DIAMONDHEAD CASINO CORP - Annual Report: 2009 (Form 10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2009
COMMISSION FILE NO: 0-17529

DIAMONDHEAD CASINO CORPORATION

(Name of issuer in its charter)


Delaware		59-2935476
(State of Incorporation)		(I.R.S. Employer Identification Number)

1301 Seminole Boulevard, Suite 142, Largo, Florida 33770
(Address of principal executive offices)


Registrant’s telephone number, including area code:		727/674-0055
Securities registered pursuant to Section 12 (b) of the Act:		None
Securities registered pursuant to Section 12 (g) of the Act:		Common Stock, par value $.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 o No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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 o	Accelerated filer o	Non-accelerated filer þ	Smaller Reporting Company o
		(Do not check if a smaller reporting company)

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

The aggregate market value of the voting common equity held by non-affiliates of the Company based on the closing price of the common stock on the Over the Counter Bulletin Board at June 30, 2009 was $22,591,908.

Number of common shares outstanding at April 6, 2010: 34,096,954

TABLE OF CONTENTS


Part 1

Item 1. Business			1

Item 1A. Risk Factors			15

Item 1B. Unresolved Staff Comments			17

Item 2. Properties			17

Item 3. Legal Proceedings			17

Item 4. Submission of Matters to a Vote of Security Holders			17

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			18

Item 6 Selected Financial Data			18

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation			19

Item 7A. Quantitative and Qualitative Disclosures About Market Risk			24

Item 8. Financial Statements and Supplementary Data			24

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			24

Item 9A. Controls and Procedures			24

Item 9B. Other Information			25

Part III

Item 10. Directors, Executive Officers and Corporate Governance			25

Item 11. Executive Compensation			30

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			33

Item 13. Certain Relationships and Related Transactions, and Director Independence			36

Item 14. Principal Accountant Fees and Services			37

Part IV

Item 15 Exhibits and Financial Statement Schedules.			37
EX-10.6
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

FORWARD-LOOKING STATEMENTS

This document contains “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, regarding events, conditions, and financial trends that may effect the Company’s future plans of operation, business strategy, operating results, and financial position. Diamondhead Casino Corporation is referred to herein as “the Company,” “we,” or “our.” Except for historical information contained herein, the matters discussed in this document, in particular, statements that use forward-looking terminology such as “believes,” “intends,” “anticipates,” “may,” “will,” “should,” or “expects,” or the negative or other variation of these or similar words, are intended to identify forward-looking statements that are subject to risks and uncertainties including, but not limited to, increased competition, financing, governmental action, environmental opposition, legal actions, and other unforeseen factors. The development of the Diamondhead, Mississippi project, in particular, is subject to additional risks and uncertainties, including but not limited to, risks relating to permitting, financing, the availability of capital resources, licensing, construction and development, litigation, the activities of environmental groups, delays, and the actions of federal, state, or local governments and agencies. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations are reasonable or that they will be correct. Moreover, the financial results reported herein are not necessarily an indication of future prospects of the Company. Future results may differ materially.

All subsequent written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by the cautionary statements included in this document. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document might not occur.

ITEM 1. BUSINESS

The Company is a Delaware corporation incorporated on November 15, 1988 under the name “Europa Cruises Corporation.” The Company became a publicly-held company in 1989. On or about November 22, 2002, the Company changed its name to “Diamondhead Casino Corporation.” Since November 6, 1998, the Company’s stock has traded on the Over the Counter Bulletin Board (OTCBB). The Company’s stock currently trades under the symbol “DHCC.” Prior to the corporate name change, the Company’s stock traded under the symbol “KRUZ.” Prior to trading on the Over the Counter Bulletin Board, the Company’s stock traded on the NASDAQ Small Cap Market. The Company currently has three subsidiaries with no current operations and three employees. As of December 31, 2009, the Company had four employees.

I. FLORIDA

From inception through approximately August of 2000, the Company operated gaming vessels in international waters. The vessels sailed from state ports into international waters where gaming operations were conducted. From approximately 1994 through August of 2000, operations were conducted primarily out of ports located in Miami Beach, Florida, Ft. Myers Beach, Florida, and Madeira Beach, Florida. The

Company eventually divested itself of its gaming operations to satisfy financial obligations to its vendors, lenders and taxing authorities and to focus its resources on the development of a casino resort in Diamondhead, Mississippi. The Company has no current operations in Florida. The Company does, however, lease office space in Largo, Florida, where it maintains its corporate headquarters.

II. MISSISSIPPI

The Company owns, through its wholly-owned subsidiary, Mississippi Gaming Corporation (hereafter “MGC”), an approximate 404.5 acre tract of unimproved land in Diamondhead, Mississippi. The property is located at 7051 Interstate 10. The property fronts Interstate 10 for approximately two miles and fronts the Bay of St. Louis for approximately two miles. There are no liens or debt on the property. The Company intends, in conjunction with unrelated third parties, to fully develop the site in phases beginning with a casino resort. The casino resort is expected to include a casino, a hotel and spa, pools, a sports and entertainment center, a conference center and a state-of-the-art recreational vehicle park.

The Company has had the site appraised on three occasions, subject to certain material assumptions, by J. Daniel Schroeder Appraisal Company. The appraisals were predicated on the site being fully permitted and zoned as a legally permissible, water-based casino site under Mississippi law as it existed prior to October 17, 2005, which required that casinos be water-based. The property was appraised in 1996, assuming full permitting for a water-based casino, at approximately $8 million. The property was reappraised in 1999, again assuming full permitting for a water-based casino, at approximately $42 million. The property was last appraised in 2003, again assuming full permitting for a water-based casino, at approximately $109 million. The property has not been appraised since a new law was passed in Mississippi on October 17, 2005 which permits casinos to be built on land.

The Company has no current operations in Mississippi.

LEGISLATION PERMITTING LAND-BASED CASINOS IN MISSISSIPPI

All references in this section to Mississippi law are qualified in their entirety by reference to the actual text of the law.

On August 29, 2005, Hurricane Katrina struck the Gulf coast of the United States causing extensive damage to Louisiana and Mississippi, including Biloxi, Gulfport, and Bay St. Louis, Mississippi, where approximately twelve of Mississippi’s casinos were then located. Hurricane Katrina destroyed most of the casinos on the Gulf coast. Prior to Hurricane Katrina, Mississippi law required that casinos on the Gulf coast be built in, on, or above the water and be located a minimum of fifty percent below mean high tide. Hurricane Katrina destroyed most of these water-based casinos and carried some casino barges from their water-based moorings onto land. In a single day, Hurricane Katrina destroyed the Gulf coast casino industry and left thousands of casino-related workers without jobs. The State of Mississippi suffered an immediate and substantial loss of tax revenue due to the loss of a substantial portion of its casino industry.

On October 17, 2005, in response to the devastation caused by Hurricane Katrina, Mississippi passed new legislation that allows casinos located in certain statutorily-described areas to be constructed on land no more than 800 feet from the mean high-water line of certain bodies of water, including St. Louis Bay.

Under Mississippi’s new legislation, the part of the structure in which licensed gaming activities are conducted must be located entirely in an area which is located no more than eight hundred (800) feet from the mean high-water line (as defined in Section 29-15-1 of the Mississippi Code) of the waters within the State of Mississippi, which lie adjacent to the State of Mississippi south of the three (3) most southern counties in the State of Mississippi, including the Mississippi Sound, St. Louis Bay, Biloxi Bay and Pascagoula Bay or, with regard to Harrison County only, no farther north than the southern boundary of the right-of-way for U.S. Highway 90, whichever is greater. In the case of a structure that is located in whole or part on shore, the part of the structure in which licensed gaming activities are conducted must lie adjacent to state waters south of the three (3) most southern counties in the State of Mississippi, including the Mississippi Sound, St. Louis Bay, Biloxi Bay and Pascagoula Bay. When the site upon which the structure is located consists of a parcel of real property, easements and rights-of-way for public streets and highways are not construed to interrupt the contiguous nature of the parcel, nor is the footage contained within the easements and rights-of-way counted in the calculation of the distances specified above.

The Company believes that its property, which fronts Interstate 10 for approximately two miles and St. Louis Bay for approximately two miles, is strategically located to take advantage of the new law. The Company believes that the advent of land-based gaming in Mississippi will have a positive effect on the entire industry in Mississippi and change the perception of the gaming industry in Mississippi from that of a riverboat, dockside, or barge-based industry, to that of a Las Vegas style or Atlantic City style industry. With respect to the Company’s property, management believes the impact of the new law will also be beneficial. Management believes that the new law will allow the Company to avoid certain architectural constraints imposed by the design and construction of a water-based casino under the former law. The new law will also allow the Company to avoid any permits, authorizations, or tidelands leases that water-based construction of a casino would have required, but that construction on land may not require.

Permits/Approvals

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. Since Mississippi’s new law was passed, the Company has applied for and received the requisite zoning required from Hancock County, but has not applied for any other permits or approvals.

Inasmuch as the Company intends to take advantage of Mississippi’s new law and construct a casino on land, some of the permits, authorizations, and/or leases previously required may no longer be required. For example, since the Company intends to build a casino on land, a tidelands lease from the Mississippi Secretary of State, which was previously required to lease State water-bottoms in, on, or over which the casino would be placed, is no longer required. The extent, to which previously-required permits, approvals, authorizations, or an environmental impact statement, will be required for a casino constructed on land on the Company’s property, is not yet known.

A. Hancock County

The Company’s Diamondhead, Mississippi property is located in Hancock County, Mississippi. On January 16, 1997, the Hancock County Board of Supervisors adopted a Hancock County Zoning Ordinance. Under the Hancock County Zoning Ordinance, as originally adopted, the Company’s 404-acre

site was zoned as a Special Use District-Waterfront District. The Company has obtained an extension of this Special Use designation each year since that time. Most recently, by letter dated September 21, 2009, the Company forwarded a request to the Hancock County Planning Commission for an extension of the Special Use designation On October 15, 2009, the Hancock County Planning Commission passed a resolution extending the designation through December 31, 2010 . with the instruction that a master plan be submitted for review before an additional extension was requested.. On November 18, 2009, the Hancock County Board of Supervisors ratified the resolution.

B. Diamondhead Incorporation

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. It appears that 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 casino revenues that would have gone to Hancock County would, instead, go to Diamondhead.

C. Mississippi Gaming Commission

On June 15, 1995, the Mississippi Gaming Commission granted gaming site approval for the original, water-based, Diamondhead casino site. Inasmuch as the Company intends to construct its casino resort on land, the Company believes it will be required to obtain gaming site approval for a land-based casino site (See Mississippi Regulation-Gaming Site Approval/Approval to Proceed with Development). There can be no assurance that the Company will obtain the approvals required from the Mississippi Gaming Commission.

D. Annual In-Lieu Tidelands Assessment

The Company intends to take advantage of Mississippi’s new law and construct its casino on land, therefore, the Company will no longer require a tidelands lease from the Secretary of State. Under Mississippi’s prior law, which required that the Company’s casino be in, on, or above water and a minimum of fifty percent at or below mean high tide, the Company would have required a tidelands lease to lease water-bottoms owned by the State.

On October 17, 2005, when Mississippi passed new legislation permitting casinos to be built on land in certain locations, Mississippi also passed a companion law that requires any person possessing a license under the Mississippi Gaming Control Act, who operates a gaming establishment in any of the three most southern counties of the State (including the county in which the Company’s property is located), and who does not lease public trust tidelands from the State, to pay an annual in-lieu tidelands assessment to the Public Trust Tidelands Assessments Fund. For calendar year 2006, the annual in-lieu tidelands assessment was between $400,000 and $750,000, based on an escalating scale which is measured by the capital investment in the part of the structure in which the licensed gaming activities are conducted. For each calendar year thereafter, the Secretary of State shall review and adjust the value of the capital investment and the annual in-lieu tidelands assessment due. Such review and adjustment shall be tied to the Consumer Price Index. This annual in-lieu tidelands assessment will apply to any casino constructed on land on the Company’s property.

E. Other Required Permits

In addition to the foregoing, the Company will, at a minimum, be required to obtain various permits, authorizations, or approvals from the following:

1) Mississippi Commission on Marine Resources

2) Mississippi Commission on Environmental Quality

3) U.S. Army Corps of Engineers

There can be no assurance that the Company will be successful in obtaining these permits.

Uncertain Regulatory and Political Environment/Modifications

Any modification of the Company’s originally-approved site plan or any newly-approved site plan may require resubmission to, amendment to, and/or re-approval by the Mississippi Gaming Commission, the Mississippi Department of Marine Resources, the Mississippi Department of Environmental Quality, the U.S. Army Corps of Engineers, Hancock County, and/or other federal, state or local agencies. The foregoing federal, state and local agencies regularly pass new rules and regulations which may affect permits and authorizations required. While there is no pending environmental litigation, the foregoing permits and approvals remain subject to future litigation and the actions of environmental groups and various federal, state and local governments and agencies, including, but not limited to, the foregoing. The regulatory environment relating to these permits, approvals and leases is uncertain and subject to constant change.

The political environment in which the Company and/or its subsidiaries intend to operate is also uncertain, dynamic and subject to rapid change. Existing operators often propose and support legislation and/or litigation designed to make it difficult or impossible for competition to enter a market. This political and regulatory environment makes it impossible to predict the effects that the adoption of and changes in gaming laws, rules and regulations and/or competition will have on proposed gaming operations or development of a gaming resort. Moreover, legislatures in states in which gaming is legal often consider wide-ranging legislation and regulations which could adversely affect operations and expected revenues. Likewise, the federal government often considers legislation which could adversely affect operations and expected revenues. For example, in 1999, the National Gambling Impact Study Commission, which conducted a two-year study of legal gaming in the United States, reported its findings and recommendations to Congress. Some of the recommendations made in its report, if implemented, might result in additional regulation of the gaming industry and could have an adverse effect on the industry and the Company’s proposed development.

Anti-Gaming Referenda

On three separate occasions since 1998, certain anti-gaming groups have proposed referenda that, if adopted, would have banned gaming in Mississippi and required that gaming entities cease operations within two years after the ban. All three of the proposed referenda were ruled illegal by Mississippi State trial courts. If such a referendum were to be approved by the voters, it would have a material adverse effect on the Company.

MISSISSIPPI REGULATION

The Company has no current operations in Mississippi and does not operate any gaming facility in Mississippi. The Company intends to develop its Diamondhead property as a destination casino resort.

Assuming it is successful in developing its resort, the Company and its subsidiaries and/or affiliates will be subject to federal, state and local, laws, rules, ordinances and regulations with respect to the operation of any gaming facility. The following is intended to serve as a partial description of the Mississippi regulatory environment in which the Company and its subsidiaries or joint venture partner(s) would seek approvals to construct and operate a gaming facility and is not intended to be a complete, precise, or up-to-date recitation of all applicable laws, rules, regulations or ordinances that might affect the Company’s operations or with which the Company would be required to comply. Additional or more restrictive laws, rules and regulations could be adopted at any time or gambling could be completely banned.

