to continue as a going concern. However, as described in Note 1 to the financial statements, certain conditions indicate that the Company may not be able to continue as a going concern.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form-10QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form-10KSB for the year ended December 31, 2004.

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DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(Unaudited)

	Three Months Ended
	June 30
	2005			2004
Costs and Expenses:
General and Administrative		155,878			174,239
Depreciation and Amortization		3,100			3,880
Other		23,635			24,857
		182,613			202,976
Other Income (Expense):
Dock Lease Income		39,252			39,252
Interest Earned On Invested Cash		603			984
Interest Expense		(14,478	)		(21,477	)
Other		69			6,091
		25,446			24,850
Net Loss		(157,167	)		(178,126	)
Preferred Stock Dividends		(26,840	)		(26,840	)
Net Loss Applicable to Common Stockholders	$	(184,007	)	$	(204,966	)
Loss Per Weighted Share
Basic and Diluted	$	(.006	)	$	(.007	)
Weighted Average Number of Common Shares Outstanding		29,776,320			29,622,115

See accompanying notes to condensed consolidated financial statements.

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DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(Unaudited)

	Six Months Ended
	June 30
	2005			2004
Costs and Expenses:
General and Administrative		313,982			357,091
Depreciation and Amortization		6,200			7,760
Other		48,915			48,999
		369,097			413,850
Other Income (Expense):
Dock Lease Income		78,504			78,504
Interest Earned On Invested Cash		1,313			2,339
Interest Expense		(36,257	)		(43,511	)
Other		52,638			6,181
		96,198			43,513
Net Loss		(272,899	)		(370,337	)
Preferred Stock Dividends		(53,680	)		(53,680	)
Net Loss Applicable to Common Stockholders	$	(326,579	)	$	(424,017	)
Loss Per Weighted Share
Basic and Diluted	$	(.011	)	$	(.014	)
Weighted Average Number of Common Shares Outstanding		29,758,688			29,603,336

See accompanying notes to condensed consolidated financial statements.

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DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

	June 30, 2005
ASSETS
Current Assets:
Cash and Cash Equivalents	$	294,134
Accounts Receivable		6,311
Other Current Assets		30,443
Total Current Assets		330,888
Equipment and Fixtures, Less Accumulated Depreciation		4,026
Land Held for Development -Dockside Gaming		5,460,758
Long Term Receivables and Other		26,514
	$	5,822,186
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities	$	427,463
Sales Tax Settlement Liability		1,120,661
Deferred Dock Lease Income		28,000
Total Current Liabilities		1,576,124
Stockholders’ Equity:
Preferred Stock, $.01 par value;
Shares Authorized: 5,000,000
Shares Outstanding: 2,122,000
Aggregate Liquidation Preference ($2,591,080)		21,220
Common Stock, $.001 par value;
Shares Authorized: 50,000,000
Shares Issued: 34,200,124		34,200
Shares Outstanding: 29,808,077
Additional Paid-In-Capital:		26,463,639
Unearned ESOP Shares		(4,684,794	)
Accumulated Deficit		(17,398,047	)
Treasury Stock, at Cost, 1,250,000 Shares		(190,156	)
Total Stockholders’ Equity		4,246,062
	$	5,822,186

See accompanying notes to condensed consolidated financial statements.

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DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended
	June 30,
	2005			2004
Operating Activities:
Net Loss	$	(272,899	)	$	(370,337	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and Amortization		6,200			7,760
Release of ESOP Shares		24,460			26,051
(Increase) decrease in:
Other Current Assets		3,202			20,663
Increase (decrease) in:
Accounts Payable and Accrued Liabilities		81,826			1,606
Sales Tax Settlement Liability		31,424			—
Net cash used in Operating Activities:		(125,787	)		(314,257	)
Investing Activities:
Land Development		(14,802	)		(14,966	)
Net cash used in Investing Activities		(14,802	)		(14,966	)
Financing Activities:
Payment of Notes and Long-Term Debt		—			(3,384	)
Preferred Stock Dividends		(15,000	)		(15,000	)
Net cash used in financing activities:		(15,000	)		(18,384	)
Net decrease in cash and cash equivalents		(155,589	)		(347,607	)
Cash and cash equivalents, beginning of period		449,723			838,040
Cash and cash equivalents, end of period	$	294,134		$	490,433

See accompanying notes to condensed consolidated financial statements.

