10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2024

 

or

 

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

 

For the transition period from                          to

 

Commission File No: 0-17529

 

 

 

DIAMONDHEAD CASINO CORPORATION

(Exact name of registrant as specified in charter)

 

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

 

1013 Princess Street, Alexandria, Virginia 22314

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: 703-683-6800

 

Securities registered pursuant to Section 12(b)-2 of the Exchange Act.:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
None        

 

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

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 ☐ No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common equity as of the latest practicable date: Number of shares outstanding as of May 14, 2024: 39,052,472.

 

 

 

 

 

 

DIAMONDHEAD CASINO CORPORATION

 

INDEX TO FORM 10-Q

 

    Page
PART 1: FINANCIAL INFORMATION 1
     
ITEM 1: Unaudited Condensed Consolidated Financial Statements 1
     
  Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 1
     
  Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and March 31, 2023 2
     
  Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the Three Months Ended March 31, 2024 and March 31, 2023 3
     
  Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and March 31, 2023 4
     
  Notes to Unaudited Condensed consolidated Financial Statements 5
     
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Financial Results 18
     
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 21
     
ITEM 4: Controls and Procedures 21
     
PART II: OTHER INFORMATION 22
     
ITEM 1: Legal Proceedings 22
     
ITEM 1A: Risk Factors 23
     
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds 23
     
ITEM 3: Default Upon Senior Securities 23
     
ITEM 4: Mine Safety Disclosures 24
     
ITEM 5: Other Information 24
     
ITEM 6: Exhibits 24
     
  Signatures 25

 

I

 

 

DIAMONDHEAD CASINO CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $312,883   $426,124 
Total current assets   312,883    426,124 
Land (Note 3)   5,233,204    5,233,204 
Other receivable   154,622    154,622 
Other assets   80    80 
Total assets   5,700,789    5,814,030 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable and accrued expenses due related parties (Note 4)   8,505,454    8,315,187 
Accounts payable and accrued expenses - others (Note 4)   5,442,969    5,272,524 
Convertible notes and line of credit payable (Note 5)   1,962,500    1,962,500 
Debenture payable (Note 6)   50,000    50,000 
Convertible debenture payable (Note 6)   1,800,000    1,800,000 
Short term notes and interest bearing advance (Note 7)   65,504    65,504 
Notes payable due related parties (net of unamortized debt discount of $17,128 and $33,241 respectively) (Note 8)   685,392    669,279 
Notes payable due others (net of unamortized debt discount of $8,980 and $15,761 respectively) (Note 9)   548,520    541,739 
Total current liabilities   19,060,339    18,676,733 
Total liabilities   19,060,339    18,676,733 
           
Commitments and contingencies (Notes 3 and 12)   -     -  
           
Stockholders’ deficit:          
           
Preferred stock, $0.01 par value; shares authorized 5,000,000, outstanding 2,086,000 at March 31, 2024 and December 31, 2023 (aggregate liquidation preference of $2,519,080 at March 31, 2024 and December 31, 2023)   20,860    20,860 
Common stock, $0.001 par value; shares authorized 50,000,000, issued: 39,052,472 at March 31, 2024 and December 31, 2023 outstanding: 36,297,576 at March 31, 2024 and December 31, 2023   39,052    39,052 
Additional paid-in capital   36,663,780    36,663,780 
Unearned ESOP shares   (2,490,662)   (2,490,662)
Accumulated deficit   (47,359,649)   (46,862,802)
Treasury stock, at cost, 1,084,431 shares at March 31, 2024 and December 31, 2023   (232,931)   (232,931)
Total stockholders’ deficit   (13,359,550)   (12,862,703)
Total liabilities and stockholders’ deficit   5,700,789   $5,814,030 

 

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

 

1

 

 

DIAMONDHEAD CASINO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

 

         
   Three Months Ended 
   March 31, 
   2024   2023 
         
COSTS AND EXPENSES           
Administrative and general   $196,717   $200,293 
Other    22,880    16,912 
Total costs and expenses    219,597    217,205 
           
OTHER EXPENSE           
Interest expense:           
Related parties    105,773    171,703 
Other    146,077    109,049 
Total other expense    251,850    280,752 
          
NET LOSS    (471,447)   (497,957)
           
PREFERRED STOCK DIVIDENDS    (25,400)   (25,400)
           
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS   $(496,847)  $(523,357)
           
Weighted average common shares outstanding - basic and diluted     36,297,576    36,297,576 
Net loss per common share - basic and diluted   $(0.01)  $(0.01)

 

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

 

2

 

 

DIAMONDHEAD CASINO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(UNAUDITED)

 

                   Additional                       Total 
   Preferred Stock   Common Stock   Paid-in   Unearned ESOP   Accumulated   Treasury Stock   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Shares   Amount   Deficit 
                                             
Balances at January 1, 2023   2,086,000    20,860    39,052,472    39,052    36,122,078    1,750,010   $(2,609,264)  $(45,351,375)   1,004,886   $(216,227)  $     (11,994,876)
Common stock to be issued in connection with notes payable - related parties   -    -    -    -    17,500    -    -    -    -    -    17,500 
Dividends    -    -    -    -    -    -    -    (25,400)   -    -    (25,400)
Net loss   -    -    -    -    -    -    -    (497,957)   -    -    (497,957)
Balances at March 31, 2023   2,086,000    20,860    39,052,472    39,052    36,139,578    1,750,010   $(2,609,264)  $(45,874,732)   1,004,886   $(216,227)  $(12,500,733)
                                                        
Balances at January 1, 2024   2,086,000    20,860    39,052,472    39,052    36,663,780    1,670,465   $(2,490,662)  $(46,862,802)   1,084,431   $(232,931)  $(12,862,703)
Dividends   -    -    -    -    -    -    -    (25,400)   -    -    (25,400)
Net loss   -    -    -    -    -    -    -    (471,447)   -    -    (471,447)
Balances at March 31, 2024   2,086,000   $20,860    39,052,472   $39,052   $36,663,780    1,670,465   $(2,490,662)  $(47,359,649)   1,084,431   $(232,931)  $(13,359,550)

 

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

 

3

 

 

DIAMONDHEAD CASINO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

 

         
   Three Months Ending 
   March 31, 
   2024   2023 
Cash flows from operating activities:           
Net loss   $(471,447)  $(497,957)
Adjustments to reconcile net loss to net cash used in operating activities:           
Amortization    22,894    24,535 
Changes in operating assets and liabilities:           
Accounts payable and accrued expenses - related parties    164,867    265,550 
Accounts payable and accrued expenses - other    170,445    144,576 
Net cash used in operating activities    (113,241)   (63,296)
Cash flows from financing activities:           
Proceeds from non-interest bearing advances from related parties    -    22,500 
Net cash provided by financing activities    -    22,500 
Net decrease in cash    (113,241)   (40,796)
Cash at beginning of period    426,124    55,885 
Cash at end of period   $312,883   $15,089 
    -      
Supplemental disclosure of cash flow information:           
Cash paid for interest   $-   $- 
           
Supplemental disclosure of non-cash financing activities:           
Common stock to be issued in connection with notes payable - related parties   $-   $17,500 
Unpaid preferred stock dividends in accounts payable and accrued expenses   $10,400      

 

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

 

4

 

 

DIAMONDHEAD CASINO CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Organization and Business

 

Diamondhead Casino Corporation (the “Company”) owns, through its wholly-owned subsidiary, Mississippi Gaming Corporation, an approximate 400-acre undeveloped property located at 7051 Interstate 10, Diamondhead, Mississippi 39525 (hereafter “the Diamondhead Property” or “the Property”). The Company’s intent was and is to construct a casino resort and other amenities on the Property unilaterally or in conjunction with one or more joint venture partners. However, the Company has been unable, to date, to obtain financing to move the project forward and/or enter into a joint venture partnership. There can be no assurance that the substantial funds required for the design and construction of the project can be obtained or that such funds can be obtained on acceptable terms. In addition, the Company has been unable to obtain financing to sustain the Company. Due to its lack of financial resources, the Company was forced to explore other alternatives, including a sale of part or all of the Property. The Company’s preference is to sell only part of the Property inasmuch as this would appear to be in the best interest of the stockholders of the Company. However, there can be no assurance the Company will be able to sell only part of the Property. The Company intends to continue to pursue a joint venture partnership and/or other financing while seeking a viable purchaser for part or all of the Property. Finally, there can be no assurance that if the requisite financing for the project were obtained and the project were constructed, that the project would be successful.