The location of, ownership of, and operation of gaming facilities in Mississippi are subject to extensive state and local regulation, primarily through the licensing and control of the Mississippi Gaming Commission and the Mississippi State Tax Commission. The Company and/or its subsidiaries must register and be licensed under the Mississippi Gaming Control Act and its gaming operations will be subject to the regulatory control of the Mississippi Gaming Commission, the Mississippi State Tax Commission and various local and county regulatory agencies.

The Mississippi Gaming Control Act gives the Mississippi Gaming Commission (the “Commission”) extensive power to enforce the Act and adopt regulations in furtherance of the Act (the “Mississippi Regulations”). The laws, regulations and supervisory procedures of Mississippi and the Mississippi Gaming Commission seek to: (1) prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity; (2) establish and maintain responsible accounting practices and procedures; (3) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and safeguarding of assets and revenues, providing reliable record keeping and making periodic reports to the Mississippi Gaming Commission; (4) prevent cheating and fraudulent practices; (5) provide a source of state and local revenues through taxation and licensing fees; and (6) ensure that gaming licensees, to the extent practicable, employ Mississippi residents. The regulations are subject to amendment and interpretation by the Commission. Changes in Mississippi law or the regulations or the Commission’s interpretation thereof may limit or otherwise materially affect the types of gaming that may be conducted and could have a material adverse effect on Mississippi gaming operations.

The Commission has divided the approval process into two separate phases: (1) gaming site approval; and (2) approval to proceed with development.

Gaming Site Approval

With respect to gaming site approval, approval constitutes only the Commission’s finding that the location complies with applicable gaming laws and regulations. Gaming site approval does not entitle the recipient to proceed with development, nor does it constitute a license to engage in gaming or a right to a gaming license. Gaming site approval is a revocable privilege, and no holder acquires any vested right therein. The Mississippi Gaming Commission reserves the right to revoke any site approval should the circumstances change that would make the site illegal or unsuitable.

An application for gaming site approval must include evidence satisfactory to the Commission including: (1) a survey indicating the specific location of the property; (2) the current use of any adjacent property as well as the location of the nearest residential area, church and school; (3) evidence that all applicable zoning ordinances allow gaming at the proposed site; and (4) a survey establishing the mean high water line, performed by a qualified surveyor for performance of tidal surveys.

Gaming establishments in the three most southern counties in the State of Mississippi, including Hancock County, are permitted to be permanent inland structures. No point in the gaming area may be more than eight hundred (800) feet from the nineteen (19) year mean high water line. Harrison County establishments south of Highway 90 may exceed the eight hundred (800) foot measurement up to the southern boundary of Highway 90. All public easements and rights-of-way for public streets and highways are excluded from the 800 foot measurement. Any point of reference used to determine the 800 foot distance from the mean high water line must be located on the applicant or licensee’s premises. The applicant or licensee must own and/or lease the land that is contiguous both to the parcel used to conduct gaming and the point of reference used to determine the mean high water line, and this land must be shown to be an integral part of the project. The Commission has final authority in reviewing and approving each site as it pertains to meeting the requirements of this regulation.

Approval to Proceed with Development

With respect to obtaining the Commission’s approval to proceed with development, the following information, together with documentation to support this information, must be submitted to the Commission:

1) Architectural plans or renderings showing details of all proposed construction and renovation for the project, together with a footprint of the project and a description of the construction and type of parking facilities, as well as parking lot capacity.

Commission approval requires that the facility include a 500 car, or larger parking facility in close proximity to the casino complex and infrastructure facilities which will amount to at least 100% of the higher of the appraised value or construction cost of the casino. Such infrastructure shall include any of the following: 250 room, or larger hotel of at least a two star rating as defined by the current edition of the Mobil Travel Guide, a theme park, golf course, marinas, tennis complex, entertainment facilities, or any other such facility as approved by the Commission as infrastructure. Infrastructure facilities are not such items as parking facilities, roads, sewage and water systems, or civic facilities normally provided by cities and/or counties. The Commission may, in its discretion, reduce the number of rooms required, where it is shown to the Commission’s satisfaction that sufficient rooms are available to accommodate the anticipated visitor load. Parking spaces may also be reduced as needed for small casinos, provided that the 100% infrastructure requirement is otherwise met. The qualifying infrastructure must be owned or leased by (i) the holder of the site approval or (ii) an affiliated company of the holder of the site approval where both the affiliated company and the holder of the site approval have identical direct or indirect equity ownership.

In cases where casinos that are not in operation are purchased which do not meet the parking and infrastructure requirements subsequent to February 20, 1999, the infrastructure requirement will be calculated on the higher of the appraised value of the casino barge or acquisition cost of the casino barge. For the purpose of determining compliance with this regulation, the Commission will, in its discretion,

determine a fair and equitable method for calculating the construction cost of new casinos and acquisition costs for existing casinos. This regulation applies to any new applicant for a gaming license for a new gaming facility and to the acquisition or purchase of a licensee for which gaming operations have ceased prior to the time of acquisition or purchase. This regulation does not apply to any licensee who has been licensed by the Commission, or received a finding of site suitability from the Commission, prior to February 20, 1999 (or to any such licensee upon any licensing renewal after such date). For purposes of complying with this regulation, the appraised value of any casino will be determined by an appraisal completed by an appraiser approved by the Executive Director of the Commission prior to the appraisal. The Commission may require more than one appraisal and may obtain its own appraisal with the reasonable cost of same to be paid by the applicant.

Any change to the plan, or placement or design of the establishment, cruise vessel or vessel, shall be submitted in advance to the Executive Director for a determination of whether such change constitutes a material change. If the Executive Director determines that a material change has occurred, Commission approval is required for same.

2) Statements reflecting the total estimated cost of construction or renovation of the establishment, vessel, or cruise vessel and shore and dock facilities, distinguishing between known costs and projections, and separately identifying: facility design expense; land acquisition costs; site preparation costs; construction costs or renovation costs; equipment acquisition costs; costs of interim financing; organization, administrative and legal expenses; projected permanent financing costs; qualified infrastructure costs; and non-qualifying infrastructure costs.

3) A construction schedule for completion of the project, including an estimated date of project completion, indicating whether a performance bond will be required by the applicant to be furnished by the contractor.

4) Current financial statements, including, at a minimum, a balance sheet and profit and loss statement for the proposed licensee.

5) A detailed statement of the sources of funds for all construction and renovation proposed by the site development plans. Any funding, whether equity or debt, to be obtained, must be supported by firm written commitments satisfactory to the Commission.

6) Evidence that the following agencies (if applicable) were notified of the development and/or do not oppose the site development: U.S. Corps of Engineers, U.S. Coast Guard, Mississippi Department of Transportation, Mississippi Department of Environmental Quality, Department of Marine Resources, Port and Harbor Commission, Levee Board, City and County government, and such other agencies as the Executive Director deems appropriate.

The application for a Gaming Operator’s License must be filed no later than ninety (90) days after the Commission grants approval to proceed with development. The gaming site approval will expire three (3) years from the date approval to proceed with development is granted unless the Commission grants an extension. Approval to proceed with development is not subject to sale, assignment or transfer.

Opening of a Casino

Before any gaming facility may open to the public, all infrastructure requirements must be fully operational. Site development must be completed in accordance with the approved plan and be ready for operation within the gaming site approval time period. Gaming site approval may be extended within the discretion of the Commission.

The Commission requires, as a condition of licensure, that gaming establishments meet strict hurricane, fire-safety, and construction-related standards and regulations.

Application Information Required

In addition to other information required by law and Commission regulations, an applicant must provide complete information regarding the proposed operation, including but not limited to, a certification that any establishment to be used by the proposed operation has been inspected and approved by all appropriate authorities; fingerprints for each individual applicant; the nature, source, and amount of any financing; the proposed uses of all available funds; the amount of funds available after opening for the actual operation of the establishment; and economic projections for the first three (3) years of operation of the establishment. Each applicant must provide complete information regarding his or her background for the ten-year period preceding submission of the application. Every application must include any feasibility studies done on the type of gaming in the particular locale where the applicant intends to conduct gaming; the actual establishment blueprints, including a layout of each floor stating the projected use of each area; a description of the casino size and configuration of slot machines, video games of chance and table games; a description of the arrangements for food and drink concessions, the names and addresses of the concessionaires and the terms of the concession contracts; the type of slot machines and video games of chance to be used and the proposed distributors and manufacturers of this equipment; a description of the proposed management of the facility, management personnel by function, and tip distribution policies; and a description of procurement policies that emphasize the utilization of Mississippi employees, resources, and goods and services in the operation of the gaming establishment. In cases where the premises used for gaming are not wholly owned by the applicant, information pertaining to the interest held by any other person is required. Applicants must also submit a timetable for financing arrangements and commencement and completion of construction activities, setting forth the date upon which gaming activities will commence. The timetable will be subject to approval by the Commission and monitored for compliance by the Executive Director.

Gaming Licenses

Neither the Company nor any of its subsidiaries has a license to operate a casino in Mississippi or in any other jurisdiction. Gaming licenses require the periodic payment of fees and taxes and are not transferable. Gaming licenses in Mississippi are issued for a maximum term of three years and must be renewed periodically thereafter. There can be no assurance that the Company or any of its subsidiaries will be licensed. There can be no assurance that if licensed, new licenses can be obtained at the end of each three-year licensure period. Moreover, the Commission may, at any time, and for any cause it deems reasonable, revoke, suspend, condition, limit or restrict a license or approval to own shares of stock in a company that operates in Mississippi. The Mississippi Act also requires that a publicly traded company register under the Act. The Company and/or its subsidiaries will be required to periodically submit detailed financial, operating and other reports to the Commission and Mississippi State Tax Commission. Substantial fines for each violation of Mississippi’s gaming laws or regulations may be levied against a company or its

subsidiaries and the persons involved. A violation under a gaming license held by a subsidiary of a Company operating in Mississippi could be deemed a violation of all other licenses, if any, then held by the Company. Numerous transactions, including substantially all loans, leases, sales of securities and similar financing transactions entered into by any subsidiary of the Company operating a casino in Mississippi must be reported to or approved by the Commission. In addition, the Commission may, at its discretion, require additional information about the operations of the Company. The Company’s gaming operations outside of Mississippi, if any, would also be subject to approval of the Commission.

Key Employee Licenses

Any executive, employee, or agent of a gaming licensee having the power to exercise a significant influence over decisions concerning any part of the operation of a gaming licensee or who is listed or should be listed in the annual employee report may be required to hold a Key Employee License. A Key Employee License relates only to the specified involvement for which it was made. If the nature of the involvement changes from that for which the applicant is granted a Key Employee License, he may be required to submit himself to a new determination of suitability to hold a Key Employee License. A Key Employee may be required to submit to a finding of suitability at any time after issuance of a Key Employee License. A Key Employee license is granted for a period of no longer than nine years from the date of issue. A Key Employee License may be granted for a period of less than nine years within the discretion of the Commission. A holder of a Key Employee License must file with the Investigations Division of the Commission by June 30^th of each year, the “Investigations Division Annual Report,” providing all information requested on forms provided by the Commission and any other information requested by the Executive Director. Commission approval is required for certain acts of licensees or transactions directly or indirectly involving licenses. A holder of a Key Employee License must immediately inform the Commission of any arrest or conviction.

Deborah Vitale, President and Chairman of the Board of Diamondhead Casino Corporation and President and a Director of Casino World, Inc. and Mississippi Gaming Corporation, was issued a key person license by the Colorado Gaming Commission during 1994. A Colorado license is ineffective in Mississippi. During 1996, Ms. Vitale’s key person license in Colorado expired and was not renewed. H. Steven Norton, a Director of the Company, is a current holder of a key person license in both Colorado and Indiana. However, neither license constitutes a license to conduct gaming activities in Mississippi.

Findings of Suitability

The Commission can require that certain persons directly and actively involved in the administration or supervision of the gaming activities of gaming licensees be found suitable to hold a gaming license so long as that involvement continues and its regulations require that the following persons shall apply for a finding of suitability and must be found suitable by the Commission in order to be involved with a licensee: each person who serves as Chairman of the Board of Directors of any corporation, public or private, licensed or registered by the Commission; and each person who has a vote on any issue before the Board of Directors of any corporation, public or private, licensed or registered by the Commission and who is also an employee of the corporation or any of its subsidiaries. In addition, each person who serves as Chairman of the audit or compliance committees of any corporation, public or private, licensed or registered by the Commission, must apply for a finding of suitability. If the nature of the job changes from that for which the applicant is found suitable, he may be required to submit himself to a new determination of his suitability.

A finding of suitability is granted for a period of no longer than ten years from the date of issue. A finding of suitability may be granted for a period of less than ten years within the discretion of the Commission. A holder of a finding of suitability must file with the Investigations Division of the Commission by June 30^th of each year, the “Investigations Division Annual Report,” providing all information requested on forms provided by the Commission and any other information requested by the Executive Director. A holder of a finding of suitability must immediately inform the Commission of any arrest or conviction.

The Commission has full and absolute power and authority, at any time, to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered, found suitable or approved, for any cause deemed reasonable by the commission. The Commission has the power, at any time, to investigate and require the finding of suitability of any record or beneficial stockholder of the Company. The Act requires that each person who, individually or in association with others, acquires, directly or indirectly, beneficial ownership of more than 5% of any class of voting securities of a publicly traded corporation registered with the Mississippi Gaming Commission, must notify the Mississippi Gaming Commission of this acquisition. The Act also requires that each person who, individually or in association with others, acquires, directly or indirectly, beneficial ownership of more than 10% of any class of voting securities of a publicly traded corporation registered with the Commission must be found suitable by the Mississippi Gaming Commission and pay the costs and fees that the Commission incurs in conducting the investigation. The Commission has generally exercised its discretion to require a finding of suitability of any beneficial owner of more than 5% of a registered publicly traded holding company’s stock. However, the Commission has adopted a policy that generally permits certain institutional investors to own beneficially up to 15% of a registered public company’s stock without a finding of suitability. If a stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners. The Commission may, at any time, dissolve, suspend, condition, limit or restrict a finding of suitability to own a registered public company’s equity interests for any cause it deems reasonable.

Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Commission may be found unsuitable. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of the Company’s securities beyond such time as the Commission prescribes, may be guilty of a misdemeanor. The Company could be subject to disciplinary action if, after receiving notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company or its subsidiaries operating casinos in Mississippi, the Company pays the unsuitable person any dividend, interest or other distribution whatsoever; recognizes the exercise, directly or indirectly, of any voting rights conferred through such securities held by the unsuitable person; pays the unsuitable person any remuneration in any form for services rendered or otherwise, except in limited and specific circumstances; makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction; or fails to pursue all lawful efforts to require the unsuitable person to divest himself or herself of the securities, including, if necessary, the immediate purchase of the securities for cash at fair market value.