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DIAMONDHEAD CASINO CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1.Going Concern

The Company has prepared the accompanying financial statements assuming that it will continue as a going concern. The Company has continued to incur net losses in the past several years and as of June 30, 2005, it has an accumulated deficit of $17,398,047 and a working capital deficiency of $1,245,236. Certain conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. As reflected in the accompanying financial statements, the Company incurred a net loss attributable to common stockholders of $326,579 for the six months ended June 30, 2005, and expects continued losses and use of cash through the remainder of the year.

The Company continues to take steps to protect its cash position. In August, 2004, the Company sold its two office condominium units located in Madeira Beach, Florida, for net proceeds of $156,802. Beginning in August of 2004 and continuing through the date of this report, the President and Vice President of the Company elected to defer their compensation. The total amount of deferred compensation owed the officers as of June 30, 2005, is $183,201. As was previously disclosed, beginning in January, 2004, the Company ceased making payments to the Florida Department of Revenue pursuant to fifteen settlement agreements entered into by five subsidiaries of the Company in 1997 relating to the audit period February 1, 1989 through June 30, 1994. One subsidiary of the Company, Europasky Corporation, which is still in business, continued to make payments pursuant to one of the above-referenced settlement agreements and has made the remaining payments due pursuant to this settlement agreement through May of 2005. A required balloon payment due after May 2005 under the settlement agreement, in the approximate amount of $89,000, remains outstanding. The remaining four subsidiaries obligated to make the remainder of said payments are no longer in operation and have no assets from which to satisfy their obligations under these settlement agreements. At June 30, 2005, the remaining four subsidiaries had payments in arrears due to the Florida Department of Revenue totaling approximately $162,000 in addition to a balloon payment in the approximate amount of $875,000 due after May 2005.

Since the parent company did not guarantee the payments due on behalf of its subsidiaries, the Company ceased making these payments, except as to Europasky Corporation, as of January 2004. There can be no assurance that the Florida Department of Revenue will not attempt to collect the amounts due on behalf of the four subsidiaries.

Management of the Company has determined that there is insufficient cash on hand to sustain the Company through the year ending December 31, 2005. The cash required to satisfy current accounts payable and accrued expenses totaling $427,463, as well as additional fees, costs and expenses required to obtain permits and approvals required for the Company’s Diamondhead, Mississippi project, substantially exceed the Company’s cash on hand of $294,134 at June 30, 2005. The Company has been exploring various options for raising sufficient funds for future use. These include, but are not limited to, bridge financing, sale of equity or debt securities, and/or a mortgage of its Diamondhead, Mississippi property. In August of 2003, Casino World, Inc., a wholly owned subsidiary of the Company, entered into a one year agreement

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with CB Richard Ellis, Inc. to serve as its exclusive agent to secure debt and equity financing for the Company’s Mississippi project. In August of 2004, Casino World, Inc. and CB Richard Ellis, Inc. agreed to extend the agreement for one additional year. To date, the Company has not found an acceptable funding source and can give no assurance that sufficient additional capital will become available at an acceptable cost or on a timely basis.

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, this would have a significant adverse impact on the Company’s ability to ultimately develop the property. Due to the uncertainty of the outcome, the accompanying financial statements do not reflect any adjustments which may occur as a result of the above-discussed conditions.

Note 2.Net Loss per Comon Share

Net loss per common share is based on the net loss after preferred stock dividends 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 loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is calculated by using the weighted average number of common shares outstanding, plus other potentially dilutive securities. Dilutive securities include 4,890,500 potential additional common shares consisting of stock purchase options, warrants and convertible preferred stock. The foregoing are excluded from diluted net loss per share as their effect would be antidilutive.

Common Shares outstanding at June 30, 2005 includes:
Issued Shares	34,200,124
Less: Treasury Shares	(1,250,000	)
Unallocated, uncommitted ESOP Shares	(3,142,047	)
Outstanding Shares	29,808,077

Note 3.Legal Proceedings

No new contingencies have arisen during the six months ended June 30, 2005 that were not reported in the Company’s Annual Report on Form-10KSB for the year ended December 31, 2004, and no material changes have occurred with respect to contingencies which were reported therein except as follows.