 

Note 2. Liquidity and Going Concern

 

These unaudited condensed consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses over the past several years, has no operations, generates no operating revenues and, as reflected in the accompanying unaudited condensed consolidated financial statements, incurred a net loss applicable to common stockholders of $496,847 and $523,357 for the three months ended March 31, 2024 and 2023 respectively. In addition, the Company had an accumulated deficit of $47,359,649 on March 31, 2024. Due to its lack of financial resources, the Company has been forced to explore other alternatives, including a sale of part or all of the Property.

 

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

 

In the past, in order to raise capital to pay on-going costs and expenses, the Company has borrowed funds, through Private Placements of convertible instruments as well as through other secured notes which are more fully described in Notes 5 through 9 to these unaudited condensed consolidated financial statements. The Company is in default with respect to payment of both principal and interest under the terms of most of these instruments. In addition, at March 31, 2024, the Company had $13,948,423 of accounts payable and accrued expenses and $312,883 in cash on hand.

 

The above conditions raise substantial doubt as to the Company’s ability to continue as a going concern.

 

Note 3. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in unaudited condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual audited consolidated financial statements and, in our opinion, reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2024 are not necessarily indicative of the results that we will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2023, attached to our annual report on Form 10-K.

 

5

 

 

Principles of Consolidation

 

The unaudited condensed 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 consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Land

 

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 at March 31, 2024 and December 31, 2023:

 

   March, 31   December, 31 
   2024   2023 
Land   $4,691,430   $4,691,430 
Licenses    77,000    77,000 
Engineering and costs associated with permitting    464,774    464,774 
Land development costs total  $5,233,204   $5,233,204 

 

Cooperative Energy, a Mississippi Electric Cooperative, sought and has now obtained a permanent easement along the northern portion of the Diamondhead Property on which to construct, maintain and operate electric transmission lines together with an access road. On or about May 24, 2023, Cooperative Energy filed a Complaint for Eminent Domain in the Special Court of Eminent Domain, Hancock County, Mississippi in which it named MGC and all persons and entities holding liens on the Diamondhead, Mississippi Property as defendants.

 

On September 1, 2023, Cooperative Energy filed a Motion to Approve Settlement, an Amended Statement of Values and a Notice of Hearing for September 11, 2023. On September 26, 2023, the Court entered an Order Granting Plaintiff Right of Immediate Title and Possession. On October 17, 2023, the Court entered an Order Approving Settlement in the amount of $1,000,000 and entered an Order Approving Disbursement of Funds to MGC. On October 20, 2023, MGC received $845,378 as part of the settlement amount. The parties are working on the wording of the two easements: a Cooperative Energy Right-Of-Way Easement and an Access Road Easement. Once the easements are finalized and signed, Cooperative Energy will pay MGC the remaining amount due of $154,622. Therefore, the Company recorded a receivable of $154,622 on the consolidated balance sheet as of March 31, 2023 and December 31, 2023.

 

Management determined that the easement arrangement was outside the scope of ASC 842. Further, the Company determined that the easement reduced the value of the property by $242,893. The remaining $757,107 of the $1 million easement was recorded as a gain on the condemnation of land in the consolidated statements of operations.

 

Fair Value Measurements

 

The Company follows the provisions of ASC Topic 820 “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 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.

 

6

 

 

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

 

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

 

Financial instruments included in current assets and liabilities are reported at carrying value in the unaudited condensed balance sheets, which approximate fair value due to their short-term nature.

 

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 March 31, 2024 and December 31, 2023.

 

Net Loss per Common Share

 

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by using the weighted average number of common shares outstanding, plus other potentially dilutive securities. Potentially dilutive securities are excluded from the computation of diluted loss per shares since their effect would be antidilutive. Common shares outstanding consist of issued shares, including allocated and committed shares held by the ESOP trust, less shares held in treasury. The dilutive securities below do not include 5,055,555 potentially convertible Debentures, since the requirements for possible conversion had not yet been met and may never be met.

 

The table below summarizes the components of potential dilutive securities at March 31, 2024 and 2023.

 

   March 31,   March 31, 
Description  2024   2023 
Convertible Preferred Stock   260,000    260,000 
Options to purchase Common Shares    4,555,000    4,555,000 
Total  $4,815,000   $4,815,000 

 

7

 

 

Recently Adopted Accounting Pronouncements

 

On March 27, 2023, the FASB issued ASU 2023-01, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. Specifically, the ASU:

 

  Offers private companies, as well as not-for-profit entities that are not conduit bond obligors, a practical expedient that gives them the option of using the written terms and conditions of a common-control arrangement when determining whether a lease exists and the subsequent accounting for the lease, including the lease’s classification
     
  Amends the accounting for leasehold improvements in common-control arrangements for all entities.

 

The ASU is effective for fiscal years beginning after December 15, 2023. The Company has not completed its assessment of the standard, but does not expect the adoption to have a material impact on the Company’s unaudited condensed financial position, results of operations, or cash flows.

 

No other recent accounting pronouncements were issued by FASB that are believed by management to have a material impact on the Company’s present or future financial statements.

 

Note 4. Accounts Payable and Accrued Expenses

 

The table below outlines the elements included in accounts payable and accrued expenses at March 31, 2024 and December 31, 2023:

 

   March 31,   December 31, 
   2024   2023 
Related parties:           
Accrued payroll due officers   $3,923,006   $3,869,711 
Accrued interest due officers and directors    3,002,933    2,897,159 
Accrued director fees    951,250    928,750 
Base rents due to the President    411,975    403,276 
Associated rental costs    198,983    198,983 
Other   17,308    17,308 
Total related parties  $8,505,454   $8,315,187 
           
Non-related parties:          
Accrued interest  $3,238,646   $3,115,463 
Accrued dividends   1,280,400    1,270,000 
Accrued fines and penalties   614,975    578,775 
Other   308,948    308,286 
Total non-related parties  $5,442,969   $5,272,524 

 

Note 5. Convertible Notes and Line of Credit

 

Line of Credit

 

In 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 carries an interest rate on amounts borrowed of 9% per annum. All funds originally advanced under the facility were due and payable by November 1, 2012. As an inducement to provide the facility, the lender was awarded an immediate option to purchase 50,000 shares of common stock of the Company at $1.75 per share. In addition, the lender received an option to purchase a maximum of 250,000 additional shares of common stock of the Company at $1.75 per share. The options expire following repayment in full by the Company of the amount borrowed. The Company is in default under the repayment terms of the agreement. At March 31, 2024 and December 31, 2023, the unpaid principal and accrued interest due on the obligation totaled $2,325,121 and $2,302,929, respectively.

 

8

 

 

Convertible Notes

 

Convertible Notes issued pursuant to two Private Placements total $962,500 in principal and became due and payable beginning in March 2012 and extending to various dates through June 2013. As of the date of the filing of this report, all the aforementioned debt obligations remain unpaid and in default under the repayment terms of the notes. In November 2020, the Superior Court of the State of Delaware awarded Judgments in favor of certain holders of these Promissory Notes who filed suit against the Company. As a result, the Company must carry an aggregate of $486,796 (total principal and interest) as debt owed to these noteholders. As of March 31, 2024 and December 31, 2023, all Notes issued had a total outstanding principal of $962,500 and accrued interest, including the additional interest awarded pursuant to the Court Judgments, of $1,168,972 and $1,145,957 respectively.

 

The table below summarizes the Company’s debt arising from the above-described sources as of March 31, 2024 and December 31, 2023:

 

   March 31,   December 31, 
   2024   2023 
Private placements - March 1, 2010*  $475,000   $475,000 
Private placements - October 25, 2010   487,500    487,500 
   $962,500   $962,500 

 

  * Of the 2010 placements above, $75,000 is due to a related party.

 

Note 6. Convertible Debentures

 

Pursuant to a Private Placement Memorandum dated February 14, 2014 (the “Private Placement”), the Company offered up to a maximum of $3,000,000 of Collateralized Convertible Senior Debentures to accredited or institutional investors. The Offering was conducted contingent on the deposit into Escrow of the purchase price for all the Debentures offered in the principal amount of $3,000,000. The Debentures, once issued, originally bore interest at 4% per annum after 180 days, matured six years from the date of issuance, and were secured by a lien on the Company’s Mississippi property. The interest rate on these debentures was raised pursuant to subsequent agreements. The debentures were offered in three tranches as follows:

 

(a) $1,000,000 of First Tranche Collateralized Convertible Senior Debentures convertible into an aggregate of 3,333,333 shares of Common Stock of the Company at a conversion price of $.30 per share (the “First Tranche Debentures”);

 

(b) $1,000,000 of Second Tranche Collateralized Convertible Senior Debentures, convertible into an aggregate of 2,222,222 shares of Common Stock of the Company at a conversion price of $.45 per share (the “Second Tranche Debentures”); and

 

(c) $1,000,000 of Third Tranche Collateralized Convertible Senior Debentures, convertible into either 1,818,182 shares of Common Stock or 1,333,333 shares of Common Stock of the Company, at a conversion price of $.55 or $.75 per share depending upon certain conditions described in the Private Placement Memorandum (the “Third Tranche Debentures”).