The Company may be required to disclose to the Commission upon request, the identities of holders of any debt or other securities. Under the Act, the Commission may, in its discretion, (1) require holders of debt securities of registered corporations to file applications; (2) investigate such holders; and (3) require the holders to be found suitable to own such securities. Although the Commission generally does not require

the individual holders of obligations such as notes to be investigated and found suitable, the Commission retains the discretion to do so for any reason, including but not limited to a default, or where the holder of the debt instrument exercises a material influence over the gaming operations of the entity in question. Any holder of debt securities required to apply for a finding of suitability must pay all investigative fees and costs of the Commission in connection with such an investigation.

The finding of suitability is comparable to licensing and both require submission of detailed personal financial information followed by a thorough investigation. In addition, the Mississippi Gaming Commission will not issue a license unless it is satisfied that the licensee is adequately financed or has a reasonable plan to finance its proposed operations from acceptable sources.

The Mississippi regulations provide that a change in control of a Company may not occur without the prior approval of the Commission. Mississippi law prohibits the Company from making a public offering of its securities without the approval of the Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi or to retire or extend obligations incurred for one or more such purposes. The Commission has the authority to grant a continuous approval of securities offerings subject to renewal every two years. Regulations of the Commission prohibit certain repurchases of securities of publicly traded corporations registered with the Commission, including holding companies, without prior approval of the Commission. Transactions covered by these regulations are generally aimed at discouraging repurchases of securities at a premium over market price from certain holders of greater than 3% of the outstanding securities of the registered publicly traded corporation. The regulations of the Commission also require prior approval for a “plan of recapitalization” as defined in such regulations.

The Company, once registered, will have to maintain current stock ledgers in the State of Mississippi, which may be examined by the Mississippi Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is required to render maximum assistance in determining the identity of the beneficial owner. Mississippi law requires that certificates representing shares of a registered company’s common stock bear a legend to the general effect that the securities are subject to the Mississippi Gaming Control Act and regulations of the Mississippi Gaming Commission. The Commission has the authority to grant a waiver from the legend requirement. (Isle of Capri obtained such a waiver.) The Commission, through the power to regulate licenses, has the power to impose additional restrictions on holders of the Company’s securities at any time.

Employees associated with gaming in Mississippi must obtain work permits that are subject to immediate suspension under certain circumstances. The Commission will refuse to issue a work permit to a person who has been convicted of a felony, committed certain misdemeanors or knowingly violated the Mississippi Gaming Control Act, and it may refuse to issue a work permit to a gaming employee for any other reasonable cause.

License Fees and Taxes

License fees and taxes are payable to the State of Mississippi and to the counties and cities in which the Mississippi Gaming Subsidiary’s respective operations will be conducted. The license fee payable to the

State of Mississippi is based upon “gaming receipts”, generally defined as gross receipts less payouts to customers as winnings, and equals 4% of gross revenue of $50,000 or less per calendar month, plus 6% of gross revenue over $50,000 and less than $134,000 per calendar month, plus 8% of gross revenue over $134,000 per calendar month. License fees paid in any taxable year are allowed as a credit against the Mississippi State income tax liability of a licensee for that taxable year. In addition, a licensee must pay a $5,000 annual license fee and an annual fee based upon the number of games it operates. In addition to state gaming license fees or taxes, a municipality or county may impose a gross revenue fee upon a licensee based on all gaming receipts derived from the establishment equal to approximately 4%. Certain local and private laws of the State of Mississippi may impose fees or taxes in addition to the fees described above.

Beer, Wine and Liquor Licensing

The sale of food or alcoholic beverages, including beer and wine, is subject to licensing, and regulation and control by the applicable state and local authorities. The Miscellaneous Tax Division of the Mississippi State Tax Commission regulates the sale of beer and light wine. The Alcoholic Beverage Control Division of the Mississippi State Tax Commission (the “ABC”), regulates the sale of alcoholic beverages containing more than 5% alcohol. The ABC requires that all equity owners and managers file personal record forms and fingerprint cards for licensing. In addition, owners of more than 5% of a company’s equity, as well as officers and managers, must submit detailed financial information to the ABC for licensing. All such licenses are revocable and non-transferable. The Mississippi State Tax Commission has full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could, and revocation would, have a material adverse impact upon the operations of an affected casino.

Extensive Non-Gaming Laws and Regulations

In addition to the foregoing, the Company and/or its subsidiaries will be subject to additional federal, state and local safety, health, employment, and other laws, regulations and ordinances that apply to non-gaming businesses generally. For example, Regulations adopted by the Financial Crimes Enforcement Network of the U.S. Treasury Department require currency transactions in excess of $10,000 occurring within a gaming day to be reported, including identification of the patron by name and social security number. Substantial penalties can be imposed for failure to comply with these regulations. The foregoing is just one example of the pervasiveness of the non-gaming laws, rules, regulations and ordinances that would apply to a casino operator.

COMPETITION

There is intense competition in the Mississippi market in which the Company intends to operate and in surrounding markets. The Company will compete directly with other existing gaming facilities located in Mississippi and in bordering states, including Louisiana. The Company will also be competing directly and indirectly, with gaming facilities throughout the United States and throughout the world as well as with Native American gaming operations which enjoy certain tax advantages. The Company expects this competition to increase as new gaming operators enter these markets, existing competitors expand their operations, gaming activities expand in existing jurisdictions, and gaming is legalized in new jurisdictions and/or on the internet. Assuming it is successful in developing a destination casino resort, the Company will also be competing with other forms of gaming and entertainment, including but not limited to, bingo, online computer gambling, pull tab games, card parlors, sports-book operations, pari-mutuel betting, dog racing, lotteries, jai-alai, video lottery terminals, and video poker terminals. The following chart identifies casinos with which the Company will compete which are located in Mississippi.


	Gaming						Proximity in
	Square		Number of		Number of		Miles to
Name of Facility		Footage	Slots			Tables	Diamondhead
MISSISSIPPI:

*Coastal Region*

Beau Rivage		76,715		2,074		90		35
Boomtown		51,665		1,214		20		33
Grand Casino		28,785		817		30		36
Hard Rock		53,800		1,215		52		35
Hollywood		40,000		1,086		21		12
Imperial Palace		75,790		1,934		72		33
Island View Casino		82,935		1,879		47		23
Isle of Capri		57,252		1,297		27		37
New Palace Casino		26,260		799		15		33
Silver Slipper		36,826		991		26		15
Treasure Bay		24,557		806		22		31

*North River Region*
Bally’s		46,535		1,185		16		300
Fitzgerald’s		38,088		1,249		40		300
Gold Strike		50,486		1,358		58		300
Grand Casino		136,000		1,737		52		300
Hollywood		54,000		1,275		28		300
Horseshoe		63,000		1,739		66		300
Isle of Capri -Lula		63,500		1,211		17		289
Resorts		35,000		1,058		16		300
Sam’s Town		66,000		1,313		35		300
Sheraton		32,800		802		22		300

*South River Region*
Ameristar		72,210		1,641		29		163
Diamond Jacks		32,000		809		16		163
Harlow’s		33,000		853		15		232
Horizon		12,613		388		—		163
Isle of Capri -Natchez		17,634		622		10		145
Jubilee		28,500		490		7		232
Lighthouse		22,000		575		—		232

Rainbow		25,000		810		6		163
River Walk		25,000		805		18		163

Mississippi State Totals		1,407,951		34,032		873

LOUISIANA COMPETITION

The Company believes that its greatest competition will come from the Mississippi Gulf Coast casinos because of their close proximity to the Diamondhead site. While the Company’s primary competition will come from the Mississippi Gulf Coast casinos, the Company’s Diamondhead, Mississippi casino will also compete with casinos located in the adjacent State of Louisiana. Louisiana has approximately twenty-three casinos, including four land-based casinos, fifteen boat-based casinos and four gaming machines-only casinos at pari-mutual facilities. The casinos are located throughout the state. In addition, video poker is permitted at Louisiana truck stops, off-track betting parlors, and bars and taverns in approximately thirty-one of the state’s sixty-four parishes (counties). Inasmuch as the Company’s casino will be land-based, the Company’s primary competition is expected to come from Harrah’s land-based casino located in downtown New Orleans which is approximately one hour from the Diamondhead site. The remaining three Indian land-based casinos, which are located in Marksville in central Louisiana and in Kinder and Charenton in southern Louisiana and the remaining Louisiana casinos are not expected to represent significant competition because of their distance from the Diamondhead site.

MANAGEMENT AGREEMENT

On June 19, 1993, CWI and MGC 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. If the Company enters into a joint venture arrangement pursuant to which the joint venture partner acquires a controlling interest, CAMC may terminate the agreement. Unless earlier terminated 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.

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, costs 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. In addition, the market in which the Company will operate is evolving and uncertain due to Hurricane Katrina. 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 or generate cash prior to development of the property or the sale of parts or all of the property. The Company’s inability to raise cash to pay its expenses 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 limited cash resources 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 of our attached consolidated financial statements for the year ended December 31, 2009. 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 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

DIAMONDHEAD, MISSISSIPPI PROPERTY

On June 19, 1993, the Company, through its subsidiary, MGC, exercised an option to purchase 404.5 acres of land in Diamondhead, Mississippi for $4,000,000. MGC obtained a $2,000,000 loan from Casinos Austria Maritime Corporation (“CAMC”) to complete the purchase of the property. The loan was secured by a first mortgage on the property. The first mortgage loan was payable interest only at 8% per annum for fifteen months. The full principal balance on the first mortgage loan was due and payable on June 30, 1995. Prior to its due date, the first mortgage was paid in full from the proceeds of a loan obtained by the Company in May of 1995 from First Union National Bank of Florida. The loan due First Union National Bank of Florida was subsequently paid in full and the property is now debt-free and lien-free.

On June 19, 1993, MGC also entered into an Option Agreement to purchase approximately 80 acres of land included within the 404 acre site for a purchase price of ten dollars ($10.00). The option was originally purchased so as to avoid certain limitations that attached to the underlying parcels. It was in the interest of the Company and its Diamondhead project that certain litigation instituted by the seller of the property be completed before MGC exercised this option. The litigation was finalized in 2002 and MGC exercised its option in December of 2002. The property was transferred to MGC by Warranty Deed on December 18, 2002. The exercise of this option gave MGC full title to the entire 404 acre tract.

In January 2010, the Company purchased a residential lot located on a canal to the southwest of its property for $65,000 which was paid with 108,000 shares of common stock of the Company. The property, which comprises less than a quarter of an acre was acquired to permit the Company to control the appearance and approach to the back entrance of its Diamondhead property.

There is no debt and there are no liens on the property. The Company believes the property is adequately insured.

OFFICES AND STORAGE FACILITIES

The Company leases office space in Largo, Florida and storage facilities in Madeira Beach, Florida on a month-to month basis.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Since November 22, 2002, shares of the Company’s Common Stock, $.001 par value (the “Common Stock”), have traded on the over-the-counter market under the symbol “DHCC.” The following table sets forth the high and low closing price quotations of the Common Stock in each full quarter during the periods set forth. The over-the-counter quotations reflect inter-dealer prices without retail markup, markdown, or commission and may not represent actual transactions.


	2009				2008
	High		Low		High		Low
First Quarter	$	.85	$	.23	$	2.62	$	1.56
Second Quarter		1.34		.36		2.15		1.30
Third Quarter		1.03		.70		1.95		1.41
Fourth Quarter		.90		.45		1.70		.55

On March 1, 2010, there were 868 registered holders of record of the Common Stock of the Company.

The Company has never paid a cash dividend on its Common Stock. Reference is made to Part III, Item 11 of this report which describes in full all compensation involving equity securities related to Directors and Officers of the Company.

ITEM 6. SELECTED FINANCIAL DATA

The Company has had no operations since the sale of its gaming vessels, which occurred between 1999 and 2000. Since that time, the Company has concentrated on development of its Diamondhead, Mississippi property. The table below depicts the key items which have contributed to the Company’s financial results over the last five years:


	2009			2008			2007			2006			2005
Dock Lease Income	$	—		$	—		$	—		$	—		$	130,841

Operating Expenses		956,605			1,049,561			1,182,092			1,655,473			786,841
Stock-Based Compensation		25,133			2,072,927			—			1,238,348			—
Interest Expense		88,727			6,460

Net (Loss)		(1,068,440	)		(3,124,574	)		(1,155,487	)		(1,649,832	)		(641,948	)

Loss per Share — Basic and Fully Diluted	$	(.035	)	$	(.096	)	$	(.038	)	$	(.055	)	$	(.025	)


ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity, Capital Resources, and Financial Results

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 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 $1,170,040, $3,227,614 and $1,262,847 for the years ending December 31, 2009, 2008 and 2007 respectively and expects continued losses for the foreseeable future. General and administrative expenses incurred totaled $846,306, $877,781 and $925,240 for the years ending December 31, 2009, 2008 and 2007 respectively. The table below depicts the major categories comprising those expenses:


DESCRIPTION	12/31/2009		12/31/2008		12/31/2007
Payroll and Related Taxes	$	562,503	$	554,081	$	556,980
Legal, Audit and Other Contracted Services		139,859		181,947		183,448
Rents and Insurances		44,510		51,856		52,039
Annual Meeting Expenses		—		—		27,796
Telephone, Office and Other Expenses		99,434		89,897		104,977


Total General and Administrative Expense	$	846,306	$	877,781	$	925,240

The Company has generated no operating revenues since it ended its gambling cruise ship operations in 2000 and has had to rely on alternative means to raise capital to meet its financial obligations. In prior years the Company was able to sustain its cash position and continue to satisfy its ongoing expenses through the sale of common stock formerly held in treasury and receipt of cash from the exercise of options and warrants to purchase common stock. In 2008, the Company entered into two promissory notes with two Directors of the Company yielding proceeds of $205,000, received $75,000 from the exercise of options to purchase 100,000 shares of common stock, and obtained a Line of Credit from an unrelated third party investor in the total amount of $1,000,000 which the company has fully utilized.

At December 31, 2009, the Company had cash on hand totaling $42,410 and current liabilities totaling $278,320. The Company has been able to continue to operate by deferring salaries and paying only those expenses required to remain operational.

In March 2010, in order to obtain funds to sustain itself, the Company engaged in a Private Placement of securities by offering Units for sale to a limited number of accredited investors. Each Unit consists of an 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 Note is convertible into 50,000 shares of common stock of the Company. The Offering is being conducted contingent on the sale of a minimum of ten Units or $250,000 (“the Minimum Offering”) and up to a maximum of 30 Units, for a maximum Offering of $750,000 (the “Maximum Offering.”) At the time of this filing, the Company has received the minimum offering amount. The Offering will terminate upon the earlier of the sale of 30 Units or April 30, 2010 unless extended by the Company, without notice, for up to two additional thirty day periods. A complete description of the terms of the offering is described in Note 10 of the accompanying consolidated financial statements.