Hubbard Enterprises, Inc. v. Europasky Corporation (Circuit Court in and for Pinellas County, Florida)(Case No. 03-4917-CI-11)

Case Pending

On or about July 10, 2003, Hubbard Enterprises, Inc. (“Hubbard”), which leases dock and related space in Madeira Beach, Florida to Europasky Corporation (“Europasky”), a wholly-owned subsidiary of the Company, filed a lawsuit against Europasky Corporation, seeking a declaration from the Court that Europasky breached its lease with Hubbard and was in default and that Europasky Corporation’s options to renew its lease with Hubbard ran through October 31, 2005 and not for an additional three year period

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through October 31, 2008, as claimed by Europasky Corporation. On July 12, 2005, the trial court entered Final Summary Judgment in favor of Hubbard declaring that Europasky Corporation’s options to renew its lease with Hubbard ended October 31, 2005. Europasky Corporation currently subleases the premises to VTM Management, Inc. (“VTM”). The terms of the sublease with VTM call for VTM to make all future payments due to Hubbard under the lease and, in addition, to pay additional rent to the Company in the approximate amount of $13,000 per month. The trial court’s ruling effectively terminates Europasky Corporation’s ability to assign or sublease the premises after October 31, 2005 and to collect approximately $13,000 per month rent for the sublease. On August 2, 2005, Europasky Corporation filed a Notice of Appeal from the trial court's ruling.

In addition, by letter dated August 2, 2005 and received August 8, 2005, Hubbard Enterprises, Inc. notified Europasky Corporation that it was in default under the terms of its lease because no cruise ship has been moored at the dock since January 2005.

Note 4.Stock- Based Compensation

The Company accounts for employee and director stock-based compensation cost using the intrinsic value method of accounting prescribed by the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock Based-Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” for employee stock arrangements. Stock awards are recorded as compensation expense over the vesting period, if any, based on the market value on the date of grant.

The exercise price of each option granted is equal to the market price of the Company’s common stock on the date of grant. Accordingly, pursuant to APB No. 25, no compensation cost has been recognized for such grants. Had compensation cost been determined based on the fair value at the grant dates for such awards consistent with the method prescribed by SFAS No. 123, the Company’s net loss and loss per share for the periods indicated would have been as follows:

	Six Months Ended
	June 30,			June 30,
	2005			2004
Net loss applicable to common shareholders	$	(326,579	)	$	(424,017	)
Deduct: Total stock-based compensation expense determined under fair value based method		336,624			-0-
Pro forma net loss applicable to common Shareholders	$	(663,203	)	$	(424,017	)
Per share, as reported	$	(.011	)	$	(.014	)
Per share, pro forma	$	(.022	)	$	(.014	)

In determining the fair value of each option, the Black-Scholes option-pricing model as prescribed by SFAS No. 123 was used with the following weighted-average assumptions: dividend yield of zero, expected volatility of 87.49%, an average expected option life of 5 years and average risk-free interest rates of 3.65%.

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The Company uses the Black-Scholes option-pricing model for estimating the fair value of options granted. In addition, 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 5.New Accounting Pronouncements

In March 2005, Staff Accounting Bulletin No. 107 (“SAB 107”) was issued which expressed views of the Securities and Exchange Commission (“SEC”) regarding the interaction between Statement of Financial Accounting Standards Statement (“SFAS”) No. 123R, “Share-based Payment” and certain SEC rules and regulations and provides staff’s views regarding the valuation of share-based payment arrangements for public companies. The accounting provisions of SFAS 123R are effective for reporting periods beginning after June 15, 2005. However, on April 14, 2005, the Securities and Exchange Commission (SEC) announced that the effective date of SFAS 123R will be suspended until January 1, 2006, for calendar year companies. The Company currently expects to adopt SFAS 123R effective January 1, 2006, based on the new effective date announced by the SEC. Although the Company has not yet determined whether adoption of SFAS 123R will result in amounts that are similar to the current pro forma disclosures under SFAS 123, the Company is evaluating the requirement under SFAS 123R, acceptable methods of determining fair market value, and the magnitude of the impact on its 2005 consolidated net income and earnings per share.