 

The conversion rights on each issued Debenture carried an Anti-Dilution Provision. If the Company issued any shares of Common Stock or other securities after March 31, 2014 at a price per security that was less than the conversion price of a Debenture, then the Debenture would have had a new conversion price equal to the price per security that was less than the Conversion Price of the Debenture. The foregoing provision did not apply to the following:

 

(a) The issuance of any of the other Debentures in the Offering or the issuance of shares of Common Stock upon conversion of any of the Debentures in the Offering.

 

(b) The issuance of any shares of Common Stock if such issuance relates to an agreement, arrangement or grant to issue shares of Common Stock entered into by the Company prior to the Issue Date of the First Tranche Debentures in the Offering, including but not limited to, for example, previously issued convertible promissory notes, previously issued warrants, previously issued options to purchase Common Stock, or common stock vested or to be issued pursuant to a pre-existing Employee Stock Ownership Plan.

 

9

 

 

The Anti-Dilution Provisions with respect to a Debenture terminate the earlier of (a) the date (if ever) the Company receives an “Approval to Proceed” from the Mississippi Gaming Commission to develop a casino/hotel on the Property, (b) the date on which the Debenture is converted in full, (c) the date on which the Debenture is paid in full, or (d) the Final Maturity Date of the Debenture (as defined in the Debenture).

 

Since the issuance of the Debentures, there have been no events that would trigger the above anti-dilution provisions.

 

When originally issued, in the event the Company failed to meet the conditions for conversion of the Debentures, the First Tranche Convertible Debentures, which total $950,000, would have been due on March 31, 2020 and the Second Tranche Convertible Debentures, which total $850,000, would have been due December 31, 2020. The sole remaining non-convertible Debenture in the amount of $50,000 would have been due March 31, 2020. However, the Company is in default with respect to interest payments due under the Debenture agreements in the amount of $427,081 and as a result, the Debentures payable are reported as current liabilities.

 

Certain Debenture holders obtained a judgment for amounts due relating to their Debentures. Post judgment interest shall only apply to the $1.5 million principal due under their Debentures. Total accrued interest due on all outstanding Debentures amounted to $783,966 and $750,719 at March 31, 2024 and December 31, 2023 respectively.

 

Note 7. Short Term Notes and Interest-Bearing Advance

 

Promissory Notes

 

On June 9, 2017, the Company entered into a Promissory Note with an unrelated lender in exchange for proceeds in the amount of $15,000. Interest on the note was 12.5% per annum and payable March 1 of each year the note remained outstanding. Payment in full of the Note was due June 9, 2019. On July 20, 2023, the Noteholder agreed to extend the maturity date of the note to June 9, 2025. Mississippi Gaming Corporation, a wholly owned subsidiary of the Company, guaranteed the Note. In addition, the President of the Company agreed to personally guarantee the Note and to personally secure the Note with an assignment of proceeds due to her under the first lien on the Diamondhead property. The interest payments since March 1, 2018 have been due. In the fourth quarter of 2023, the Company fully repaid the principal amount of $15,000 and settled the accrued interest due on this obligation, which amounted to $14,165.

 

Bank Credit Facility

 

Wells Fargo Bank provided an unsecured credit facility of up to $15,000 to the Company. The facility required a variable monthly payment of amounts borrowed plus interest, which was applied at 11.24% on direct charges and 24.99% on any cash advanced through the facility. At March 31, 2024 and December 31, 2023, a principal balance of $18,004 remained outstanding on the facility. The lending bank has since cancelled privileges under the facility for non-payment.

 

Interest Bearing Advances

 

In 2016, the Company received cash advances totaling $47,500 from seven lenders which included $22,500 from third parties (see Note 8 for related party advances). The proceeds from the cash advances were earmarked for the payment of accounting and auditing fees and other expenses required to file the Company’s Form 10-Q. On August 25, 2016, the Company issued a Note to the foregoing lenders, which matures four years from the date of issuance and bears interest at 8% per annum, with a full year of interest accruing in any year in which the advance remains unpaid. Accrued interest due on the above notes amounted to $20,600 and $16,400 at March 31, 2024 and December 31, 2023.

 

10

 

 

On February 2, 2017, the Company borrowed $25,000 from an unrelated third party. The Note carries an annual interest rate of approximately 12.5% and is past due. The Company is in default and as such, the lender may increase the interest rate due by an amount of up to 3% per annum in excess of the rate then otherwise applicable. The Company does not have the funds to repay the advance. The President of the Company has agreed to personally secure the note with an assignment of proceeds due to her under the first lien on the Property. Accrued interest on this obligation amounted to $7,431 and $6,644 at March 31, 2024 and December 31, 2023, respectively.

 

Of the amounts discussed above, $65,504 in short-term notes and advances are in default under the original agreed to terms.

 

Note 8. Current Notes Payable Due Related Parties

 

In 2016, the Company received cash advances totaling $47,500 from seven lenders which included $25,000 from three Current Directors of the Company (see Note 7). The proceeds from the cash advances were earmarked for the payment of accounting and auditing fees and other expenses required to file the Company’s Form 10-Q. On August 25, 2016, the Company issued a Note to the foregoing lenders, which matures four years from the date of issuance and bears interest at 8% per annum, with a full year of interest accruing in any year in which the advance remains unpaid. Accrued interest due on the above notes amounted to $18,000 and $16,000 at March 31, 2024 and December 31, 2023.These amounts are included in current liabilities on the balance sheets as March 31, 2024 and December 31, 2023. This note is secured by a second lien on the Diamondhead Property.

 

In the third quarter of 2016, the Chairman of the Board of Directors of the Company loaned the Company $90,000. On August 25, 2016, the Company issued a Note to the Chairman of the Board. The Note bears interest at 14% per annum effective August 1, 2016 and matures four years from the date of issuance. The proceeds of the loan were used for the payment of Mississippi property taxes and auditing, accounting and other corporate expenses. Accrued interest due on the above note amounted to $96,658 and $93,482 as of March 31, 2024 and December 31, 2023 respectively.

 

In July 2017, at the request of the Company, the current Chairman of the Board of Directors, who is also a Vice President of the Company (“the Chairman”), paid all property taxes due, together with all interest due thereon, to Hancock County, Mississippi on the approximate 400-acre tract of land, owned by Mississippi Gaming Corporation, a wholly owned subsidiary of the Company. The total amount advanced was $67,628.

 

The Chairman is one of the secured parties under that Land Deed of Trust recorded on September 26, 2014 in Hancock County, Mississippi, to secure Tranche I and Tranche II Debentures issued by the Company in 2014. Under paragraph 5 of the Land Deed of Trust, a secured party who advances sums for taxes due on the Property is secured by the same Land Deed of Trust, but only at that interest rate specified in the note representing the primary indebtedness, namely 4% per annum.

 

The Chairman advanced the $67,628 on condition that: (i) the advance constitute a lien with interest at 4% per annum under that Land Deed of Trust recorded September 26, 2014; (ii) he be paid additional interest of 11% per annum on the amount advanced and owing and that the full 11% interest per annum is payable during any calendar year in which all or part of the amount advanced and owing or interest due thereon remains unpaid; (iii) this additional interest obligation be treated as a separate and secured debt of the Company, to be evidenced by a separate note and is secured with a separate and third lien to be placed on the Property (hereafter “the Third Lien”); (iv) the entire obligation will be treated as an advance to be paid out of any subsequent incoming financing obtained by the Company or any amounts recovered by the Company from a defendant in that collection action brought by the Company in the Circuit Court of Montgomery County, Maryland; and (v) he be indemnified for any losses sustained on the sale of that common stock sold to cover the payment of real estate property taxes and any credit card fees associated with payment (“the indemnification”). The Chairman identified the common stock sold and provided the Company with the documentation required to document the sale of said stock and to calculate the loss, if any, on said stock. The fair value measurement of the derivative indemnification liability at December 31, 2021 was developed using Level 1 inputs, which was valued at $0. On February 4, 2022, the Board of Directors entered into an agreement with the Chairman to issue 35,000 shares of common stock of the Company to the Chairman to repurchase the indemnification. See Note 11. On September 30, 2018, Mississippi Gaming Corporation issued a secured promissory note, due one year from the date of issue to the Chairman for an amount up to $100,000 to cover the principle and interest due with respect to this note. On August 21, 2018, Mississippi Gaming Corporation placed a third lien on the Property to secure this obligation for $100,000. Accrued interest on the note amounted to $77,648 and $69,527 at March 31, 2024 and December 31, 2023, respectively.

