0001493152-19-012342.txt : 20190814 0001493152-19-012342.hdr.sgml : 20190814 20190814103252 ACCESSION NUMBER: 0001493152-19-012342 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 58 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190814 DATE AS OF CHANGE: 20190814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAMONDHEAD CASINO CORP CENTRAL INDEX KEY: 0000844887 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 592935476 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17529 FILM NUMBER: 191023686 BUSINESS ADDRESS: STREET 1: 1013 PRINCESS STREET CITY: ALEXANDRIA, STATE: VA ZIP: 22314 BUSINESS PHONE: 703-683-6800 MAIL ADDRESS: STREET 1: 1013 PRINCESS STREET CITY: ALEXANDRIA, STATE: VA ZIP: 22314 FORMER COMPANY: FORMER CONFORMED NAME: EUROPA CRUISES CORP DATE OF NAME CHANGE: 19920703 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2019

 

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 [X] 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 [X] 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 [X] Smaller reporting company [X]
  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 [X]

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common equity as of the latest practicable date: Number of shares outstanding as of August 12, 2019: 36,297,576.

 

 

 

 
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

    Page
PART 1: FINANCIAL INFORMATION  
     
ITEM 1: Financial Statements (Unaudited)  
     
  Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 1
     
  Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2019 and June 30, 2018 2
     
  Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2019 and June 30, 2018 3
     
  Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the Three and Six Months Ended June 30, 2019 and June 30, 2018 4
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and June 30, 2018 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Financial Results 16
     
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 20
     
ITEM 4: Controls and Procedures 20
     
PART II: OTHER INFORMATION  
     
ITEM 1: Legal Proceedings 20
     
ITEM 1A: Risk Factors 21
     
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds 21
     
ITEM 3: Default Upon Senior Securities 21
     
ITEM 4: Mine Safety Disclosures 22
     
ITEM 5: Other Information 22
     
ITEM 6: Exhibits 22
     
  Signatures 23

 

i
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   June 30, 2019   December 31, 2018 
ASSETS          
           
Current assets          
Cash  $3,732   $- 
Other current assets   2,011    16,608 
Total current assets   5,743    16,608 
           
Land (Note 3)   5,476,097    5,476,097 
Other assets   80    80 
           
Total assets  $5,481,920   $5,492,785 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
           
Current liabilities          
Convertible notes and line of credit payable (Note 5)  $1,962,500   $1,962,500 
Debenture payable (net of unamortized finance costs of $719 at June 30, 2019 and $1,194 at December 31, 2018) (Note 6)   49,281    48,806 
Convertible debentures payable (net of unamortized finance costs of $28,955 at June 30, 2019 and $43,026 at December 31, 2018) (Note 6)   1,771,045    1,756,974 
Short term notes and interest bearing advance (Note 7)   59,519    58,004 
Current notes payable due related parties (Note 8)   352,209    309,015 
Accounts payable and accrued expenses due related parties (Note 4)   4,783,538    4,141,814 
Accounts payable and accrued expenses – others (Note 4)   3,078,669    2,840,306 
Total current liabilities   12,056,761    11,117,419 
           
Notes payable due related parties (Note 9)   115,000    115,000 
Notes payable due others (Note 9)   72,500    72,500 
           
Total liabilities   12,244,261    11,304,919 
           
Commitments and contingencies (Notes 3 and 12)          
           
Stockholders’ deficiency          
Preferred stock, $.01 par value; shares authorized 5,000,000, outstanding 2,086,000 at June 30, 2019 and December 31, 2018 (aggregate liquidation preference of $2,519,080 at June 30, 2019 and December 31, 2018).   20,860    20,860 
Common stock, $.001 par value; shares authorized 50,000,000, issued: 39,052,472 at June 30, 2019 and December 31, 2018, outstanding: 36,297,576 at June 30, 2019 and December 31, 2018.   39,052    39,052 
Additional paid-in capital   35,430,445    35,430,445 
Unearned ESOP shares   (3,083,672)   (3,083,672)
Accumulated deficit   (39,020,810)   (38,070,603)
Treasury stock, at cost, 686,706 shares at June 30, 2019 and December 31, 2018.   (148,216)   (148,216)
           