The Company is currently discussing possible development of all or part of the Diamondhead property with interested parties and is exploring opportunities for financing required to develop the property and meet the Company’s current liquidity needs.

There can be no assurance that the Company will be able to reach an agreement with any party regarding the development or financing of the Diamondhead property. The ultimate development of this project 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. The Company may be affected by some or all of these factors and other risks and uncertainties, many of which are beyond the Company’s control.

Off Balance Sheet Arrangements

Management Agreement

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 mark 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.

Related Parties

The Company has agreements with various current Officers and Directors which is providing or would give rise to payment of a fee under certain conditions as follows:

The Company has agreements with Directors Harrell, Harrison and Norton in the event they are successful in obtaining funding for the Company and/or its Diamondhead project. The Company has agreed to pay a commission equal to one percent (1%) of the amount of any debt financing obtained and a commission of between one and one-half percent (1.5%) and four percent (4%) 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.

Other

The Company has agreements with unrelated persons and entities who 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 $5,409,913 and has tested this carrying value for impairment. In the opinion of management, the carrying value is not in excess of the estimated fair value of the property.

The Diamondhead, Mississippi property was last appraised on or about August 4, 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. Management of the Company stays informed of property values in close proximity to the Company’s Diamondhead, Mississippi property and, based on Level 2 observations as described in ASC Topic 820, “Fair Value Measurements and

Disclosures,” the fair value of the land held for development exceeds the carrying value of $5.4 million. Therefore, no impairment exists at December 31, 2009.

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. 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.

Stock Based Compensation Expense

The Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 718 “Compensation — Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards either modified or granted to employees and directors based upon estimated fair values. In June 2009, the Company modified outstanding option grants originally issued in 2004 resulting in a net loss applicable to common stockholders for the year ended December 31, 2009 being $25,133 higher than if the Company had not modified the terms of those option grants. The impact on basic and diluted loss per share for the year ended December 31, 2009 was an increase of $.001 per share. In addition, as a result of a modification to all outstanding option grants originally issued in 2003, net loss applicable to common stockholders for the year ended December 31, 2008 was $2,072,927 higher than if the Company had not modified the terms of those option grants. The impact on basic and diluted loss per share for the year ended December 31, 2008 was an increase of $.062 per share. No share-based payment awards were issued for the year ended December 31, 2007.

In determining the fair value of each option modified, the Black-Scholes option-pricing model, consistent with the provisions of ASC Topic 718, was used. In the case of a modification, the valuation at the modification dates, in excess of the valuation at the original grant date, is expensed.

The valuation was determined using the following weighted-average assumptions shown in the table below.


	2009			2008
Dividend Yield		0	%		0	%
Expected Volatility		89.49	%		49.25% - 96.10	%
Expected Option Life (years)		3.1			5
Average Risk-Free Interest Rate		2.03	%	2.31% to 2.82		%

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.

Fair Value Measurements

In the first quarter of 2008, the Company adopted “Fair Value Measurements,” for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. The standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). 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 our own assumptions.

In the first quarter of 2009, the Company adopted “Fair Value Measurements” for nonfinancial assets and nonfinancial liabilities, as required.

The Company elected not to adopt the “Fair Value Option for Financial Assets and Financial Liabilities”. The standard provides companies with an option to report selected financial assets and liabilities at fair value. The objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The adoption of this standard did not have a material effect on the consolidated financial statements as the Company did not elect to report its financial instruments at fair value.

In October 2008, the FASB issued a standard on “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This standard clarifies the application of “Fair Value Measurements” in a market that is not active and provides examples to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The guidance in this standard was effective immediately and did not have a material impact on the Company’s consolidated financial statements.

The carrying amounts of cash, a notes payable to a Director and others, accounts payable and accrued expenses, approximate fair value due to the short term nature of the instruments. The carrying amount of the fixed interest loan payable approximates the fair value based on level 2 observations as described above. The transaction was entered into in the fourth quarter of 2008 at borrowing rates and terms currently available to the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is currently not subject to any risk of loss from market rates and prices including interest rates, foreign exchange rates, commodity prices or equity prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and notes thereto are included herein beginning at page F-1.


ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

In connection with the preparation of this Annual Report on Form 10-K, 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 December 31, 2009. 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 December 31, 2009.

Management’s Report on Internal Control Over Financial Reporting

The management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting

During the first quarter of 2009, we designed new control policies and procedures relating to contracts, agreements and arrangements and the related recording of the transaction and financial reporting disclosures in an effort to remedy a material weakness reported at December 31, 2008.

We believe these efforts have improved our internal control over financial reporting. Accordingly, we will continue to perform the measures described above and monitor the effectiveness of our internal control over financial reporting in the areas impacted by the material weaknesses disclosed in our December 31, 2008 report on internal control.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A. Directors and Officers:

The current directors and officers of the Company and their titles are as follows:


Name	Age		Title
Deborah A. Vitale		59	Chairman of the Board, President, Chief Executive Officer, Treasurer
Gregory A. Harrison		65	Director, Vice President, Secretary
Frank E. Williams, Jr.		75	Director
Benjamin J. Harrell		56	Director
H. Steven Norton		76	Director
Carl D. Stevens		63	Director
W. Austin Lewis		33	Director
Robert Zimmerman		60	Chief Financial Officer

Directors elected to office have terms which extend to the next annual meeting.

DEBORAH A. VITALE has served as President, Chief Executive Officer and Treasurer of the Company since February 1998 and has served as Chairman of the Board of the Company since March 1995. As President and CEO, Ms. Vitale was responsible for all phases of the day-to-day operations of four casino ships sailing out of three Florida ports into international waters and for the management and supervision of hundreds of ship-based and land-based employees. Ms. Vitale served as Secretary of the Company from November 1994 until July 2002. She has been a Director of the Company since December 1992. On February 14, 1997, Ms. Vitale was appointed Chairman of the Board of Directors of Casino World, Inc. and Chairman of the Board of Directors of Mississippi Gaming Corporation, each a subsidiary of the Company. On September 2, 1997, Ms. Vitale was appointed President of Casino World, Inc. and Mississippi Gaming Corporation. Ms. Vitale is a trial attorney with over twenty years of

experience handling complex civil litigation. Ms. Vitale is licensed to practice law in Maryland, Virginia and Washington, D.C.

GREGORY A. HARRISON, Ph.D., P.E., was elected a Director of the Company on February 20, 1998. Dr. Harrison was appointed Vice-President of the Company on July 18, 2002 and was appointed Secretary of the Company on July 25, 2002. Dr. Harrison is a consulting forensic engineer with forty years of diversified fire protection/safety/project engineering experience with NASA, DOD, NBS, NRC, ARAMCO, and Tenera, L.P. Effective August 27, 2004, Dr. Harrison became a Professional Engineer licensed to practice in the state of Mississippi. Dr. Harrison has qualified as an expert witness in various courts in ten states. Dr. Harrison is a partner of Master Jin Kim of Champion Martial Arts, Inc., in the development of an internet martial arts school. Dr. Harrison received a B.S. degree in Fire Protection Engineering from the University of Maryland in 1966, an M.S. degree in Civil Engineering from the University of Maryland in 1970, an M.S. degree in Engineering Administration from George Washington University in 1979 and a Ph.D. in Safety Engineering from Kennedy-Western University in 1994. Dr. Harrison has held a top secret security clearance with the U.S. Department of Energy, the U.S. Nuclear Regulatory Commission, and the Department of Defense. Dr. Harrison has served on the Board of Directors of Data Measurement Corporation and was an Advisory Board member of United Bank and First Patriot National Bank.

FRANK E. WILLIAMS, JR. was elected a Director of the Company on July 3, 2002. Since 1969, Mr. Williams has served as Chairman of the Board of Williams Enterprises of Georgia, Inc., a holding company controlling six subsidiaries active in various facets of the steel industry. Since 1995, Mr. Williams has also served as Chairman, CEO, and a fifty percent owner of Bosworth Steel Erectors, Inc. of Dallas, Texas, an erector of steel products in the southwestern United States and as Chairman and a major shareholder of Wilfab, Inc., a structural steel fabricator located in Cherokee County, Georgia. Mr. Williams is the Managing Partner and principal owner of Structural Concrete Products, LLC of Richmond, Virginia, a manufacturer of pre-stressed concrete building systems for customers in the mid-Atlantic region and of Industrial Alloy Fabricators, LLC of Richmond, Virginia, a fabricator of alloy plate products for the energy and chemical industries. Mr. Williams continues to serve on the Board of Williams Industries, Inc., a public company (NASDAQ), which owns five subsidiaries active in the steel industry, including Williams Bridge Company, one of the largest fabricators of steel plate for bridge structures in the mid-Atlantic region. The company was founded by Mr. Williams, who served as its President, CEO and Chairman through 1994. Mr. Williams is currently Chairman of the Board of Directors of Kaiser Group Holdings, Inc., a public company (NYSE: KGH). Mr. Williams is also currently chairman of Facility Group, a consulting, program management, architecture, engineering, design and construction firm based in Smyrna, Georgia. Mr. Williams is a former Chairman and a current Director of Capital Bank, N.A. Mr. Williams has been appointed by bankruptcy courts as an official representative servicing in a pro bono capacity on behalf of investors and debt holders in public companies in bankruptcy. Mr. Williams holds a Bachelor of Civil Engineering degree from the Georgia Institute of Technology.

BENJAMIN J. HARRELL was elected a Director of the Company on July 18, 2002. Mr. Harrell was the founder and served as President and CEO of Pete Fountain Productions, Inc. from 1979 until it was acquired in 1999 by Production Group International, Inc. (“PGI”), a global event communications company, which was subsequently acquired by TBA Global Events, LLC in 2005. Mr. Harrell managed

the acquiring company’s business in the New Orleans area. Mr. Harrell currently serves as Vice-President and General Manager of Kuoni Destination Management, Inc., which purchased the destination division of TBA Global in February of 2009. Mr. Harrell also currently serves as Vice President of Pete Fountain Entertainment, LLC, which until March 2003, operated one of the largest jazz clubs in New Orleans. Since 1975, Mr. Harrell has served as personal manager for the internationally noted jazz artist, Pete Fountain. Mr. Harrell handles all aspects of Mr. Fountain’s career, including promotion, concerts, personal appearances and commercial endorsements. From 1985 through 2003, Mr. Harrell served as President of Cresent Sound & Light, Inc, a professional sound, lighting, video and staging company for the convention and entertainment industry. Mr. Harrell served as a Director of the New Orleans Metropolitan Convention and Visitors Bureau from 1997 through 1999. On January 15, 2004, Mr. Harrell was elected to the Board of Directors of Mississippi Gaming Corporation, a wholly owned subsidiary of the Company.

H. STEVEN NORTON was elected a Director of the Company on August 6, 2002. Since 1998, Mr. Norton has served as President and CEO of Norton Management, Inc., a consulting company in Alton, Illinois and Las Vegas, Nevada. Mr. Norton also currently serves as a Director of Centaur, Inc., a privately held company which owns a casino in Central City, Colorado and owns Hossier Park, an Indiana race track, located in Anderson, Indiana. Mr. Norton is also a Director of Colorado Casino Resorts, Inc. in Cripple Creek, Colorado and North East Resorts, Inc., a privately held company pursuing gaming in the state of Massachusetts. Mr. Norton recently became a Director of 8^th Wonder International, Ltd., an entity formed in Jersey, in the Channel Islands, which is involved in the concept design and development of casino resorts. Mr. Norton is also a major creditor of and has provided consulting services to Onnam Entertainment, Inc., a privately held Las Vegas based company, with contracts to develop and operate Native American casinos in various U.S. locations. Prior to Hurricane Katrina, Onnam received permission from the Mississippi Gaming Commission to develop a casino site in Biloxi, Mississippi. The casino, if constructed, would compete with any casino resort subsequently developed by the Company.

From 1993 to 1998, Mr. Norton served as President and Chief Operating Officer of Argosy Gaming Corporation, a public company and operator of riverboat casinos. Mr. Norton also previously served as President and Chief Operating Officer of the Sands Hotel & Casino in Las Vegas, Nevada; as President and Chief Executive Officer of the Gold River Gambling Hall & Resort in Laughlin, Nevada; as Executive Vice-President of Resorts International, Inc. and Resorts International Casino Hotel in Atlantic City, New Jersey; and as Vice-President, Treasurer and Comptroller of Paradise Island, Ltd/Paradise Island Casino.

Mr. Norton has also previously served as a founder and a Director of the American Gaming Association; as a founder, a Director and Vice-Chairman of the New Jersey Casino Association; as Chairman of the Indiana Gaming Association; as a Director and Vice-President of the Missouri Gaming Association; as a Director of the Illinois River Boat Association and as Chairman of the Casino Commission of the American Hotel Association. Mr. Norton has also served on the Board of Directors and Executive Committee of the American Hotel Association; as Chairman of the Board and President of the New Jersey Hotel Motel Association; as Director and Vice-President of the Bahamas Hotel Association; as Chairman of the Bahamas Hotel Employers Association; as Director and Treasurer of the Bahamas Employers Confederation; as a Board Member of the Nevada Hotel Motel Association; as Chairman of

the Atlantic City Convention & Visitors Bureau; as Chairman of the Nassau Paradise Island Promotion Board; and as a member of the Advisory Board of the Governors Office of Travel and Tourism in New Jersey.

CARL D. STEVENS was elected a Director of the Company on January 10, 2006. Mr. Stevens spent 26 years with the IBM Corporation in various sales and management positions, including Branch Manager, Atlanta, Georgia. Mr. Stevens was responsible for the southeast United States and served as Program Director for Public Sector Sales for the United States. In 1997, Mr. Stevens became President and CEO of ITC Corporation which was headquartered in Herndon, Virginia. ITC, a NASDAQ listed company, was a publisher and distributor of multimedia training materials with worldwide sales. In 1999, Mr. Stevens was named Division President of InfoCast Corporation Inc., which was headquartered in Toronto, Canada. Mr. Stevens headed the Company’s efforts in the e-Learning and Virtual Contact Center divisions. In June of 2001, Mr. Stevens was named CEO and President of Cogient Corporation, a medical software and services provider headquartered in Toronto, Canada. Mr. Stevens resigned as CEO of Cogient Corporation in January of 2005 to return to the U.S. to actively manage his investments. Mr. Stevens attended Indiana University where he majored in business administration. Mr. Stevens is a veteran of the United States Air Force.