 

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In March of 2018, the Board of Directors voted to increase up to an additional $200,000 the amount secured by the third lien in favor of the Chairman of the Board, for amounts advanced by the Chairman on behalf of the Company, on the following terms and conditions, namely, that (i) the advance constitutes a lien on the Property with interest at 15% per annum; (ii) that the full interest of 15% per annum is payable during any calendar year in which all or part of the amount advanced is due and owing or interest due thereon remains unpaid; (iii) that this debt be evidenced by a separate promissory note and is to be included in and secured with a third lien that is to be placed on the Diamondhead Property to secure previous advances made to the Company (hereafter “the Third Lien”); (iv) that he be indemnified for any losses sustained on the sale of his common stock in an unrelated publicly-traded company to be sold to cover this advance based on a sales price of approximately $2.80 per share with a cap on the maximum loss per share to be at a sales price of $10.00 per share; and (v) that the Chairman’s previous indemnification approved by the Board of Directors on July 24, 2017 with respect to any loss on the sale of the same stock also be capped at a maximum of $10.00 per share. The Chairman identified the common stock sold and provided the Company with the documentation required to document the sale of said stock and to calculate the loss, if any, on said stock. On February 4, 2022, the Board of Directors entered into an agreement with the Chairman to issue 35,000 shares of common stock of the Company to the Chairman to repurchase the indemnifications. See Note 11.

 

On September 30, 2018, Mississippi Gaming Corporation issued a secured promissory note, due one year from the date of issue to the Chairman, for an amount up to $200,000 to cover the principal and interest due with respect to this note. On August 21, 2018, Mississippi Gaming Corporation placed a third lien on the Diamondhead Property to secure this obligation for $200,000.

 

In November of 2018, the Board of Directors voted to increase up to an additional $100,000 of advances from the Chairman and in March of 2019, the Board of Directors voted to increase the limit of the advances to $200,000. The terms of this advance are identical to the terms as approved above in March 2018.

 

In July 2020, the Chairman of the Board of the Company paid a total of $67,076 for property taxes due for the year 2019 on the Company’s 400-acre Diamondhead, Mississippi Property plus $1,573 in related fees. The Company placed a fourteenth lien on the Property in July 2021 to secure a promissory note in the amount of $150,000 issued to the Chairman of the Board of the Company to secure the payment of these taxes and interest due thereon.

 

In May 2021, the Chairman of the Board of the Company paid a total of $62,610 for property taxes due for the year 2020 on the Company’s 400-acre Diamondhead, Mississippi Property plus $1,468 in related fees. The Company placed a fifteenth lien on the Property in July 2021 to secure a promissory note in the amount of $100,000 issued to the Chairman of the Board of the Company to secure the payment of these taxes and interest due thereon.

 

On May 30, 2021, the Chairman of the Board of the Company loaned the Company $50,000. The note is non-interest bearing and matures one year from the date of issuance. The Company placed a sixteenth lien on the Property in July 2021 to secure this non-interest bearing note which totals $50,000 in principal and calls for the issuance of 100,000 shares of common stock. The note is not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued. The Company recorded a fair value of the stock of $33,500, which was determined by the fair value of the Company’s common stock at the date of the loan. The fair value of the stock was recorded as a debt discount, which will be amortized to interest expense over the life of the note. Debt discount was fully amortized during 2022.

 

On February 17, 2023, the Board of Directors agreed to issue a non-interest bearing promissory note to the Chairman in the principal amount of $25,000 together with 50,000 shares of common stock of the Company. The note was issued in connection with the Chairman advancing funds to pay off accounts payable on behalf of the Company. The note is not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued. The Company recorded a fair value of the stock of $17,500, which was determined by the fair value of the Company’s common stock at the date of the loan. The fair value of the stock was recorded as a debt discount, which will be amortized to interest expense over the life of the note. During the three months ended March 31, 2024, debt discount was fully amortized to interest expense to related parties. On November 1, 2023, as previously agreed, the Company paid the Chairman the $25,000 advanced out of the proceeds of the eminent domain settlement.

 

On July 28, 2023, the Board of Directors agreed to issue a non-interest bearing promissory note to the Chairman in the principal amount of $75,000 together with 150,000 shares of common stock of the Company. The note was issued in connection with the Chairman advancing funds to pay off property taxes due for the year 2022 on the Diamondhead, Mississippi Property and fees due to Company’s outside auditor for review of Form 10Q for the period ending June 30, 2023, on behalf of the Company. The note is not convertible. As of the issuance date of these financial statements, no shares have been issued. The Company recorded a fair value of the stock of $52,500, which was determined by the fair value of the Company’s common stock at the date of the loan. The fair value of the stock was recorded as a debt discount, which will be amortized to interest expense over the life of the note. During the three months ended March 31, 2024, $13,209 of debt discount was amortized to interest expense to related parties. On November 1, 2023, as previously agreed, the Company paid the Chairman the $75,000 advanced out of the proceeds of the eminent domain settlement.

 

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As of March 31, 2024, the Chairman had advanced a total of $467,953, net of repayment of $16,250, under both the March 2018 and March 2019 arrangements and was owed accrued interest in the amount of $409,622 and $349,415 as on both March 31, 2024 and December 31, 2023.

 

On July 24, 2017, the President of the Company, who is a Director of the Company, agreed to advance the Company up to $20,000 for the payment of expenses. In March of 2018, the Board of Directors voted to increase to up to $100,000 the amount to be secured by a third lien in favor of the President of the Company for amounts advanced by the President under this note, on the following terms and conditions, namely, that (i) she be paid interest of 15% per annum on the amount advanced and owing and that the full 15% interest per annum is payable during any calendar year in which all or part of the amount advanced and owing or interest due thereon remains unpaid; (ii) the obligation in the maximum principal amount of $100,000 with interest due thereon be treated as a secured debt of the Company, to be evidenced by a separate note and to be secured with a separate lien to be placed on the Diamondhead Property (“the Third Lien”) together with the Chairman’s Third Lien, as well as a first lien to be placed on the residential lot owned by the Company; (iii) that the Third Lien on the Diamondhead Property also include the two loans ($25,000 and $15,000) and interest due thereon and credit facilities in the maximum amount of $15,000; and (iv) that the foregoing will be treated as advances to be paid out of any subsequent incoming financing obtained by the Company or any amounts recovered by the Company from a defendant in that collection action brought by the Company in the Circuit Court of Montgomery County, Maryland.

 

As of March 31, 2024, the President had advanced a total of $5,007, net of repayments of $68,562, under this agreement. The President previously agreed to secure a $25,000 loan and interest due thereon and to secure and guarantee a $15,000 loan and interest due thereon due non-related parties discussed above. The President is also personally liable for certain bank-issued credit cards used by the Company to pay expenses incurred by the Company in the approximate amount of $18,000. On September 30, 2018, Mississippi Gaming Corporation issued a secured promissory note, due one year from date of issue, to the President for an amount up to $100,000 to cover the principal and interest due with respect to this note. On August 21, 2018, Mississippi gaming Corporation placed a third lien on the Diamondhead Property to secure this obligation for $100,000. Accrued interest due on this note amounted to $22,249 and $23,763 as at March 31, 2024 and December 31, 2023.

 

The third lien placed on the Diamondhead Property, which secures the above three promissory notes, totals up to $400,000 and is payable to the Chairman of the Board ($300,000) and President ($100,000) of the Company.

 

The principal balance of the notes payable due to the officers and directors discussed above was $685,392, net of debt discount of $17,128 and $669,279, net of debt discount of $33,241, as of March 31, 2024 and December 31, 2023 respectively.

 

Note 9. Notes Payable Due Others

 

In October 2017, the Company entered into a settlement with a holder of $150,000 of convertible notes as described in Note 5 above. As part of the settlement, the Company agreed to pay legal fees in the amount of $50,000 and issued a four year note at 0% interest to satisfy this obligation. The note is currently in default.