Total stockholders’ deficiency   (6,762,341)   (5,812,134)
           
Total liabilities and stockholders’ deficiency  $5,481,920   $5,492,785 

 

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

 

1
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30,

(UNAUDITED)

 

    2019     2018  
COSTS AND EXPENSES                
Administrative and general   $ 151,242     $ 146,754  
                 
Other     15,968       20,215  
Total costs and expenses     167,210       166,969  
                 
OTHER EXPENSE (INCOME)                
Interest expense:                
Related parties     62,507       60,046  
Other     80,525       73,117  
Change in derivative indemnification liability -related party     (417,843 )     -  
                 
Total other (income) expense     (274,811 )     133,163  
                 
NET INCOME(LOSS)     107,601     (300,132 )
                 
PREFERRED STOCK DIVIDENDS     (25,400 )     (25,400 )
                 
NET INCOME(LOSS) APLICABLE TO COMMON STOCKHOLDERS   $ 82,201   $ (325,532 )
                 
Net income(loss) per common share, basic and fully diluted   $ .00   $ (.01 )
                 
Weighted average number of common shares outstanding, basic and fully diluted     36,297,576       36,297,576  

 

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

 

2
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

 

    2019     2018  
COSTS AND EXPENSES                
Administrative and general   $ 338,941     $ 317,490  
Stock-based compensation     -       21,570  
Other     31,936       36,185  
Total costs and expenses     370,877       375,245  
                 
OTHER EXPENSE (INCOME)                
Interest expense:                
Related parties     169,116       140,190  
Other     154,907       144,781  
Change in derivative indemnification liability -related party     240,507     -  
Litigation settlement     (36,000 )     -  
Total other expense     528,530       284,971  
                 
NET LOSS     (899,407 )     (660,216 )
                 
PREFERRED STOCK DIVIDENDS     (50,800 )     (50,800 )
                 
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS   $ (950,207 )   $ (711,016 )
                 
Net loss per common share, basic and fully diluted   $ (.03 )   $ (.01 )
                 
Weighted average number of common shares outstanding, basic and fully diluted     36,297,576       36,297,576  

 

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

 

3
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

   Perferred stock   Preferred   Common stock   Common   Additional Paid-In   Unearned ESOP   Unearned   Accumulated   Treasury Stock   Treasury     
   Shares   Stock   Shares   Stock   Capital   Shares   ESOP   Deficit   Shares   Stock   TOTAL 
                                             
BALANCE 12/31/2017   2,086,000   $20,860    39,052,472   $39,052   $35,526,362    2,147,735   $(3,202,274)  $(36,679,875)   607,161   $(147,101)  $(4,442,976)
                                                        
STOCK-BASED COMPENSATION   -    -    -    -    21,570    -    -    -    -    -    21,570 
                                                        
DIVIDENDS   -    -    -    -    -    -    -    (25,400)   -    -    (25,400)
                                                        
NET LOSS   -    -    -    -    -    -    -    (360,084)   -    -    (360,084)
                                                        
BALANCE 3/31/2018   2,086,000   $20,860    39,052,472   $39,052   $35,547,932    2,147,735   $(3,202,274)  $(37,065,359)   607,161   $(147,101)  $(4,806,890)
                                                        
DIVIDENDS   -    -     -    -    -     -    -    (25,400)    -    -    (25,400)
                                                        
NET LOSS    -    -     -    -    -     -    -    (300,132)    -    -    (300,132)
                                                        
BALANCE 6/30/2018   2,086,000   $20,860    39,052,472   $39,052   $35,547,932    2,147,735   $(3,202,274)  $(37,390,891)   607,161   $(147,101)  $(5,132,422)
                                                        
BALANCE 12/31/2018   2,086,000   $20,860    39,052,472   $39,052   $35,430,445    2,068,190   $(3,083,672)  $(38,070,603)   686,706   $(148,216)  $(5,812,134)
                                                        
DIVIDENDS    -    -     -    -    -     -    -    (25,400)    -    -    (25,400)
                                                        