W. AUSTIN LEWIS IV was elected a Director of the Company on May 12, 2009. Mr. Lewis currently serves as Chief Executive Officer of the Lewis Asset Management Corp., an investment management company headquartered in New York City which he founded in 2004. This entity is the General Partner of the Lewis Opportunity Fund, LP and the LAM Opportunity Fund, Ltd., which together own a significant number of common shares of the Company. From 2003 to 2004, Mr. Lewis was employed at Puglisi & Company, a New York based broker-dealer registered with FINRA, where he served as a registered representative, managed individual client accounts, conducted due diligence for investment banking activities and managed his own personal account. In 2002, Mr. Lewis co-founded Thompson Davis & Company, Inc., a registered broker-dealer headquartered in Richmond, Virginia. From 1998 to 2002, Mr. Lewis was employed by Branch Cabell and Company, Inc. (“Branch Cabell”) in Richmond, Virginia, where he was a registered representative. Following the November 2000 acquisition of Branch Cabell by Tucker Anthony, Incorporated (“Tucker Anthony”), Mr. Lewis served as a Vice-President for Tucker Anthony and subsequently RBC Dain Rauscher, Inc. which acquired Tucker Anthony in August of 2001. Mr. Lewis serves as a Director for Aftersoft Group, Inc. (OTCBB: ASFG), a company which provides software and information services to the automotive aftermarket, and ViryaNet, Ltd. (OTCBB: VRYAF), a foreign issuer which provides software solutions to optimize business processes for field service management. Mr. Lewis received his Bachelor of Science degree in Finance and Financial Economics from James Madison University in 1998.

ROBERT L. ZIMMERMAN was appointed Chief Financial Officer of the Company on July 27, 1998. From May of 1994 until joining the Company, Mr. Zimmerman served as Controller for the North and Central American operations of Casinos Austria International, Ltd. From 1980 through 1993, Mr. Zimmerman served as Vice President of Finance for the Industrial Controls subsidiary of Emerson Electric Company (NYSE: EMR). Prior to 1980, Mr. Zimmerman was employed with the public accounting firm of Fiddler and Co. for seven years.

B. Committees of the Board of Directors

The Audit Committee of the Board of Directors is comprised of four Directors: Frank E. Williams, Jr. (Audit Committee Chairman), Benjamin J. Harrell, W. Austin Lewis and Gregory A. Harrison, who serves as an ex-officio member. The Board of Directors has determined that Mr. Williams, Mr. Harrell, and Mr. Lewis are independent members as that term is defined under the enhanced independence standards for audit committee members in the Securities and Exchange Act of 1934. Mr. Harrison does not meet the independence standards. The Board of Directors has also determined that Frank E. Williams, Jr. is an Audit Committee Financial Expert as that term is defined in rules issued pursuant to the Sarbanes-Oxley Act of 2002.

The Compensation Committee is composed of three Directors: Benjamin J. Harrell (Chairman), Carl D. Stevens, and Gregory A. Harrison (ex-officio member). The Board of Directors has determined that Mr. Harrell and Mr. Stevens are independent Directors based on the general independence standards adopted by the Board. Mr. Harrison, who serves only in an ex-officio capacity virtue of his status as a compensated Officer of the Company, is not independent.

The Compensation Committee has no written charter and convenes at regularly scheduled meetings of the Board of Directors. The Compensation Committee advises and makes recommendations to the Board of Directors as to the compensation to be paid to Executive Officers of the Company. In addition, the Compensation Committee advises and makes recommendations to the Board of Directors as to options to purchase common stock, if any, to be awarded.

The Board of Directors has not formed a Nominating Committee, however, the Board acts as a group in considering nominations. The Board considers and reviews, from time to time, the appropriate size and composition of the Board and anticipates future vacancies and needs of the Board. In evaluating possible nominees, the Board considers, among other things, the background, experience, education and knowledge of a candidate, his familiarity with the gaming industry and related industries, his experience with publicly-traded entities, and his integrity and judgment. The Board considers the potential contribution a candidate will bring to the backgrounds, experience, and skills of the existing Board of Directors. The Board also considers a candidate’s ability to devote sufficient time and effort to his duties as a Director. After evaluation and review of candidates who meet the Board’s criteria, the Board considers its then-current needs and selects the nominees that best suit those needs.

The Board will consider candidates recommended by stockholders, provided the names of such nominees, accompanied by relevant biographical information, are properly submitted in writing to the Secretary of the Company in accordance with the manner described in the Company’s last-filed definitive Proxy Statement. The nominees will be submitted to the Board of Directors and receive the same consideration as those nominees identified by members of the Board of Directors.

C. Code of Ethics

The Company adopted a Code of Ethics in 2004 that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy

of the Code was attached as an exhibit in a prior year’s annual report. A copy of the Code of Ethics will be made available to any shareholder, free of charge, upon written request to the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon its review of Forms 3, 4 and 5 and any amendments thereto furnished to the Company pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, all purchases and sales of stock and all required forms were filed timely by reporting persons during 2009.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Company compensated four employees in 2009, two of whom, the CEO and Vice President, are executive officers of the Company. The Compensation Committee and the Board of Directors monitor and approve compensation paid to executive officers. The CEO determines compensation paid to non-executive personnel.

From time to time, additional compensation has been awarded to executives and employees based on performance. In addition, the Board of Directors has awarded options to purchase common stock of the Company to executive officers and employees of the Company.

CEO Compensation

Since 2007, the Compensation Committee of the Board of Directors has determined Ms. Vitale’s base salary which is $300,000 per annum. Ms. Vitale’s base salary reflects her contribution to the Company in a myriad of corporate roles and responsibilities and more fairly compensates her based upon industry peer review. The Compensation Committee also noted that Ms. Vitale manages the Company’s business without the benefit of any administrative staff normally associated with the management of a publicly-traded company at significant savings to the Company. Since mid November of 2009, due to the Company’s cash position, Ms. Vitale has deferred actual payment of her salary.

No other additional cash compensation was paid to Ms. Vitale during the three year period ended December 31, 2009.

The following table provides information concerning the compensation of the Chief Executive Officer, Executive Vice President and Chief Financial Officer of the Company during the last three fiscal years.

SUMMARY COMPENSATION TABLE

Nonqualified

Non Equity

Deferred

All

Incentive

Compensa-

Other

Name and

(1)

Stock

Option

Plan

tion

Compen-

Occupation

Year

Salary

Bonus

Awards

Awards (2)

Compensation

Earnings

sation

Total

Deborah A. Vitale

2009

300,000

None

)

300,000

President

2008

300,000

None

1,654,559

None

)

1,954,559

2007

300,000

None

)

300,000


											Nonqualified
										Non Equity	Deferred	All
										Incentive	Compensa-	Other
Name and			(1)				Stock	Option		Plan	tion	Compen-
Occupation	Year		Salary		Bonus		Awards	Awards (2)		Compensation	Earnings	sation			Total
Gregory A. Harrison		2009	$	70,000	$	40,000	None	None		None	None		(3	)	$	110,000
Vice President		2008	$	70,000	$	20,000	None	None		None	None		(3	)	$	90,000
		2007	$	70,000	$	25,000	None	None		None	None		(3	)	$	95,000

Robert L. Zimmerman		2009	$	65,000	None		None	$	16,755	None	None		(3	)	$	81,755
CFO		2008	$	65,000	$	5,000	None	$	24,840	None	None		(3	)	$	94,860
		2007	$	61,974	None		None	None		None	None		(3	)	$	61,974


(1)		Ms. Vitale was paid $276,923 of her salary in 2009 with the remainder deferred until a later date. Mr. Harrison was paid $64,615 of his salary in 2009 with the remainder deferred until a later date.

(2)		On February 12, 2008, the Board of Directors modified all unexercised option awards originally granted in 2003 by extending the date of expiration for an additional five years from the original date of expiration.. Option awards to purchase a total of 825,000 shares granted to Ms. Vitale in 2003, and an option award to purchase a remaining 15,000 shares granted to Mr. Zimmerman in 2003, had expiration dates extended through 2013. On June 12, 2009, the Board of Directors modified all unexercised option awards originally granted in 2004 by extending the date of expiration for an additional three years from the original date of expiration. An option award to purchase a total of 75,000 shares granted to Mr. Zimmerman in 2004 had expiration dates extended through 2012.

		Reference is hereby made to Note 3, “Summary of Significant Accounting Policies – Stock Based Compensation” in the attached 2009 financial statements, for a determination of the variables used in computing the value of option awards.

(3)		The Europa Cruises Corporation Employee Stock Ownership Plan (“the Plan”) is a defined contribution pension plan funded with common stock of the Company. Ms. Vitale, Mr. Zimmerman and Mr. Harrison are all participants in the Plan. In 2007, the Plan contributed 26,514 shares of common stock to Ms. Vitale’s participant account. In 2008, the Plan contributed 26,514 shares of common stock to Ms. Vitale’s participant account. In 2007, the Plan contributed 20,395 shares of common stock to Mr. Harrison’s participant account. In 2008, the Plan contributed 19,680 shares of common stock to Mr. Harrison’s participant account. In 2007, the Plan contributed 18,057 shares of common stock to Mr. Zimmerman’s participant account. In 2008, the Plan contributed 18,274 shares of common stock to Mr. Zimmerman’s participant account. The number of shares to be contributed to Plan participants for the year ended December 31, 2009 will be determined following the Trust accounting for that year.

The following tables provide a summary of the outstanding equity awards of the Chief Executive Officer, Executive Vice President and Chief Financial Officer of the Company as well as any exercise of options in 2009.

SUMMARY OF OUTSANDING EQUITY AWARDS AT FISCAL YEAR END

Option Awards


			Equity
			Incentive
			Plan
			Awards
	Number of	Number of	Number of
	Securities	Securities	Securities
	Underlying	Underlying	Underlying
	Unexercised	Unexercised	Unexpired	Option	Option
	Options	Options	Unexercised	Exercise	Expiration
Name	Exercisable	Unexercisable	Options	Price	Date
Deborah A. Vitale	75,000	None	None	$ .80	2/10/10
	450,000	None	None	1.25	10/27/10
	100,000	None	None	2.70	4/13/11
	750,000	None	None	.30	3/11/13
	75,000	None	None	.75	7/23/13

Gregory A. Harrison	75,000	None	None	.80	2/10/10
	150,000	None	None	1.25	10/27/10
	100,000	None	None	2.70	4/13/11

Robert L. Zimmerman	50,000	None	None	.80	2/10/10
	25,000	None	None	2.70	4/13/11
	50,000	None	None	.72	7/13/12
	15,000	None	None	.75	8/12/13

Stock Awards


				Equity
			Equity	Incentive
			Incentive	Plan Awards
			Plan Awards	Market or
			Number of	Payout Value
	Number of	Market Value of	Unearned	of Unearned
	Shares or Units	Shares or Units	Shares, Units or	Shares, Units or
	Of Stock That	Of Stock That	Other Rights That	Other Rights That
	Have Not	Have Not	Have Not	Have Not
Name	Vested	Vested	Vested	Vested
Deborah A. Vitale	None	None	None	None
Gregory A. Harrison	None	None	None	None
Robert L. Zimmerman	None	None	None	None

OPTION EXERCISES AND STOCK VESTED IN 2009


	Option Awards		Stock Awards
	Number of		Number of
	Shares	Value	Shares	Value
	Acquired	Realized	Acquired	Realized
	On	On	On	On
Name	Exercise	Exercise	Vesting	Vesting
Deborah A. Vitale	None	None	None	None
Gregory A. Harrison	None	None	None	None
Robert L. Zimmerman	None	None	None	None

Directors’ Compensation

The current members of the Board of Directors are not paid fees for their services as a Director. Directors are reimbursed for certain approved expenses incurred in connection with Company business and for

certain approved expenses incurred in connection with attendance at non-telephonic Board meetings and non-telephonic committee meetings. Directors are, from time to time, awarded non-qualified options to purchase common stock of the Company. No cash or equity compensation was awarded to any Director for their services as a Director in 2009.

Other Compensation Arrangements

The Company has agreements with various current Officers and Directors which is providing or would give rise to payment of a fee under certain conditions as follows.

The Company paid Gregory A. Harrison, a Director, a fee of 6% of funds received on amounts borrowed pursuant to an unsecured line of credit obtained in October 2008. Pursuant to the terms of the agreement, the Company paid Mr. Harrison a total of $20,000 in 2008 and an additional $40,000 in 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth, to the Company’s knowledge, as of February 12, 2010, based on filings with the Securities and Exchange Commission by certain beneficial owners, the beneficial ownership of the outstanding Voting Stock held by (i) each person or entity beneficially owning more than 5% of the shares of any class of Voting Stock, (ii) each director, nominee, and certain executive officers, individually, and (iii) all directors and executive officers as a group.


	Amount &
	Nature of
Name and Address of	Beneficial		Title of	%			%
Beneficial Owner	Ownership		Class	Of Class			Voting (1)
Europa Cruises Corporation		2,863,640	Common		7.16	%		6.85	%
Employee Stock Ownership Plan Trust (2) 1301 Seminole Boulevard., Suite 142 Largo, Florida 33770

Deborah A. Vitale (2) (3)		5,399,884	Common		13.50	%		12.91	%
Chairman, President, CEO, and Treasurer Chairman, President, and Treasurer of Casino World, Inc. and Mississippi Gaming Corp. 1013 Princess Street Alexandria, Virginia 22314

Gregory Harrison (4)		1,460,024	Common		3.65	%		3.49	%
Director, Secretary, and Vice President 16209 Kimberly Grove Gaithersburg, Maryland 20878

Benjamin J. Harrell (5)		575,000	Common		1.44	%		1.37	%
Director 237 N. Peters Street, Fourth Floor New Orleans, Louisiana 70130

Frank E. Williams, Jr. (6)		372,150	Common		.93	%		.89	%
Director 2789b Hartland Road Falls Church, Virginia 22043

Carl D. Stevens (7)		602,324	Common		1.51	%		1.44	%
Director 1753 Highway 42 South Forsyth, Georgia 31029

H. Steven Norton (8)		175,000	Common		.44	%		.42	%
Director 700 Rozier Street Alton, Illinois 62002

W. Austin Lewis IV (9)		3,671,280	Common		9.18	%		8.78	%
500 5^th Avenue, Suite 220 New York, New York 10010

Serco International Limited (10)		1,251,831	Common		3.13	%		7.36	%
P.O. Box 15, A-9010		900,000	S-NR Preferred		100.00	%
Klagenfurt, Austria		926,000	S- Preferred		100.00	%

Austroinvest International Limited (10)		1,251,831	Common		3.13	%		7.36	%
P.O. Box 15, A-9010		900,000	S-NR Preferred		100.00	%
Klagenfurt, Austria		926,000	S- Preferred		100.00	%


	Amount &
	Nature of
Name and Address of	Beneficial		Title of	%			%
Beneficial Owner	Ownership		Class	Of Class			Voting (1)
Ernst G. Walter (10)		1,251,833	Common		3.13	%		7.36	%
14700 Gulf Blvd., Apt.401		900,000	S-NR Preferred		100.00	%
Madeira Beach, Florida 33708		926,000	S- Preferred		100.00	%

All Directors and Executive Officers as a Group ( 7 persons)		12,255,662			30.64	%		29.30	%


(1)		Common Stock, Series S-NR Preferred Stock and Series S Preferred Stock have been combined for the purpose of calculating voting percentages.