 

In December 2020, the Company entered into three promissory notes with unrelated lenders in exchange for an aggregate principal amount of $126,250. The Company received total proceeds of $100,000 for the notes, resulting in an original issue discount of $26,250. This original issue discount was recorded as a debt discount, which will be amortized to interest expense over the life of the notes. The notes are non-interest bearing and matured in December 2021, one year after the notes’ issuances. These notes are currently in default.

 

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In January and February 2021, the Company entered into two additional promissory notes with unrelated lenders in exchange for a principal amount of $25,000 and $31,250, respectively. The Company received total proceeds of $50,000 for the notes, resulting in an original issue discount of $6,250. This original issue discount was recorded as a debt discount, which will be amortized to interest expense over the life of the notes. The notes are non-interest bearing and matured in January and February 2022, respectively, one year after the notes’ issuances. These notes are currently in default.

 

In April and May 2021, the Company entered into three additional promissory notes with unrelated lenders in exchange for a principal amount of $70,000, $25,000 and $25,000, respectively. The Company received total proceeds of $100,000 for the notes, resulting in an original issue discount of $20,000. This original issue discount was recorded as a debt discount, which will be amortized to interest expense over the life of the notes. The notes are non-interest bearing and matured in April and May 2022, respectively, one year after the notes’ issuances. The notes are currently in default.

 

In July 2021, the Company entered into an additional promissory note with an unrelated lender in exchange for a principal amount of $25,000. The Company received proceeds of $25,000 for the note. The note is non-interest bearing and matures in July 2022, one year after the note’s issuance. The note is currently in default.

 

In November 2021, the Company entered into an additional promissory note with an unrelated lender in exchange for a principal amount of $50,000. The Company received proceeds of $50,000 for the note. The note is non-interest bearing and matures in November 2022, one year after the note’s issuance. The note is currently in default.

 

In March 2022, unrelated third parties paid a total of $60,436 for property taxes due for the year 2021 on the Company’s Mississippi Property and loaned the Company an additional $19,564 for a total of $80,000. In return for the $80,000, the Company issued two non-interest bearing secured promissory notes for $40,000 each, due and payable in one year and, in addition, agreed to issue 80,000 shares of common stock for each $40,000 loaned, for a total repayment due of $80,000 plus 160,000 shares of common stock. The note is currently in default.

 

In April 2022, the Company entered into an additional promissory note with an unrelated lender in exchange for a principal amount of $50,000. The Company received proceeds of $50,000 for the note. The note is non-interest bearing and matures in April 2023, one year after the note’s issuance. The note is currently in default.

 

From April 2021 to June 2022, thirteen liens were placed on the Property to secure these notes. There is a call for the issuance of a total of 760,000 shares of common stock in connection with the notes and liens, however, no shares have been issued to date. In December 2020, the Company recorded a fair value of the stock of $22,050, which was determined by the fair value of the Company’s common stock at the date of each loan issuance. In 2021, the Company recorded a fair value of the stock pertaining to the 2021 notes of $102,000. In 2022, the Company recorded a fair value of the stock pertaining to the 2022 notes of $98,000. The fair value of the stock was recorded as a debt discount, which has been fully amortized to interest expense as of December 31 2023.

 

On July 25, 2023 and August 8, 2023, the Company entered into two additional promissory notes with unrelated lenders in exchange for a principal amount of $20,000 each. The Company received total proceeds of $40,000 for the notes. These notes are non-interest bearing and mature in one year after the notes’ issuance. In exchange for the loans, the Company also agreed to issue 40,000 shares of common stock of the Company to each lender and agreed to pay each lender the principal due on each note out of the proceeds expected to be received from the settlement of an eminent domain proceeding. The notes are not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued. The Company recorded a fair value of the stock of $27,200, which was determined by the fair value of the Company’s common stock at the date of the loan. The fair value of the stock was recorded as a debt discount, which will be amortized to interest expense over the life of the note. During the three months ended March 31, 2024, $6,781 of debt discount was amortized to interest expense to others. On November 1, 2023, as previously agreed, the Company paid the two lenders $20,000 each out of the proceeds of the eminent domain settlement.

 

During the three months ended March 31, 2024, and 2023, $6,781 and $22,234 of the debt discount was amortized to interest expense to others. As of March 31, 2024 and December 31, 2023, total notes payable due others, net of unamortized discount, was $548,520 and $541,739, respectively.

 

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Note 10. Long Term Notes and Interest-Bearing Advance

 

Promissory Notes

 

On June 9, 2017, the Company entered into a Promissory Note with an unrelated lender in exchange for proceeds in the amount of $15,000. Interest on the note was 12.5% per annum and payable March 1 of each year the note remained outstanding. Payment in full of the Note was due June 9, 2019. On July 20, 2023, the Noteholder agreed to extend the maturity date of the note to June 9, 2025. Mississippi Gaming Corporation, a wholly owned subsidiary of the Company, guaranteed the Note. In addition, the President of the Company agreed to personally guarantee the Note and to personally secure the Note with an assignment of proceeds due to her under the first lien on the Diamondhead property. On November 28, 2023, the Company fully repaid $15,000 along with the accrued interest due on this obligation and no further amount was outstanding.

 

Note 11. Related Party Transactions

 

As of March 31, 2024, the President of the Company is owed deferred salary in the amount of $3,716,996 and the Vice President and the current Chairman of the Board of Directors of the Company is owed deferred salary in the amount of $121,140. The Board of directors agreed to pay interest at 9% per annum on the foregoing amounts owed. Interest expense under this agreement amounted to $77,963 during the three months ended March 31, 2024 and 2023, respectively. Total interest accrued under this agreement totaled $2,315,840 and $2,237,878 as of March 31, 2024 and December 31, 2023, respectively.

 

The Company has a month-to-month lease with the President and then-Chairman of the Board of Directors of the Company, for office space owned by the President in Alexandria, Virginia. The lease calls for monthly base rent in the amount of $4,534 and payment of associated costs of insurance, real estate taxes, utilities and other expenses. Rent expense associated with this lease amounted to base rent in the amount of $13,602 and associated rental costs of $8,699 for a total of $22,301 for the three months ended March 31, 2024 and base rent of $13,602 and associated rental costs of $8,145 for a total of $21,747 for the three months ended March 31, 2023. Payment of $13,602 and 0 was made in three months ended March 31, 2024 & March 31, 2023 respectively. At March 31, 2024 and December 31, 2023, amounts owed for base rent and associated rental costs totaled $610,958 and $602,252, respectively.

 

Directors of the Company are entitled to a director’s fee of $15,000 per year for their services. The Company has been unable to pay directors’ fees to date. A total of $951,250 and $928,750 was due and owing to the Company’s current and former directors as of March 31, 2024 and December 31, 2023, respectively. Directors have previously been compensated and may, in the future, be compensated for their services with cash, common stock, or options to purchase common stock of the Company.

 

On February 4, 2022, the Board of Directors entered into an agreement with Mr. Harrison, the Chairman of the Board of Directors, to issue 35,000 shares of common stock of the Company to Mr. Harrison to repurchase the indemnifications the Company had previously agreed to pay Mr. Harrison for losses, if any, suffered on certain stock he had sold in prior years in an unrelated company to raise funds to pay property taxes due on the Diamondhead, Mississippi Property and to lend additional funds to the Company. This repurchase eliminates any risk to the Company arising from the indemnification which could have been material. During the three months ended March 31, 2024, the Company recorded stock-based compensation of $0 for the fair value of these shares, which have not yet been issued as of the issuance date of these unaudited condensed consolidated financial statements.

 

On February 17, 2023, the Board of Directors agreed to issue a non-interest bearing promissory note to the Chairman in the principal amount of $25,000 together with 50,000 shares of common stock of the Company. The note was issued in connection with the Chairman advancing funds to pay off accounts payable on behalf of the Company.

 

On July 28, 2023, the Board of Directors agreed to issue a non-interest bearing promissory note to the Chairman in the principal amount of $75,000 together with 150,000 shares of common stock of the Company. The note was issued in connection with the Chairman advancing funds to pay property taxes on the Diamondhead Property for the year 2022 and to pay fees due to the Company’s outside auditor for review of the Form 10-Q for the period ending June 30, 2023. In exchange for the $25,000 and $75,000 loans, the Company also agreed to pay the principal due out of the proceeds expected to be received from the settlement of an eminent domain proceeding.

 

On November 1, 2023, as previously agreed, the Company paid the Chairman $74,520 from the proceeds of the eminent domain settlement leaving a remaining balance on the note of $480 as of December 31, 2023.