In June 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (“FAS 154”). FAS 154 replaces APB Opinion No. 20 Accounting Changes and FAS 3, Reporting Accounting Changes in Interim Financial Statements. FAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle. FAS 154 also requires that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 is not expected to have a material impact on the Company’s consolidated financial statements.

Note 6.Other Income

On August 26, 2004, the Company sold its two office condominium units located at 150-153^rd Avenue in Madeira Beach, Florida, Suite 202, to South Beaches Real Estate Professionals, Inc., an unrelated Florida corporation, for a total contract price of $164,000. The sale was facilitated through a realtor representing the Company, who provided the Company with then-current real estate market values for the area, which the Company used in making the determination as to a fair and equitable sales price for its condominiums. After entering into the contract for sale of the units, the realtor informed the Company that he had made a mistake and that the fair market value of the property was in excess of the contract price. The Company, which did not want to breach its sales contract with the purchaser and expose itself to a lawsuit for breach of contract, closed on the sales contract and filed a claim against the realtor for the difference between the then-fair market value of the property and the contract price of $164,000. The Company settled its claim against the realtor in the first quarter of 2005 for $52,500 which has been recorded as other income for the three months ended March 31, 2005.

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

Plan of Operation

The Company’s current priority is the development of a destination casino resort in Diamondhead, Mississippi. In the opinion of management, this project holds the greatest potential for increasing shareholder value. The Company’s management, financial resources and assets will be devoted towards the development of this goal. There can be no assurance that the casino resort can be developed and , if developed, that the Diamondhead casino resort would be successful.

The Company ended cruise ship gaming operations in 2000 and, since then, has had no operations. Included in other income for the six months ended June 30, 2005 is dock lease income of $78,504 and other income of $52,500, representing the settlement of a claim against the realtor representing the Company in its sale of its two office condominium units in 2004. See Note 6 to the Notes to the Condensed Consolidated Financial Statements for further details. As disclosed in Note 3 to the Condensed Consolidated Financial Statements, the dock lease from which the Company derives its lease income, terminates effective October 31, 2005, leaving the Company without any income thereafter. Included in other income for the six months ended June 30, 2004 is dock lease income of $78,504. The Company incurred a net loss attributable to common shareholders of $326,579 and $424,017 for the six months ended June 30, 2005 and 2004 respectively. The Company will need to raise capital in 2005 to sustain itself and to proceed with the process of procuring the permits necessary to develop a casino resort.

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, this would have a significant adverse impact on the Company’s ability to ultimately develop the property. Due to the uncertainty of the outcome, the accompanying financial statements do not reflect any adjustments which may occur as a result of the above-discussed conditions.

Off Balance Sheet Arrangements

The Company retained an engineering firm, EDAW, Inc., to draft an Environmental Impact Statement (EIS) for its Diamondhead, Mississippi property at a basic cost of $500,000, of which $330,000 has been incurred and $260,000 has been paid. The Company temporarily halted the EIS beginning in the third quarter of 2003 to evaluate the possible relocation of its casino vessel at the Diamondhead property.The extent, if any, to which the Company may need to resume an EIS, is unknown at this time. See Item 5: “Recent Amendment to Mississippi Law Permitting Permanent Structures.”

On October 23, 2001,Mississippi Gaming Corporation, a wholly owned subsidiary of the Company, entered into a three year Option Agreement to purchase property which was the subject of a prior easement. The terms of the Option Agreement called for the Company to pay $10,000 upon the signing of the agreement and, beginning on January 2, 2003, to make quarterly payments of $2,500 through October 1, 2004. In addition, the Company obtained the right to purchase the property at a price of $390,000 should it exercise its option to do so before December 31, 2004. The Company did not exercise the option by December 31, 2004, and therefore entered into a Second Option Agreement to purchase the subject property. The Second Option Agreement is for a term of one year expiring on December 31, 2005, and

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calls for payments of $2,500 at the beginning of each calendar quarter. The Company has the option to purchase the property for $415,000 prior to December 31, 2005.

The Company believes that in addition to the EIS discussed above, full permitting for the property and plans for ultimate construction of a casino resort will require material capital expenditures for engineering, architectural, accounting, and legal services. The amount ultimately required is unknown at this time.