(2)		The Europa Cruises Corporation Employee Stock Ownership Plan (“ESOP”) was established on August 18, 1994. The Trustee of the ESOP is Deborah A. Vitale, President, CEO, and Chairman of the Board. As of December 31, 2009, 2,215,905 ESOP shares had been released and 2,136,360 ESOP shares had been allocated to participants in the ESOP. The participants in the ESOP are entitled to direct the Trustee as to the manner in which the Company’s allocated shares are voted. The remaining 2,863,640 unallocated shares are voted by the Trustee. The Trustee is required to vote the unallocated ESOP shares in the best interests of the ESOP beneficiaries.


(3)		Includes 2,863,640 unallocated common shares of the ESOP Trust; 767,000 shares of Common Stock owned directly by Ms. Vitale; options to purchase 1,375,000 shares of Common Stock; and 394,244 shares of Common Stock, which represent shares of stock held in Ms. Vitale’s fully vested ESOP participant account.

(4)		Includes 1,140,024 shares of Common Stock owned directly by Mr. Harrison; 70,000 shares owned by the Harry and Marie Harrison Trust of which Mr. Harrison is a Co-Trustee; options to purchase 250,000 shares of Common Stock.

(5)		Includes 400,000 shares of Common Stock owned directly by Mr. Harrell and options to purchase 175,000 shares of Common Stock.

(6)		Includes 218,500 shares of Common Stock owned directly by Mr. Williams; 53,650 shares of Common Stock owned by the Williams Family Limited Partnership of which Mr. Williams is President of the General Partner, the Williams Family Corporation; and options to purchase 100,000 shares of Common Stock.

(7)		Includes 502,324 shares of Common Stock owned directly by Mr. Stevens and options to purchase 100,000 shares of Common Stock.

(8)		Includes 75,000 shares of Common Stock owned directly by Mr. Norton and options to purchase 100,000 shares of Common Stock.


(9)		Includes 2,980,959 shares owned by the Lewis Opportunity Fund, LP and 636,721 shares owned by the LAM Opportunity Fund, Ltd. The aforesaid investment funds are managed by the Lewis Asset Management Corp., a Delaware corporation, of which Mr. Lewis is the General Partner and Chief Investment Officer. Includes 53,600 shares of Common Stock owned directly by Mr. Lewis.

(10)		Serco International Limited (f/k/a Serco International Financial Advisory Services, Ltd.) and Austroinvest International Limited are affiliated entities. The Company understands that Dr. Ernst Walter is the sole director of each company. The total beneficial ownership of securities of the Company held by the foregoing and Dr. Walter includes: 1,251,831 shares of Common Stock owned by Serco International Limited; 900,000 shares of Series S-NR Preferred Stock owned by Serco International Limited; and 926,000 shares of Series S Preferred Stock owned by Austroinvest International Limited.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On August 18, 1994, the Company established the Europa Cruises Corporation Employee Stock Ownership Plan (the “ESOP”). The ESOP, which is a qualified retirement plan under the provisions of Section 401(a) of the Internal Revenue Code and an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Internal Revenue Code, was established primarily to invest in stock of the Company. All employees as of December 31, 1994, and subsequent new employees having completed 1,000 hours of service, are eligible to participate in the ESOP. The Company also established a trust called the Europa Cruises Corporation Employee Stock Ownership Plan Trust Agreement, to serve as the funding vehicle for the ESOP. Deborah A. Vitale, CEO, President and Treasurer of the Registrant, is the sole Trustee of the Trust. As of December 31, 2009, 2,215,905 shares of Common Stock had been released and 2,136,360 shares of Common Stock had been allocated to participants in the ESOP. Unallocated shares are voted by the Trustee. The Trustee is required to vote the unallocated ESOP shares in the best interests of the ESOP beneficiaries.

On August 21, 1994, the Company loaned $4,275,000 to the ESOP in exchange for a ten-year promissory note bearing interest at eight percent per annum. On August 24, 1994, the ESOP purchased 2,880,000 shares of the Company’s Common Stock with the proceeds of the loan. On August 25, 1994, the Company loaned an additional $3,180,000 to the ESOP in exchange for a ten year promissory note bearing interest at eight percent per annum. On August 26, 1994, the ESOP purchased an additional 2,120,000 shares of the Company’s Common Stock with the proceeds of the loan. The shares of Common Stock were pledged to the Company as security for the loans. The promissory notes will be repaid with the proceeds of annual contributions made by the Company to the ESOP. In April of 1995, the Company agreed to extend the maturity of the loans to twenty years. Effective for the Plan year beginning January 1, 2001, the Company amended the plan and related loans for the purpose of limiting excise tax liability for plan contributions in excess of IRS Code Section 415 limitations. To accomplish this, the Company agreed to extend the maturity of the loans to fifty years.

Meetings of the Board of Directors

The Board of Directors held twelve meetings during 2009 and all Directors, with the exception of Mr. Norton, attended at least 75% of the meetings held while they served as Directors. Mr. Norton attended seven of the twelve meetings held.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Audit Committee approved all services provided by the Company’s independent registered public accounting firm, Friedman LLP, for the years ended December 31, 2009, 2008 and 2007. The following fees were paid or are payable to Friedman LLP for services in those years:


	2009		2008		2007
Audit Fees	$	83,580	$	84,268	$	61,275
Audit-Related Fees		10,300		9,785		8,755
Tax Fees		0		0		0
All Other Fees		0		0		0


Total Fees Paid to Friedman LLP	$	93,880	$	94,053	$	70,030

Audit fees are comprised of fees for professional services rendered in conjunction with the audit of the Company’s annual financial statements, review of the Company’s annual report filed with the Securities and Exchange Commission, and review of the information contained in the Company’s quarterly reports filed with the Securities and Exchange Commission.

Audit-related fees are comprised of the fees for professional services rendered in connection with the audit of the Company’s Employee Stock Ownership Plan.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits


(a)		3(a)(i)	Certificate of Incorporation of the Company. (ii) Amendment to Certificate of Incorporation of the Company

(a)		3(b)	By-laws of the Company.

(b)	10(ee)		Vessel Purchase Agreement dated July 8, 1992 between the Company and FLC, Re: Purchase of the EuropaSky.

(b)	10(ff)		Contract of Sale dated July 21, 1992, between the Company and Ferry Binghamton, Inc. Re: the Purchase of Miss New York.



(b)	10(gg)		Agreement to Lease and Option to Purchase dated July 7, 1992, between the Company and A&M Developers, Inc. Re:
			Bossier City site.

(b)	10(hh)		Vessel Completion Contract by and between Eastern Shipyards, Inc., and FLC Holding Corporation Re: EuropaSky.

(c)		4.1	Subscription and Investment Agreement between Europa Cruises Corporation and Lagoon Cruise Line, Inc. dated August 26, 1994.

(c)		4.2	Warrant Agreement between Europa Cruises Corporation and FLC Holding Corp dated July 8, 1992.

(c)		4.2.1	Consent and Amendment of Credit Agreement Note and Warrant by and among FLC Holding Corp. (“FLC”), EuropaSky Corporation (“EuropaSky”), Europa Cruises Corporation and Casino World, Inc. (“Casino”), dated May 27, 1993 without Exhibits.

(c)		4.3	Warrant Agreement between Europa Cruises Corporation and The Stuart-James Company Incorporated dated June 29, 1989.

(c)		4.3.1	Warrant Certificates and Assignments for 125,520 shares and 17,000 shares registered in the name of Marc N. Geman dated June 22, 1994.

(c)		4.3.2	Motion to Approve Settlement Agreement Among Trustee, Marc N. Geman and Chatfield Dean & Co., Inc. dated October 8, 1993 with Settlement Agreement dated October 6, 1993 attached.

(c)		4.3.4	Order Approving Settlement Agreement Among Trustee, Marc N. Geman and Chatfield Dean & Co., Inc.

(c)		4.3.5	Agreement between Marc N. Geman and Europa Cruises Corporation dated June 15, 1993.

(c)		4.4	Convertible Promissory Note between Europa Cruises Corporation and Serco International Ltd. dated November 11, 1993: Transfer by Serco International Ltd. to Gaming Invest Corp. and election to convert Promissory Note by Gaming-Invest Corp.

(c)		10.1	Consulting Agreement between Europa Cruises Corporation and Casinos Austria Maritime Corporation dated September 16, 1994.

(c)		10.1.1	Equipment Lease between Europa Cruises Corporation and Casinos Austria Maritime Corporation dated October 13, 1994.



(c)	10.1.2	Promissory Note payable to Casinos Austria Maritime Corporation dated December 30,1994, and Second Naval Mortgage on the M/V Stardancer.

(c)	10.1.3	Subordination Agreement between Lagoon Cruise Line, Inc., Europa Stardancer Incorporation and Casinos Austria Maritime Corporation.

(a)	10(d)	The Company’s 1988 Stock Option Plan.

(d)	10.5	Promissory Note between Diamondhead Casino Corporation and Gregory Harrison dated March 20, 2008.

(d)	10.5.1	Promissory Note between Diamondhead Casino Corporation and Benjamin Harrell dated March 20, 2008.

(e)	10.6	Term Sheet (Redacted) for $1 Million Line of Credit dated October 22, 2008.

Index to Exhibits

(a)		Previously filed as an exhibit to the Company’s Registration Statement No. 33-26256-A and incorporated by reference.

(b)		Previously filed as an exhibit to the Company’s Form S-2 Registration Statement dated August 26, 1992 and incorporated by reference.

(c)		Previously filed as an exhibit to the Company’s S-2 Registration Statement (No. 33-89014) filed January 31, 1995 and incorporated by reference.

(d)		Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated by reference.

(e)		Attached as an Exhibit to this Annual Report

Subsidiaries of the Registrant:

Mississippi Gaming Corporation (Delaware)
Casino World, Inc. (Delaware)
Europasky Corporation (Delaware)

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.

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, thereunto duly authorized.


	DIAMONDHEAD CASINO CORPORATION
DATE: April 15, 2010	/s/ Deborah A. Vitale
	By: Deborah A. Vitale, President



	/s/ Robert Zimmerman
	By: Robert Zimmerman, Chief Financial Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature and Title		Date

/s/ Deborah A. Vitale		April 15, 2010
President and Chairman of the Board

/s/ Gregory A. Harrison		April 15, 2010

Corporate Secretary and Director

/s/ Frank E. Williams, Jr.		April 15, 2010

Director

/s/ Benjamin J. Harrell		April 15, 2010

Director

/s/ Carl D. Stevens		April 15, 2010

Director

/s/ H. Steve Norton		April 15, 2010

Director

/s/ W. Austin Lewis IV		April 15, 2010

Director

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

CONTENTS


	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008		F-3

CONSOLIDATED STATEMENTS OF LOSS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007		F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007		F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007		F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of:
Diamondhead Casino Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Diamondhead Casino Corporation and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diamondhead Casino Corporation and Subsidiaries as of December 31, 2009 and 2008, and financial results and their cash flows for each of the years in the three-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the consolidated financial statements, the Company has incurred significant recurring net losses over the past few years. In addition, the Company has discontinued all significant operations, except for its efforts to develop the Diamondhead, Mississippi property. Such efforts may not contribute to the Company’s cash flows in the foreseeable future. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continued existence is dependent upon its ability to raise the necessary capital with which to satisfy liabilities, fund future operations and develop the Diamondhead, Mississippi property. Management’s plans in regard to these matters are also described in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Friedman LLP
New York, New York
April 15, 2010

F-2

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2009 AND 2008


	2009			2008
ASSETS

Current assets
Cash	$	42,410		$	295,968
Prepaid insurance and other current assets		16,154			22,468

Total current assets		58,564			318,436

Property and equipment, less accumulated depreciation of $15,205 in 2009 and 2008		—			—
Land held for development (Note 3)		5,409,913			5,409,913

Deferred financing costs (net of amortization of $11,550 in 2009 and $1,836 in 2008)		27,544			37,258
Other assets		80			26,514


	$	5,496,101		$	5,792,121


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Note Payable to Director	$	—		$	55,000
Note Payable — Other		8,538			—
Accounts payable and accrued expenses		269,782			203,884


Total current liabilities		278,320			258,884

Long-Term Debt (net of unamortized discount of $74,242 in 2009 and $23,095 in 2008)		925,758			276,905

Commitments and contingencies (Notes 3 and 7)

Stockholders’ equity (Note 4)
Preferred stock, $.01 par value; shares authorized 5,000,000, outstanding 2,086,000 in 2009 and 2008 (aggregate liquidation preference of $2,519,080 in 2009 and 2008		20,860			20,860
Common stock, $.001 par value; shares authorized 50,000,000, Issued: 36,804,486 in 2009, 36,731,687 in 2008, outstanding: 33,970,045 in 2009, 33,817,701 in 2008		36,805			36,732
Additional paid-in capital		33,631,573			33,544,516
Unearned ESOP shares		( 4,151,086	)		( 4,269,687	)
Accumulated Deficit		( 25,238,470	)		( 24,068,430	)
Treasury stock, at cost, 50,346 shares		( 7,659	)		( 7,659	)


Total stockholders’ equity		4,292,023			5,256,332


	$	5,496,101		$	5,792,121

See accompanying notes to consolidated financial statements.

F-3

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS

YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007


	2009			2008			2007
COSTS AND EXPENSES
Administrative and General	$	846,306		$	877,781		$	925,240
Stock-based Compensation		25,133			2,072,927			—
Depreciation and Amortization (Note 3)		9,714			2,061			965
Other		100,585			169,719			255,887


		981,738			3,122,488			1,182,092


OTHER INCOME (EXPENSE)
Interest Earned on Invested Cash		2,025			4,374			25,941
Interest Expense		(88,727	)		(6,460	)		—
Other		—			—			664

		(86,702	)		(2 ,086	)		26,605

NET LOSS		(1,068,440	)		(3,124,574	)		(1,155,487	)


PREFERRED STOCK DIVIDENDS		(101,600	)		(103,040	)		(107,360	)


NET LOSS APPLICABLE TO COMMON SHAREHOLDERS	$	(1,170,040	)	$	(3,227,614	)	$	(1,262,847	)


Net loss per common share, basic and diluted	$	(.035	)	$	(.096	)	$	(.038	)


Weighted average number of common shares outstanding		33,905,757			33,689,181			33,376,421

See accompanying notes to consolidated financial statements.