 

See Notes 4, 5, 7, 8 and 12 for other related party transactions.

 

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Note 12. Commitments and Contingencies

 

Liens

 

As of March 31, 2024, the Company had placed twenty-one liens on the Company’s Diamondhead, Mississippi Property (“the Property”). No additional liens have been filed as of the filing of this report. The liens were as follows:

 

In September of 2014, a first lien was placed on the Property pursuant to a Private Placement dated February 14, 2014, as amended, to secure certain obligations of the Company. The first lien is composed of an (i) Executives Lien and (ii) an Investors’ Lien. The liens are in pari passu.

 

On March 31, 2014, the Company issued $1 million of First Tranche Collateralized Convertible Senior Debentures. On December 31, 2014, the Company issued $850,000 of Second Tranche Collateralized Convertible Senior Debentures. On September 26, 2014, a first lien was placed on the Diamondhead Property in favor of the Investors to secure the principle due in the amount of $1,850,000 and interest due thereon (the “Investors Lien”). The Investors Lien is in pari passu with a first lien placed on the Property in favor of the President of the Company, the Vice President of the Company, and certain directors of the Company for past due wages, compensation, and expenses owed to them in the maximum aggregate amount of $2,000,000 (the “Executives Lien”). The CEO will serve as Lien Agent for the Executives Lien.

 

On December 16, 2016, the Company filed a second lien on the Property in the maximum amount of $250,000 to secure certain notes payable, including notes to related parties, totaling $137,500 in principle and accrued interest incurred.

 

On August 21, 2018, the Company filed a third lien on the Property in the maximum amount of $400,000 to secure notes issued to the Chairman of the Board and President of the Company arising in the third quarter of 2017 and during 2018, as more fully described in Note 8.

 

On January 26, 2021, the Company filed a fourth lien on the Property in the amount of $2,000,000 to secure a non-interest-bearing note payable in the amount of $2,000,000 issued to secure amounts owed to the President of the Company for accrued, but unpaid, salary, rent and other expenses.

 

On February 17, 2021, the Company filed a fifth lien in the amount of $658,750 on the Property to secure a non-interest-bearing note payable in the amount of $658,750, issued to secure amounts owed to nine directors, including the Company’s six current directors.

 

In April 2021, the Company filed six liens on the Property to secure six non-interest-bearing notes payable to be issued to six lenders bringing total liens on the Property to eleven. The six notes issued total $252,500 in principle and call for the issuance of 250,000 shares of common stock. The notes are not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

In June 2021, the Company filed a twelfth and thirteenth liens on the Property to secure two non-interest bearing notes issued in May of 2021 which total $50,000 in principle and call for the issuance of a total of 100,000 shares of common stock. The notes are not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

In July 2021, the Company filed a fourteenth lien on the Property to secure a promissory note in the amount of $150,000 issued to the Chairman of the Board to secure the payment of taxes and interest that were paid by the Chairman in July 2020.

 

In July 2021, the Company filed a fifteenth lien on the Property to secure a promissory note in the amount of $100,000 issued to the Chairman of the Board to secure the payment of taxes and interest that were paid by the Chairman in May 2021.

 

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In July 2021, the Company filed a sixteenth lien on the Property to secure a non-interest bearing note issued to the Chairman of the Board in May 2021 which totals $50,000 in principle and calls for the issuance of 100,000 shares of common stock. The note is not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

In July 2021, the Company filed a seventeenth lien on the Property to secure a non-interest bearing note issued to a lender, which totals $25,000 in principle and calls for the issuance of 50,000 shares of common stock. The note is not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

In November 2021, the Company filed an eighteenth lien on the Property to secure a non-interest bearing note issued in November 2021 which totals $50,000 in principle and calls for the issuance of 100,000 shares of common stock. The note is not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

In March 2022, the Company filed a nineteenth and twentieth lien on the Property to secure two non-interest bearing notes issued in March of 2022 which total $80,000 in principle and call for the issuance of a total of 160,000 shares of common stock. The notes are not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

In May 2022, the Company filed a twenty-first lien on the Property to secure a non-interest bearing note issued in April of 2022 which totals $50,000 in principle and calls for the issuance of a total of 100,000 shares of common stock. The note is not convertible. As of the issuance date of these unaudited condensed consolidated financial statements, no shares have been issued.

 

Other

 

The Company is currently delinquent in filing those documents and forms required to be filed in connection with its Employee Stock Ownership Plan (“ESOP”) for the year ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017, 2016 and 2015. The Company did not have the funds to pay professionals to prepare, audit and file these documents and forms when due. Although these required filings normally do not result in any tax due to an agency of the government, the Company could be subject to significant penalties for failure to file these forms when due. Penalties are assessed by the Department of Labor on a per diem basis from the original due dates for the required informational filings until the filings are actually made. The Company has accrued $614,975 and $578,775 on the current delinquent filings as of March 31, 2024 and December 31, 2023, respectively. The Company intends to bring its ESOP-required filings current and when current, will attempt to enroll in a voluntary compliance program with the Department of Labor with respect to any penalties or fines incurred. However, there can be no assurance the Company will be able to enroll in any such program or obtain a reduction of the fines and penalties that may be due.

 

The Company and its subsidiaries file their federal tax return on a consolidated basis. The Company has not filed its federal tax returns for the years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016. The Company has retained an accountant to prepare its federal tax returns. The Company believes no tax will be due with these federal returns.

 

The Company has not filed its annual reports together with its franchise tax due with the state of Delaware for 2023, 2022, 2021, 2020, 2019 and 2018. Mississippi Gaming Corporation, a wholly owned subsidiary of the Company, has not filed its annual reports, together with its franchise tax due, with the state of Delaware for 2022, 2021, 2020, 2019 and 2018. Casino World, Inc., a wholly owned subsidiary of the Company, has not filed its annual reports, together with its franchise tax due, with the state of Delaware for 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016. Mississippi Gaming Corporation has not filed its corporate income and franchise tax returns, together with the tax due, with the state of Mississippi for 2023, 2022, 2021, 2020, 2019, or 2018. Casino World, Inc. has not filed its corporate income and franchise tax returns, together with the tax due, with the state of Mississippi for 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016. As of March 31, 2024, the accrued franchise taxes for Delaware and Mississippi totaled $16,660

 

Management Agreement

 

On June 19, 1993, two subsidiaries of the Company, Casino World Inc. and Mississippi Gaming Corporation, entered into a Management Agreement with Casinos Austria Maritime Corporation (CAMC). Subject to certain conditions, under the Management Agreement, CAMC would operate, on an exclusive basis, all of the Company’s proposed dockside gaming casinos in the State of Mississippi, including any operation fifty percent (50%) or more of which is owned by the Company or its affiliates.

 

Unless terminated earlier pursuant to the provisions of the Agreement, the Agreement terminates five years from the first day of actual Mississippi gaming operations and provides for the payment of an annual operational term management fee of 1.2% of all gross gaming revenues between zero and $100,000,000; plus 0.75% of gross gaming revenue between $100,000,000 and $140,000,000; plus 0.5% of gross gaming revenue above $140,000,000; plus two percent of the net gaming revenue between zero and $25,000,000; plus three percent of the net gaming revenue above twenty-five million dollars $25,000,000. The Company believes this Agreement is no longer in effect. However, there can be no assurance that CAMC will not attempt to maintain otherwise which would lead to litigation

 

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

 

Forward Looking Statements

 

This section should be read together with the consolidated financial statements and related notes thereto, for the year ended December 31, 2023 included with our annual report filed on Form 10-K.

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, for which the Private Securities Litigation Reform Act of 1995 provides a safe harbor. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and intentions and are not historical facts and typically are identified by use of terms such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions, as well as statements containing phrases such as “in our view,” “there can be no assurance,” “although no assurance can be given,” or “there is no way to anticipate with certainty.” These statements include, among other things, statements regarding our ability to implement our business plan and business strategy, our ability to obtain financing to sustain the Company, our ability to finance any future development, construction or operations, our ability to attract key personnel, and our ability to operate profitably in the future. These forward-looking statements are based on current expectations and assumptions that are subject to substantial risks and uncertainties which could cause our actual results to differ materially from those reflected in the forward-looking statements. In evaluating these forward-looking statements, you should consider risks and uncertainties relating to various factors, including, but not limited to, financing, licensing, construction and development, competition, legal actions, federal, state, county and/or city government actions, general financing conditions, and general economic conditions.