Critical Accounting Policy

The Company currently carries the value of the Diamondhead, Mississippi property on its balance sheet at cost, in the amount of $5,460,758 and has examined that valuation for impairment. In the opinion of management, the carrying value is not in excess of the ultimate recovery value of the property. The Diamondhead, Mississippi property was last appraised on or about August 4, 2003, by J. Daniel Schroeder Appraisal Company 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.

The property is one that meets the Mississippi Gaming Commission’s requirements for a legal gaming site. Accordingly, 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. Alternatively, 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 since it fronts Interstate 10, a major east-west highway and the Bay of St. Louis. Given the recent interest in condominium development on the Mississippi Gulf coast, the property could be used, in part, for condominium and residential development.

An appraisal performed in August of 1999 by J. Daniel Schroeder Appraisal Company, also assuming full permitting, valued the property at $41,700,000 and took into consideration alternative uses for the property other than as a gaming site. The appraiser sub-divided the property into four separate parcels, including one parcel encompassing approximately 34 acres for potential gaming use, which was then-valued at $18.9 million. The remaining three parcels, which totaled approximately 130 acres, were appraised for potential residential real estate development, at $22.8 million. Residential real estate development would not be dependent on the regulatory and permitting issues relating to the design, placement and construction of a casino vessel in the Bay of St. Louis.

There can be no assurance that the necessary regulatory permits and approvals required to develop the property can be obtained or that financing required to do so can be obtained. The Company does not have the financial resources to develop the property. There can be no assurance that the Company can successfully develop the property or, that if developed, the operation would be successful.

Item 3. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company have made an evaluation of the disclosure controls and procedures relating to the quarterly report on Form 10QSB for the period ended June 30, 2005, as filed with the Securities and Exchange Commission, and have judged such controls and procedures to be effective as of June 30, 2005.

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedure controls will detect or uncover all failures of persons within the Company to report material information otherwise required to be set forth in the Company’s reports.

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There have not been any significant changes in the internal controls of the Company or other factors that could significantly affect internal controls relating to the Company since the evaluation date.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

See Note 3 to the condensed consolidated financial statements.

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

None

Item 5. Other Information

Recent Amendment to Mississippi Law Permitting Permanent Structures

In prior legal actions, certain environmental groups that sued the Company maintained, among other things, that the Company was required to dredge at its then-selected casino site to meet a six foot draft requirement under the then-existing Mississippi statute relating to the construction of casinos. To avoid any further legal challenge relating to this issue, the Company recently decided that it would be in the best interest of the Company to simply dredge at its existing casino site. While the Company’s engineers were preparing new plans that included dredging, the State of Mississippi changed the law relating to the construction of casinos.

On April 6, 2005, Section 27-109-1 of the Mississippi Code of 1972, was amended to provide that after July 1, 2005, a gaming licensee could construct permanent structures upon which to place a vessel or cruise vessel where a licensee had received approval to offer legal gaming. Such permanent structures would be included within the meanings of the terms “cruise vessel” and “vessel” under the statute. In the event that a gaming licensee constructed permanent structures under this provision, the former requirement that a cruise vessel have a minimum draft of six feet would not apply.

The foregoing amendment to the statute is beneficial to the Company. The Company intends to take full advantage of this change in the law and has instructed its engineers to prepare preliminary designs in accordance with the amendment. The Company intends to relocate its casino site elsewhere on the property and to dispense with any dredging requirement. In the event the Company relocates the casino, all permits previously issued for the original location would have to be amended or new permits for the new location would have to be obtained.

The extent, if any, to which the Company may need to resume an Environmental Impact Statement (EIS), is unknown at this time.

Director Conflict of Interest

H. Steven Norton, one of the Company’s Directors, is an investor in Onnam Entertainment (“Onnam”), a privately held company with contracts to develop and operate Native American casinos in various U.S. locations. Onnam Entertainment, Inc., a Las Vegas-based company, recently received permission from the Mississippi Gaming Commission to develop a casino site in Biloxi, Mississippi. This casino would compete with any casino resort subsequently developed by the Company. Mr. Norton expects to be named

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Vice Chairman of Onnam in the near future.

Item 6. Exhibits and Reports on Form 8-K

None.

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.

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.

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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 12, 2005	/s/	Deborah A. Vitale
	By:	Deborah A. Vitale
		President
	/s/	Robert L. Zimmerman
	By:	Robert L. Zimmerman
		Chief Financial Officer

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