F-4

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007


	2009			2008			2007
*Preferred Stock*
Balance January 1	$	20,860		$	21,220		$	21,220
Conversion of shares to Common		—			(360	)		—

Balance December 31	$	20,860		$	20,860		$	21,220


*Common Stock*
Balance January 1	$	36,732		$	36,477		$	36,217
Exercise of Stock Options		—			200			241
Issued for Services		20			—			—
Preferred Stock Dividends		53			19			19
Conversion of Preferred		—			36			—

Balance December 31	$	36,805		$	36,732		$	36,477


*Additional Paid-In Capital*
Balance January 1	$	33,544,516		$	31,171,566		$	30,709,032
ESOP Compensation		(61,925	)		4,693			93,784
Exercise of Stock Options		—			199,800			321,409
Shares Issued for Services		13,080			—			—
Stock-based Awards		94,355			2,135,512			—
Conversion Preferred to Common		—			324			—
Preferred Stock Dividends		41,547			32,621			47,341

Balance December 31	$	33,631,573		$	33,544,516		$	31,171,566


*Unearned ESOP Shares*
Balance January 1	$	(4,269,687	)	$	(4,388,289	)	$	(4,506,890	)
ESOP Compensation		118,601			118,602			118,601

Balance December 31	$	(4,151,086	)	$	(4,269,687	)	$	(4,388,289	)


*Accumulated (Deficit)*
Balance January 1	$	(24,068,430	)	$	(20,840,816	)	$	(19,577,969	)
Preferred Stock Dividends		(101,600	)		(103,040	)		(107,360	)
Net Loss for Year		(1,068,440	)		(3,124,574	)		(1,155,487	)

Balance December 31	$	(25,238,470	)	$	(24,068,430	)	$	(20,840,816	)


*Treasury Stock*
Balance January 1	$	(7,659	)	$	(7,659	)	$	(7,659	)

Balance December 31	$	(7,659	)	$	(7,659	)	$	(7,659	)


*Total Stockholders Equity*	$	4,292,023		$	5,256,332		$	5,992,499

See accompanying notes to consolidated financial statements

F-5

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007


	2009			2008			2007
OPERATING ACTIVITIES
Net loss	$	(1,068,440	)	$	(3,124,574	)	$	(1,155,487	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		9,714			2,061			965
ESOP provision		56,676			123,295			212,385
Write off of long term receivable		26,434			—			—
Issuance of stock-based compensation		25,133			2,072,927			—
Amortization of loan discount		18,075			396			—
(Increase) decrease in:
Other current assets		6,314			(5,418	)		(762	)
(Decrease) increase in:
Accounts payable and accrued expenses		63,998			(7,550	)		1,125
Sales tax settlement liability		—			—			—

Net cash used in operating activities		(862,096	)		(938,863	)		(941,774	)


FINANCING ACTIVITIES
Proceeds from Line of Credit		700,000			300,000			—
Proceeds from short term note		8,538
Proceeds form issuance of Notes payable to Directors		—			205,000			—
Payment of Note payable to Director		(55,000	)		(25,000	)		—
Proceeds from exercise of options and warrants to purchase common stock		—			75,000			321,650
Payment of preferred stock dividends		(45,000	)		(60,000	)		(60,000	)

Net cash provided by financing activities		608,538			495,000			261,650


Net (decrease) in cash		(253,558	)		(443,863	)		(680,124	)
Cash beginning of year		295,968			739,831			1,419,955

Cash end of year	$	42,410		$	295,968		$	739,831

See accompanying notes to consolidated financial statements.

F-6

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Business

Diamondhead Casino Corporation (the “Company”) owns a total of approximately 404.5 acres of unimproved land in Diamondhead, Mississippi on which it plans, in conjunction with one or more partners, to construct a casino resort and hotel and associated amenities. The Company officially changed its name from Europa Cruises Corporation to Diamondhead Casino Corporation in November of 2002. The Company was originally formed to principally own, operate and promote gaming vessels offering day and evening cruises in international waters.

2. Liquidity and Going Concern

The 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 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 $1,170,040, $3,227,614 and $1,262,847 for the years ending December 31, 2009, 2008 and 2007 respectively and projects continued losses for the foreseeable future.

The Company has generated no operating revenues since it ended its gambling cruise ship operations in 2000 and has had to rely on alternative means to raise capital to meet its financial obligations. In prior years, the Company was able to sustain its cash position and continue to satisfy its ongoing expenses through the sale of common stock formerly held in treasury and receipt of cash from the exercise of options and warrants to purchase common stock. In 2008, the Company entered into two promissory notes with two Directors of the Company yielding proceeds of $205,000, received $75,000 from the exercise of options to purchase 100,000 shares of common stock, and obtained a Line of Credit from an unrelated third party investor in the total amount of $1,000,000 which the company has fully utilized.

At December 31, 2009, the Company had cash on hand totaling $42,410 and current liabilities totaling $278,320. The Company has been able to sustain itself by deferring payment of certain expenses, including compensation of Executive Officers. On March 25, 2010, the Company announced that, pursuant to a Private Placement Memorandum, the details of which are fully described in Note 10 to these consolidated financial statements, it had accepted subscriptions of Units totaling $275,000 from unrelated accredited investors and was able to access those funds inasmuch as the amount exceeded the Minimum Offering. Each Unit consists of an 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 Note is convertible into 50,000 shares of common stock of the Company. On March 31, 2010, the Company accepted a subscription for an additional $25,000 from a Director of the Company, Gregory Harrison. The offering of Units will continue until the earlier of: (a) the sale of 30 Units, or (b) April 30, 2010, unless extended without notice by the Company for up to two additional 30 day periods (the “Termination Date”).

The Company intends to use the proceeds from this offering, depending upon the amount raised, to pay certain current liabilities, to pay partial accrued, but unpaid salaries, for general corporate purposes and working capital, and to sustain the Company while it seeks additional financing.

In addition to the above, the Company has taken steps to actively pursue alternatives to raise additional capital, including mortgaging a portion of its Diamondhead property and sale of all or part of that property. The Company

F-7

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Liquidity and Going Concern (continued)

is currently in viable discussions with parties from the gaming industry in an effort to form a joint venture to proceed with development of 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, it could have a significant adverse impact on the Company’s ability to continue as a going concern and ultimately develop the property.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Diamondhead Casino Corporation and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

The Company’s cash balances are maintained primarily in one bank and are currently insured by the Federal Deposit Insurance Corporation subject to certain limitations.

Land Held for Development

Land held for development is carried at cost. Costs directly related to site development, such as licensing, permitting, engineering, and other costs, are capitalized.

Land development costs, which have been capitalized, consist of the following:


Land under development	$	4,868,139
Licenses		77,000
Engineering and costs associated with permitting		464,774


	$	5,409,913

F-8

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies (continued)

Fair Value Measurements

In the first quarter of 2008, the Company adopted “Fair Value Measurements” for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. The standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). 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 3: Unobservable input that reflects management’s own assumptions.

In the first quarter of 2009, the Company adopted “Fair Value Measurements” for nonfinancial assets and nonfinancial liabilities, as required.

In April 2009, the FASB issued FSP No. FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” which was codified into ASC Section 820-10-65 “Fair Value Measurements and Disclosures — Overall — Transition and Open Effective Date Information.” This amendment provides additional guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased when compared with normal market activity for the asset or liability. A significant decrease in the

F-9

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies (continued)

Fair Value Measurements (continued)

volume or level of activity for the asset or liability is an indication that transactions or quoted prices may not be determinative of fair value because transactions may not be orderly. In that circumstance, further analysis of transactions or quoted prices is needed and an adjustment to the transactions or quoted prices may be necessary to estimate fair value. This amendment became effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted this standard for the interim reporting period ending March 31, 2009. There was no material impact on the Company’s consolidated financial position or results of operations upon adoption.

In August 2009, the FASB issued ASU 2009-05, an amendment to ASC Subtopic 820-10, “Fair Value Measurements and Disclosures — Overall” for the fair value measurement of liabilities. The update provides clarification in cases where a quoted price in an active market for the identical liability is not available and requires entities to measure fair value using one or more of the following techniques:

1) A valuation technique that uses:

a) The quoted price of the identical liability when traded as an asset.

b) Quoted prices for similar liabilities or similar liabilities when traded as an asset.

2) Another valuation technique that is consistent with the principles of Topic 820. This would include an income approach, such as a present value technique, or a market approach, such as a technique based on the amount an entity would pay to transfer the identical liability or would receive to enter into the identical liability.

The update, which was effective for the first reporting period beginning after issuance, did not have a material effect on the Company’s condensed consolidated financial statements.

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. No impairment existed as of December 31, 2009.

Employee Stock Ownership Plan

The Company has an Employee Stock Ownership Plan (ESOP) covering substantially all employees with one or more years of service, financed by employer loans. Compensation expense is measured at the current market price

F-10

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies (continued)

Employee Stock Ownership Plan (continued)

of shares committed for release and such shares constitute outstanding shares for earnings per share computations. As the loans are repaid, shares are released from the ESOP and allocated to qualified employees based upon the proportion of payments made during the year to the remaining amount of payments due on the loans through maturity. Dividends, if any, are treated as follows:

(1) stock dividends on shares allocated to participant accounts shall be credited to the participant account when paid (2) cash dividends on shares allocated to participant accounts shall, at the discretion of the Administrator, be credited to the participants’ Other Investment Account or be used to reduce the indebtedness to the Company, in which case, shares bearing an equal value to the cash dividend would be allocated to participant accounts. The Company has not paid any dividends on its common stock.

Income Taxes

Under the asset and liability method of “Accounting for Income Taxes,” deferred tax liabilities and assets are recognized for future tax consequences attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance is recorded to reflect the uncertainty of realization of deferred tax assets.

The Company follows the provisions of “Accounting for Uncertainty in Income Taxes.” The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this standard, an entity may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The standard also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company does not have a liability for unrecognized tax benefits.

The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2006. During the periods open to examination, the Company has net operating loss (“NOL”) carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOL carry forwards may be utilized in future periods, they remain subject to examination until they expire.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2009 and 2008, the Company has no accrued interest or penalties related to uncertain tax positions.

Net Loss per Common Share

Basic earnings/(loss) per share is computed by dividing net income/(loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings/ (loss) per share is calculated by using the weighted average number of common shares outstanding, plus other potentially dilutive securities. Common shares outstanding consist of issued shares, including allocated and committed shares held by the ESOP trust, less shares held in treasury. Dilutive securities included stock purchase options and convertible preferred stock which

F-11

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies (continued)

Net Loss per Common Share(continued)

totaled 3,400,000 for the year ended December 31, 2009, 3,225,000 for the year ended December 31, 2008 and 3,336,000 for the year ended December 31, 2007. The foregoing is excluded from diluted net loss per share as their effect would be antidilutive.

Segment Information

Operating segments are components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company currently operates solely in one segment, development of land, which relates to planned future operations.

Stock Based Compensation

The valuation was determined using the following weighted-average assumptions shown in the table below.


	2009			2008
Dividend Yield		0	%		0	%
Expected Volatility		89.49	%		49.25% - 96.10	%
Expected Option Life (years)		3.1			5
Average Risk-Free Interest Rate		2.03	%	2.31% to 2.82%

F-12

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies (continued)

Stock Based Compensation (continued)

New Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position (“FSP”) “Interim Disclosures about Fair Value of Financial Instruments.” This standard amends prior requirements concerning disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements. The standard also amends prior guidance requiring those disclosures in summarized financial information at interim reporting periods. This standard is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted this standard for the interim reporting period ending March 31, 2009.

In January 2010, the FASB issued Accounting Standards Update No. 2010-0, “Improving Disclosures about Fair Value Measurements” (the “Update”). The Update provides amendments to FASB Accounting Standards Codification (“ASC”) 820-10 that require entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, the Update requires entities to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The disclosures related to Level 1 and Level 2 fair value measurements are effective for the Company in 2010 and the disclosures related to Level 3 fair value measurements are effective for us in 2011. The Update requires new disclosures only, and will have no impact on the Company’s consolidated financial position, results of operations, or cash flows.

4. Note Payable to Director

In March 2008, the Company borrowed $205,000 from two Directors to meet its short term liquidity needs pursuant to the terms of two promissory notes. The first note provided for the repayment of $150,000 to the Vice President of the Company, who is also a Director of the Company. The second note provided for the repayment of $55,000 to a Director of the Company. Both loans were due and payable on or before May 1, 2009 and provided for interest at the rate of 9% per annum. Both loans were unsecured.

On March 28, 2008, the Vice President of the Company, who had previously loaned the Company $150,000 pursuant to the aforementioned promissory note, exercised an option to purchase 100,000 shares of common stock at an exercise price of $1.25 per share by applying $125,000 of the $150,000 which the Company owed him to exercise the option. The remaining balance on this note was paid in the second quarter of 2008. The remaining balance on the second note in the amount of $55,000 was paid in full on May 1, 2009.

F-13

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Long-Term Debt

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 prorata 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 has an option to purchase a maximum of 250,000 additional shares of common stock of the Company at $1.75 per share based on the proportion that the amount borrowed bears to the $1,000,000 Line of Credit. The options expire on the earlier of November 1, 2012 or following repayment in full by the Company of the amount borrowed.

The Company incurred finders’ fees in obtaining the facility, including a fee paid to an unrelated party in January 2009 by issuing 20,000 shares of common stock then-valued at $13,100. In addition, under the terms of an agreement with the Company, a Director and Vice President of the Company received 6% of the amount of funds borrowed under the facility for his efforts in securing the Line of Credit. A total of $20,000 was paid to him in 2008 and an additional $40,000 was paid to him in 2009.

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 $43,669 at December 31, 2009.

The Company valued the first option to purchase 50,000 shares of common stock at $39,094 using the Black-Scholes option pricing model with the following weighted-average assumptions: dividend yield of zero, expected volatility of 69.88%, expected life of 4.02 years and average risk-free interest rate of 1.76%. The value of this option is recorded as deferred financing cost and will be amortized over the expected life of the debt. Deferred financing cost amortization amounted to $9,714 for the year ended December 31, 2009.

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. The table below summarizes each of the option grants associated with each draw and the weighted average valuation assumptions of the respective grant. These options are recorded as debt discount and amortized to interest expense over the expected life of the loan.


Date	12/08/08			3/17/09			6/08/09
Amount of Draw	$	300,000		$	300,000		$	400,000
Options Granted		75,000			75,000			100,000
Valuation	$	23,491		$	9,640		$	59,582
Dividend Yield		0	%		0	%		0	%
Expected Volatility		64.99	%		76.77	%		86.47	%
Expected Life (Years)		3.90			3.63			3.40
Risk Free Interest Rate		1.357	%		1.790	%		2.110	%

F-14

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Long Term Debt (continued)

Amortization of debt discount for the years ended December 31, 2009 and 2008 amounted to $18,075 and $396 respectively.

6. Stockholders’ Equity

At December 31, 2009, 2008 and 2007, the Company had a stock option plan and non-plan options, which are described below.