 

The Company’s actual results may differ significantly from results projected in the forward-looking statements. We undertake no obligation to revise or update forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Throughout this Annual Report references to “we,” “our,” “us,” “Diamondhead Casino Corporation,” the “Company,” and similar terms refer to Diamondhead Casino Corporation and its wholly-owned subsidiaries, unless the context indicates otherwise.

 

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

 

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Liquidity

 

The Company has incurred continued losses over the years and certain conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company has had no operations since it ended its gambling cruise ship operations in 2000. Since that time, the Company has concentrated its efforts on the development of its Diamondhead, Mississippi Property. The development of the Diamondhead Property is dependent on obtaining the necessary capital, through equity and/or debt financing, unilaterally, or in conjunction with one or more partners, to master plan, design, obtain permits for, construct, staff, open, and operate a casino resort. In the past, the Company has been able to sustain itself through various short term borrowings. At March 31, 2024, the Company had cash of $312,884, while accounts payable and accrued expenses totaled $13,948,423 and the Company had an accumulated deficit of $47,359,649. The Company is expecting an additional $154,622 of income from its eminent domain settlement. The Company reported a net loss applicable to common shareholders of $496,847 for the three months ended March 31, 2024. Therefore, in order to sustain itself, it is imperative that the Company secure a source of funds to provide further working capital.

 

Management of the Company believes it will be difficult to secure suitable financing that would allow it to continue to pursue ultimate development of the Property. Therefore, on December 14, 2023, the Company entered into an agreement with an unrelated commercial real estate brokerage firm to sell all or part of the Diamondhead, Mississippi Property or to find an equity investor for the project and/or financing for the project. The agreement became effective December 14, 2023 and terminates December 31, 2025, unless extended in writing by the parties. The agreement is a non-exclusive agreement and provides for a success-based fee only.

 

The above conditions raise substantial doubt about the Company’s ability to continue as a going concern and its ability to generate cash to meet its cash requirements for the following twelve months as of the date of this Form 10-Q.

 

Financial Results and Analysis

 

During the three months ended March 31, 2024 and 2023, the Company incurred net losses applicable to common stockholders of $496,847 and $523,357 respectively. The decrease in the loss, which totaled $26,510 is primarily due to a decrease in interest expense

 

Administrative and general expenses incurred totaled $196,717 and $200,293 for the three months ending March 31, 2024 and 2023, respectively. The table below depicts the major categories comprising these expenses:

 

   March 31,   March 31, 
   2024   2023 
Payroll and Related Taxes   $75,000   $75,000 
Director Fees    22,500    22,500 
Professional Services    28,004    46,328 
Rents and Insurances    22,301    21,747 
Fines and Penalties    36,200    31,500 
All Other Expenses    12,712    3,218 
Total General and Administrative Expenses   $196,717   $200,293 

 

Other Income and Expense

 

Interest expenses incurred totaled $251,850 and $280,752 for the three months ending March 31, 2024, and 2023, respectively, a decrease of $28,902. The decrease in 2024 is primarily attributable to a decrease in interest due on the Chairman’s related party loans from 2023 to 2024.

 

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Off-Balance Sheet Arrangements

 

Management Agreement

 

On June 19, 1993, two subsidiaries of the Company, Casino World Inc. and Mississippi Gaming Corporation, entered into a Management Agreement with Casinos Austria Maritime Corporation (CAMC). Subject to certain conditions, under the Management Agreement, CAMC would operate, on an exclusive basis, all of the Company’s proposed dockside gaming casinos in the State of Mississippi, including any operation fifty percent (50%) or more of which is owned by the Company or its affiliates. Unless terminated earlier pursuant to the provisions of the Agreement, the Agreement terminates five years from the first day of actual Mississippi gaming operations and provides for the payment of an annual operational term management fee of 1.2% of all gross gaming revenues between zero and $100,000,000; plus 0.75% of gross gaming revenue between $100,000,000 and $140,000,000; plus 0.5% of gross gaming revenue above $140,000,000; plus two percent of the net gaming revenue between zero and $25,000,000; plus three percent of the net gaming revenue above twenty-five million dollars $25,000,000. The Company believes this Agreement is no longer in effect. However, there can be no assurance that CAMC will not attempt to maintain otherwise which would lead to litigation.

 

Brokerage Agreement

 

On December 14, 2023, the Company entered into an agreement with an unrelated commercial real estate brokerage firm to sell all or part of the Diamondhead, Mississippi Property or to find an equity investor for the project and/or financing for the project. The agreement became effective December 14, 2023 and terminates December 31, 2025, unless extended in writing by the parties. The agreement is a non-exclusive agreement and provides for a success-based fee only.

 

In the event of a sale of all or part of the Diamondhead Property to the person(s) or entity(ies) the broker brings to the deal, the Company will pay a fee equal to four percent (4%) of the gross sales price of property sold to the person(s) or entity(ies) the broker brings to the deal.

 

In the event of an equity investment by an equity investor(s) the broker brings to the deal, the Company will pay the broker a fee equal to: (i) four percent (4%) of the amount of the equity invested on the first $25 million invested, plus (ii) 2% of the amount of the equity invested in excess of $25 million. In the event the broker closes an equity financing, the broker shall have a right of first refusal to obtain debt financing for a period of two years commencing with the final date on which the Company receives the equity financing during the term of the agreement or post-termination of the agreement.

 

In the event the broker secures debt financing for the Company, the Company will pay the broker: (i) one percent (1%) of the amount of any debt financing obtained from the person(s) or entity(ies) the broker brings to the deal on the first $75 million received by the Company, plus (ii) one-half of one percent (.50%) of the amount of any debt financing obtained in excess of the first $75 million received from a person(s) or entity(ies) the broker brings to the deal.

 

All fees are contingent. Payment of any fee is contingent on the signing of a sales agreement, equity agreement, or loan agreement acceptable to the Company in its sole discretion and payment of the sales price, equity investment or debt financing by the person(s) or entity(ies) the broker brings to the deal and upon receipt of good funds. All fees will be paid at Closing out of monies paid by the person(s) or entity(ies) the broker brings to the deal. If funds are paid periodically, the fee due will be paid periodically upon receipt of said funds and in proportion to the funds received.

 

There are no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources, that are material to our stockholders.

 

Related Party

 

In July 2017, the Chairman of the Board paid $67,628 for all property taxes due, together with all interest due thereon, to Hancock County, Mississippi for the approximate 400-acre tract of land (“the Diamondhead Property”), owned by Mississippi Gaming Corporation, a wholly-owned subsidiary of the Company. In 2018, the Chairman advanced additional funds totaling $205,250 to the Company. In 2019, the Chairman advanced additional funds totaling $125,396 to the Company. In 2020, the Chairman advanced additional funds totaling $69,679 to the Company. The conditions of the notes under which the Chairman agreed to make the foregoing payments and advances are discussed in full detail in Note 8 of the attached unaudited condensed consolidated financial statements.

 

Of particular note to these conditions is item (v) which called for the Chairman to be indemnified for any loss sustained on the sale of certain common stock sold to cover the property taxes paid. The Chairman identified the common stock sold and provided the Company with the documentation required to document the sale of said stock and to calculate the contingent future loss, if any, on said stock. Had the Company paid the note in full at December 31, 2021 in addition to the principal and interest due, the Company would not have been liable for any additional funds to indemnify the Chairman pursuant to the terms of the notes. On February 4, 2022, the Board of Directors entered into an agreement with the Chairman to issue 35,000 shares of common stock of the Company to the Chairman to repurchase the indemnification. This repurchase eliminated any risk to the Company arising from the indemnification which could have been material. During the quarters ended March 31, 2024 and 2023, the Company recorded stock-based compensation of $0 for the fair value for these shares, which have not yet been issued as of the issuance date of the attached financial statements.

 

There are no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources, that are material to our stockholders.

 

Critical Accounting Estimates

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The 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.

 

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

 

As a smaller reporting company, information under this item is not required to be presented.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

In connection with the preparation of this quarterly report on Form 10-Q, our management, with the participation of our Chief Executive Officer, who also serves as Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. 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/Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the results of this evaluation, the Chief Executive Officer/Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as March 31, 2024. See below for management’s report.

 

The management, under the supervision of our Chief Executive Officer/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.

 

The Chief Executive Officer/Chief Financial Officer conducted, under the supervision of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on this evaluation, the Chief Executive Officer/Chief Financial Officer concluded that material weaknesses over financial reporting existed as of March 31, 2024. Management identified the following two material weaknesses that have caused management to conclude that, as of March 31, 2024, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

 

  1. We do not have sufficient segregation of duties within accounting functions.
  2.

We have not been timely in our financial reporting functions. Management has not developed and effectively communicated its accounting policies and procedures. This has resulted in inconsistent practices with regards to complex accounting transactions.