Non-Plan Stock Options

On June 10, 2009, the Company modified all unexercised options originally issued in 2004 by extending the expiration date three years from the original expiration date. A total of 75,000 options to purchase common shares were affected by the modification.

On February 12, 2008, the Company modified all unexercised options originally issued in 2003 by extending the expiration date five years from the original expiration date. A total of 990,000 options to purchase common shares were affected by the modification.

In March 2008, a Director of the Company exercised an option to purchase 75,000 shares of common stock at an exercise price of $.75 per share. Also in March 2008, a Director and Vice President of the Company exercised an option to purchase 100,000 shares of common stock at $1.25 per share.

In July 2008, a key employee of the Company exercised an option to purchase 25,000 shares of common stock at an exercise price of $.75 per share.

In February 2007, a key employee of the Company exercised an option to purchase 106,000 shares of common stock at an exercise price of $.90 per share and an Officer of the Company exercised an option to purchase 35,000 shares of common stock at an exercise price of $.75 per share.

Stock Option Plan

On December 19, 1988, the Company adopted a stock option plan (the “Plan”) for its officers and management personnel under which options could be granted to purchase up to 1,000,000 shares of the Company’s common stock. Accordingly, the Company reserved 1,000,000 shares for issuance under the Plan. The option price may not be less than 100% of the market value of the shares on the date of the grant. The options expire within ten years from the date of grant. At December 31, 2009, no options from this plan were issued or exercised.

Accounting for Stock Options

A summary of the status of the Company’s fixed Plan and non-plan options as of December 31, 2009, 2008 and 2007, and changes during the years ended on December 31, 2009, 2008 and 2007 is presented below:

F-15

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Stockholders’ Equity (continued)

Accounting for Stock Options(continued)


	December 31, 2009				December 31, 2008						December 31, 2007
			Weighted					Weighted						Weighted
			Average					Average						Average
			Exercise					Exercise						Exercise
	Shares		Price		Shares			Price			Shares			Price
Outstanding at beginning of year		2,965,000	$	1.22		3,040,000		$	1.18			3,181,000		$	1.17
Granted		175,000		1.75		125,000			1.75			—			—
Exercised		—		—		(200,000	)		(1.00	)		(141,000	)		(.86	)
Expired		—		—		—			—			—			—

Outstanding at end of year		3,140,000	$	1.25		2,965,000		$	1.22			3,040,000		$	1.18

Options exercisable at year-end		3,140,000		—		2,965,000			—			3,040,000			—
Weighted-average fair value of options granted during the year			$	1.75				$	1.75					$	—

The following tables, summarizes information about stock options outstanding and exercisable at December 31, 2009 and 2008:

December 31, 2009


	Options Outstanding						Options Exercisable
			Weighted-
	Number		Average		Weighted		Number		Weighted-
Range of	Outstanding		Remaining		Average		Exercisable		Average
Exercise	At		Contractual		Exercise		At		Exercise
Prices	12/31/09		Life (Yrs.)		Price		12/31/09		Price
$ .30		750,000		3.19	$	.30		750,000	$	.30
$ .72 - $ .80		840,000		1.26		.78		840,000		.78
$1.25		600,000		.82		1.25		600,000		1.25
$1.75		300,000		2.84		1.75		300,000		1.75
$2.70		650,000		1.28		2.70		650,000		2.70

		3,140,000						3,140,000

December 31, 2008


	Options Outstanding						Options Exercisable
			Weighted-
	Number		Average		Weighted		Number		Weighted-
Range of	Outstanding		Remaining		Average		Exercisable		Average
Exercise	At		Contractual		Exercise		At		Exercise
Prices	12/31/08		Life (Yrs.)		Price		12/31/08		Price
$ .30		750,000		4.19	$	.30		750,000	$	.30
$ .72 - $ .80		840,000		2.05		.78		840,000		.78
$1.25		600,000		1.82		1.25		600,000		1.25
$1.75		125,000		3.84		1.75		125,000		1.75
$2.70		650,000		2.28		2.70		650,000		2.70

		2,965,000						2,965,000

F-16

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Stockholders’ Equity (continued)

Preferred Stock

On June 14, 1993, the Company issued 926,000 shares of $.01 par value Series S Voting, Non-Convertible Preferred Stock to Austroinvest International, Inc. in exchange for proceeds of $1,000,080. The Company pays quarterly cumulative dividends of three percent per annum on these shares.

These shares may be redeemed at the option of the Company at $1.08 per share plus $.0108 per share for each quarter that such shares are outstanding. The shares also have a $1.08 per share preference in involuntary liquidation of the Company. At December 31, 2009 and 2008, outstanding Series S preferred stock totaled 926,000 shares. Cumulative dividends in arrears at December 31, 2009 amounted to $7,500. No cumulative dividends were in arrears at December 31, 2008.

On September 13, 1993, the Company issued 900,000 shares of its $.01 par value Series S-NR Voting, Non-Convertible, Non-Redeemable, Preferred Stock to Serco International Limited (a wholly-owned subsidiary of Austroinvest International, Inc.), in exchange for proceeds of $999,000. The Company pays quarterly, non-cumulative dividends of three percent per annum on these shares. Upon involuntary liquidation of the Company, the liquidation preference of each share is $1.11. At December 31, 2009 and 2008, outstanding Series S-NR preferred stock totaled 900,000 shares.

In March 1994, the Company offered, pursuant to Regulation S, one million units at $5.50 per unit, each unit consisting of one share of the Company’s $.001 par value common stock and two shares of the Company’s Series S-PIK Junior, cumulative, convertible, non-redeemable, non-voting $.01 par value preferred stock. Each share of Series S-PIK preferred stock is convertible into one share of the Company’s common voting stock at any time after February 15, 1995. A total of 36,000 shares were converted during 2008 and no shares were converted during 2009. The Series S-PIK preferred stock ranks junior to the Series S and Series S-NR preferred shares as to the distribution of assets upon liquidation, dissolution, or winding up of the Company. Upon liquidation of the Company, the S-PIK preferred stock will have a liquidation preference of $2.00 per share. A cumulative quarterly dividend of $0.04 per share is payable on Series S-PIK preferred stock. At December 31, 2009 and 2008, outstanding Series S-PIK preferred stock totaled 260,000 shares. At December 31, 2009, no dividends payable on Series S-PIK shares were in arrears.

During 2009, the Company paid $31,200 of the total preferred dividends of $101,600 with 40,564 shares of its common stock.

During 2008, the Company paid $32,640 of the total preferred dividends of $103,040 with 18,621 shares of its common stock. The Company paid $10,400 of preferred dividends due for the fourth quarter of 2008 with 12,235 shares of its common stock in January of 2009.

During 2007, the Company paid $47,360 of the total preferred dividends of $107,360 with 19,013 shares of its common stock.

F-17

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Employee Stock Ownership Plan

The Company’s employee stock ownership plan (ESOP) is intended to be a qualified retirement plan and an employee stock ownership plan. All employees having one year of service are eligible to participate in the ESOP. The ESOP is funded by two 8% promissory notes issued by the Company. The shares of common stock are pledged to the Company as security for the loans. The promissory notes are payable from the proceeds of annual contributions made by the Company to the ESOP. In January 2001, the Plan and accompanying promissory notes were amended to conform to the Company’s current employment structure, by extending the note repayment terms through 2044.

Shares are allocated to the participants’ accounts in relation to repayments of the loans from the Company and 79,545 shares were released in each year of the three year periods ending December 31, 2009. At December 31, 2009, 2,784,095 shares with a fair market value of $1,670,457 are unearned. At December 31, 2008, 2,863,640 shares with a fair market value of $1,718,184 were unearned.

The Company recognized net compensation expense equal to the shares allocated multiplied by the current market value of each share less any dividends received by the ESOP on unallocated shares.

Compensation expense related to the ESOP amounted to $56,676 in 2009, $123,295 in 2008 and $212,385 in 2007. The unearned ESOP shares in stockholders’ equity represented deferred compensation expense to be recognized by the Company in future years as additional shares are allocated to participants.

8. Income Taxes

At December 31, 2009, the Company had net operating loss carryforwards for income taxes of approximately $16.2 million, which expire during various periods through 2029. Realization of deferred income taxes as of December 31, 2009 and 2008 is not considered likely. Therefore, a valuation allowance of approximately $5.5 million and $5.0 million has been established for the entire amount of deferred tax assets relative to the net operating loss at December 31, 2009 and 2008 respectively.

9. Commitments and Contingencies

Leases

The Company leases office space in Largo, Florida pursuant to month-to-month lease with The Gentile Group LLC. The Company also leases storage facilities in Madeira Beach, Florida. The Company vacated its office facility in Diamondhead, Mississippi in September 2009. Rental expenses for all facilities totaled $21,737 in 2009, $28,149 in 2008 and $26,735 in 2007.

The Company is not liable for future minimum lease payments.

Management Agreement

On June 19, 1994, the Company entered into a Management Agreement with Casinos Austria Maritime Corporation (“CAMC”) to operate, on an exclusive basis, all of its proposed dockside gaming casinos in the State of Mississippi. If the Company enters into a joint venture arrangement pursuant to which the joint venture partner acquires a controlling interest, the agreement may terminate at the option of CAMC. The Management Agreement is for a term of five years beginning when the casino resort becomes operational and provides for the payment of an operational term management fee based on a percentage of gross gaming revenues, as defined therein.

F-18

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Commitments and Contingencies (continued)

Sales Tax Settlement

On November 28, 1994, the Florida Department of Revenue issued a Notice of Intent to make Sales and Use Tax Audit Changes to five subsidiaries of the Company for the period February 1, 1989 through June 30, 1994.

The total proposed assessments, including estimated penalties and interest, through June 15, 1997, totaled approximately $7.4 million. As of May 2005, the subsidiaries ceased all payments regarding the assessments and the total amount, including accrued interest, due the Florida Department of Revenue amounted to $1,125,752.

The five subsidiaries which were the subjects of the assessment are no longer operating, have no assets, and are unable to make further payments pursuant to their respective Closing Agreements. The parent corporation did not guarantee the payments under these settlement agreements. On May 18, 2006, the Company received correspondence from the Florida Department of Revenue stating that the Department had filed tax warrants with respect to the amounts owed by the subsidiaries in question and had placed these warrants as uncollectible and no further collection efforts would be pursued by the Florida Department of Revenue.

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:

The Company has agreements with Directors Harrell, Harrison and Norton 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 equal to one percent (1%) of the amount of any debt financing obtained and a commission of between one and one-half percent (1.5%) and four percent (4%) 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.

Master Plan

On September 21, 2009, the Company entered into an agreement with EDSA, a landscape architectural firm, to provide a Master Plan and supporting illustrative plan summary booklets at an approximate cost of $41,000. The funds are payable to EDSA in installments as phases in development of the plan are completed. As of December 31, 2009, the Company had paid a total of $19,000 for these services.

F-19

DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Commitments and Contingencies (continued)

Other

The Company has agreements with various 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. Subsequent Event

In January 2010, the Company purchased a residential lot located on a canal to the southwest of its property for $65,000 which was paid with 108,000 shares of common stock of the Company. The property, which comprises less than a quarter of an acre, was acquired to permit the Company to control the appearance and approach to the back entrance of its Diamondhead property.

Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units for sale to a limited number of accredited investors. Each Unit consisted of (a) a 12% interest-bearing, unsecured, convertible Promissory Note in the principal amount of $25,000 convertible into 50,000 shares of common stock, par value $ .001 per share (the “Notes”) and (b) a five-year Warrant to purchase up to 50,000 shares of our common stock, par value, $ .001 per share, at an exercise price of $1.00 per share (the “Warrants”). The Notes will mature on the same date, being two years from the issue date unless accelerated due to the occurrence of an event of default. The Notes are convertible at the option of the Holder at any time and, at the option of the Borrower, after 180 days or, alternatively, after the price of the Common Stock of the Borrower is at or above One Dollar ($1.00) per share for thirty (30) consecutive business days prior to the date of written notice to the Holder. Interest on the Notes is payable semi-annually at a rate of twelve percent (12%) per annum. The determination as to whether interest shall be paid in cash or Common Stock shall be at the sole option of the Company.

The offering is being conducted contingent on a minimum sale of 10 Units or $250,000 (the “Minimum Offering”). The Company may sell up to a maximum of an additional 20 Units, for a maximum offering of $750,000 (the “Maximum Offering”). The Company intends to offer the securities to accredited or institutional investors through its officers and directors in those jurisdictions where sales by such persons are permitted by law. No commission or other remuneration will be paid to any officer or director of the Company in connection with any sale of these securities.

The offering of Units will terminate upon the earlier of: (a) the sale of 30 Units, or (b) April 30, 2010, unless extended without notice by the Company for up to two additional 30 day periods (the “Termination Date”). The minimum subscription is one Unit or $25,000, although the Company reserves the right to accept a limited number of subscriptions for a fraction of a Unit.

On March 25, 2010, the Company announced that it had accepted subscriptions totaling $275,000 and was able to access those funds inasmuch as the amount exceeded the Minimum Offering.

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DIAMONDHEAD CASINO CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Supplemental Cash Flow Information

Supplemental cash flow information is as follows:


	2009		2008		2007
Interest paid:
Cash paid for interest	$	29,924	$	3,041	$	—


Stock issued to satisfy Note payable to Director	$	—	$	125,000	$	—


Stock issued to satisfy accounts payable	$	13,100	$	—	$	—


Preferred stock dividends paid with shares of common stock	$	41,600	$	32,640	$	47,360

12. Quarterly Financial Data (Unaudited)


	1st Qtr			2nd Qtr			3rd Qtr			4th Qtr			Total
2009
Costs and Expenses	$	238,307		$	282,764		$	263,780		$	196,887		$	981,738
Other Income and (Expense), Net		(9,645	)		(18,961	)		(28,689	)		(29,407	)		(86,702	)
Net (Loss)		(247,952	)		(301,725	)		(292,469	)		(226,294	)		(1,068,440	)
Loss per Share		(.008	)		(.010	)		(.009	)		(.007	)		(.035	)

2008
Costs and Expenses	$	2,330,504		$	282,636		$	239,236		$	270,112		$	3,122,488
Other Income and (Expense), Net		1,933			(339	)		(903	)		(2,777	)		(2,086	)
Net (Loss)		(2,328,571	)		(282,975	)		(240,139	)		(272,889	)		(3,124,574	)
Loss per Share		(.070	)		(.009	)		(.008	)		(.009	)		(.096	)

2007
Costs and Expenses	$	321,634		$	318,405		$	279,840		$	262,213		$	1,182,092
Other Income and (Expense), Net		8,123			7,391			6,033			5,058			26,605
Net (Loss)		(313,511	)		(311,014	)		(273,807	)		(257,155	)		(1,155,487	)
Loss per Share		(.010	)		(.010	)		(.009	)		(.009	)		(.038	)

F-21