 

The Company has designed and instituted policies and procedures to eliminate and/or mitigate the foregoing.

 

As a result of the material weaknesses identified above, our internal control over financial reporting was not effective as of March 31, 2024. The Company has initiated a plan to address the above weakness. While segregation of duties is very difficult in a small company with only one employee, the Company intends to utilize third-party consultants to ensure effective financial reporting and disclosures are met.

 

To address the material weakness identified, management performed additional analyses and other procedures to ensure that the consolidated financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

Changes in Internal Control Over Financial Reporting

 

No change in our internal control over financial reporting occurred during the first quarter of the year ending March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II: OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Cooperative Energy, a Mississippi Electric Cooperative v. Mississippi Gaming Corporation (In the Special Court of Eminent Domain, Hancock County, Mississippi (Case No. CC20-0221)

 

Cooperative Energy, a Mississippi Electric Cooperative v. Mississippi Gaming Corporation, et al (all lienholders of the Diamondhead Property. (In the Special Court of Eminent Domain, Hancock County, Mississippi (Case No. CC23-0153)

 

Since 1994, American Telephone and Telegraph Company (“AT&T”) has had an exclusive right of way easement along the northern portion of Mississippi Gaming Corporation’s (“MGC”) Diamondhead, Mississippi Property (“the Property”) to construct, operate, maintain, inspect, alter, replace and remove communications systems which they may require from time to time. Cooperative Energy, a Mississippi Electric Cooperative, also sought and has now obtained a permanent easement along the northern portion of the Property on which to construct, maintain and operate electric transmission lines together with an access road. On or about November 19, 2020, Cooperative Energy filed a Complaint with the Special Court of Eminent Domain, Hancock County, Mississippi seeking an Order authorizing the Cooperative to enter onto the Property for the purpose of examinations and surveys. The matters sought in the Complaint were quickly resolved by agreement of the parties. The Company’s understanding and MGC’s understanding was that the case would be dismissed, but the case was not dismissed. On or about May 24, 2023, Cooperative Energy filed a Complaint for Eminent Domain in the Special Court of Eminent Domain, Hancock County, Mississippi in which it named MGC and all persons and entities holding liens on the Diamondhead, Mississippi Property as defendants.

 

On or about February 19, 2023, the parties entered into an Indemnification Agreement to fully indemnify MGC and Diamondhead Casino Corporation and each of their respective directors, officers, employees, agents, attorneys, and affiliates, and hold each of them harmless and defend each of them against any and all claims, losses, damages, expenses and/or liabilities to which an Indemnified Party might become liable arising out of or relating to any activities conducted on or about the Property by Cooperative Energy and/or its respective directors, officers, employees, agents, attorneys, affiliates and/or representatives and/or any unrelated third parties, contractors and/or subcontractors performing any activities on the Property at the request of or for the benefit of Cooperative Energy.

 

On September 1, 2023, Cooperative Energy filed a Motion to Approve Settlement, an Amended Statement of Values and a Notice of Hearing for September 11, 2023. Cooperative Energy served all interested parties, including all persons or entities holding liens on the Diamondhead Property, as defendants in the case. On September 26, 2023, the Court entered an Order Granting Plaintiff Right of Immediate Title and Possession. On October 17, 2023, the Court entered an Order Approving Settlement in the amount of $1,000,000 and entered an Order Approving Disbursement of Funds to MGC. On October 20, 2023, MGC received $845,378 as part of the settlement amount. The parties are working on the wording of the two easements: a Cooperative Energy Right-Of-Way Easement and an Access Road Easement. Once the easements are finalized and signed, Cooperative Energy will pay MGC the remaining amount due of $154,622.

 

The two easements are perpetual. The Right-Of-Way Easement is to construct, maintain, operate, add, and/or remove electric transmission lines, distribution lines, towers, wires, poles, appliances, equipment, anchors, frame structures, guys, counter-poise wire or other counter-poise conductors, and appurtenances thereto, all of which are collectively referred to as “Power Lines,” upon, over, under and across the land which is the subject of the easement. The Access Road Easement is for ingress and egress for use in the clearing, construction, maintenance and operation of transmission line facilities.

 

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Cooperative Energy has informed MGC that it has obtained an agreement from AT&T concerning AT&T’s pre-existing exclusive right of way easement so that the Company will not be in breach of its agreement with AT&T.

 

Edson R. Arneault, Kathleen Devlin and James Devlin, J. Steven Emerson, Emerson Partners, J. Steven Emerson Roth IRA, Steven Rothstein, and Barry Stark and Irene Stark v. Diamondhead Casino Corporation (In the United States District Court for the District of Delaware (C.A. No. 1:16-cv-00989-LPS)

 

On October 25, 2016, Edson R. Arneault, Kathleen Devlin and James Devlin, J. Steven Emerson, Emerson Partners, J. Steven Emerson Roth IRA, Steven Rothstein, and Barry Stark and Irene Stark filed a Complaint against the Company in the United States District Court for the District of Delaware for monies due and owing pursuant to certain Collateralized Convertible Senior Debentures issued on March 31, 2014 and December 31, 2014. A companion case was filed in the Superior Court of the State of Delaware by John Hawley, as servicing agent for Argonaut 2000 Partners, L.P. (John Hawley, as servicing agent for Argonaut 2000 Partners, L.P. v. Diamondhead Casino Corporation (Superior Court of the State of Delaware)(Case No. N19C-02-239 RRC) The eight plaintiffs in the two cases were seeking a total of $1.5 million in principle due, plus interest from January 1, 2015, together with costs and fees. On or about December 12, 2019, the parties entered into a Settlement Agreement and on January 13, 2020, the parties filed a Stipulation of Voluntary Dismissal with Prejudice in the case. The case was dismissed with the Court maintaining continuing jurisdiction over the Settlement Agreement.

 

In or about December 2022, the parties entered into an Amendment to Settlement Agreement. The Amendment provides, in pertinent part, as follows: that on or before March 31, 2023, the Plaintiffs would be paid the principal due under their debentures of $1.5 million, plus interest of four percent (4%) per annum on the principal due from January 1, 2015 through December 31, 2019, plus interest of six percent (6%) per annum on the principal due from January 1, 2020 through March 31, 2022, plus interest of eight percent (8%) per annum on the principle due from April 1, 2022 through the date of payment. In addition the Company agreed to pay legal costs and fees of $175,000 plus 50,000 shares of common stock. In the event payment was not made on or before March 31, 2023, a judgment would be entered in the case. Post judgment interest shall only apply to the $1.5 million principal due. Payment was not made on or before March 31, 2023. On July 5, 2023, the Plaintiffs filed a Motion to Reopen the Action, Vacate Dismissal, and Enter Judgment on Consent. The Company did not object to the Motion. On September 20, 2023, the Court entered an Order Granting Plaintiffs’ Motion to Reopen this Action, Vacate Dismissal, and Compel Enforcement of the Settlement Agreement and entered the Consent Judgment previously agreed to by the Company. The Company has accrued legal fees of $195,000 and $16,500 for accrued liability for stock and accrued additional interest of $112,500 for the years ended December 31, 2022 and 2023 respectively.

 

Item 1A. Risk Factors

 

As a smaller reporting company, information under this item is not required to be presented.

 

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

 

None.

 

Item 3. Default Upon Senior Securities

 

Refer to the footnotes for all defaults on the Company’s indebtedness.

 

The Company is in arrears on the payment of dividends due on its three series of preferred stock currently issued and outstanding. The Company has not paid preferred dividends due in the first three months of 2024 in the amount of $10,400 on its Series S-PIK preferred stock. The table below summarizes total preferred stock dividends in arrears at March 31, 2024.

 

   Total Amount 
Description  In Arrears 
     
Series S  $375,000 
Series S-NR   375,000 
Series S-PIK   530,400 
      
Total in arrears  $1,280,400 

 

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Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibits 31.1 and 31.2

 

Attached to this report is the certification of the Chief Executive Officer/Chief Financial Officer of the Company pursuant to Rule 13A–14 of the Securities and Exchange 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 the Chief Executive Officer/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.

 

101.INS   Inline XBRL Instance Document
101.SHC   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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SIGNATURES

 

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

 

  DIAMONDHEAD CASINO CORPORATION
     
Date: May 15, 2024   /s/ Deborah A. Vitale
  By:  Deborah A. Vitale
    Chief Executive Officer

 

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