NET LOSS    -    -     -    -    -     -    -    (1,007,008)    -    -    (1,007,008)
                                                        
BALANCE 3/31/2019   2,086,000   $20,860    39,052,472   $39,052   $35,430,445    2,068,190   $(3,083,672)  $(39,103,011)   686,706   $(148,216)  $(6,844,542)
                                                        
DIVIDENDS    -    -     -    -    -     -    -    (25,400)    -    -    (25,400)
                                                        
NET INCOME    -    -     -    -    -     -    -    107,601     -    -    107,601 
                                                        
BALANCE 6/30/2019   2,086,000   $20,860    39,052,472   $39,052   $35,430,445    2,068,190   $(3,083,672)  $(39,020,810)   686,706   $(148,216)  $(6,762,341)

 

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

 

4
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

 

   2019   2018 
OPERATING ACTIVITIES          
Net loss  $(899,407)  $(660,216)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization   14,546    14,540 
Stock-based compensation   -    21,570 
Change in derivative indemnification liability   240,507   - 
Change in assets and liabilities:          
Other assets   14,597    (1,558)
Accounts payable and accrued expenses   588,780    468,156 
Net cash used in operating activities   (40,977)   (157,508)
           
FINANCING ACTIVITIES          
Proceeds from notes payable issued to related parties   79,361    161,033 
Payments of notes payable issued to related parties   (36,167)   - 
Proceeds from short term notes and interest bearing advances   2,734    5,520 
Payments of short term notes   (1,219)   (2,998)
Net cash provided by financing activities   44,709    163,555 
           
Net increase in cash   3,732    6,047 
Cash beginning of period   -    65 
Cash end of period  $3,732   $6,112 
           
Cash paid for interest  $919   $1,145 
Non-cash financing activities:          
Unpaid preferred stock dividends included in accounts payable and accrued expenses  $50,800   $50,800 

 

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

 

5
 

 

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Organization and Business

 

Diamondhead Casino Corporation and its Subsidiaries (the “Company”) own a total of approximately 400 acres of unimproved land in Diamondhead, Mississippi (“the Property”). Active subsidiaries of the Company include Mississippi Gaming Corporation, which owns the approximate 400-acre site and Casino World, Inc.

 

The Company’s intent was 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. Due to its lack of financial resources and certain lawsuits filed against it, the Company has been 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. Therefore, on March 25, 2019, Mississippi Gaming Corporation entered into a brokerage agreement with an unrelated third party to seek a buyer for all or part of the Property or, alternatively, to seek a joint venture partner for the project.

 

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 $950,207 for the six months ended June 30, 2019. In addition, the Company had an accumulated deficit of $39,020,810 at June 30, 2019. Due to its lack of financial resources and certain lawsuits filed against it, the Company has been forced to explore other alternatives, including a sale of part or all of the Property. In addition, in the event it becomes necessary in order to protect the Company’s assets, the Board of Directors has authorized the Company to file a petition for reorganization under Chapter 11 of the United States Bankruptcy Code.

 

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 continue 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 June 30, 2019, the Company had $7,862,207 of accounts payable and accrued expenses and only $3,732 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

 

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 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 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 and six months ended June 30, 2019 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, 2018, attached to our annual report on Form 10-K filed on April 12, 2019.

 

6
 

 

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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain reclassifications have been made to the unaudited condensed consolidated 2018 financial statements to conform to the unaudited condensed consolidated 2019 financial statements presentation. The reclassifications of interest expense had no effect on net earnings or cash flows as previously reported.

 

Land

 

Land is carried at cost. Costs directly related to site development, such as permitting, engineering, and other costs, are capitalized. In the first quarter of 2019, the Company entered into a brokerage agreement for sale of all or part of the Property, or, alternatively, to seek a joint venture partner for the project.

 

Land development costs, which have been capitalized, consist of the following at June 30, 2019 and December 31, 2018:

 

Land  $4,934,323 
Licenses   77,000 
Engineering and costs associated with permitting   464,774 
      
Total land  $5,476,097 

 

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.

 

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.

 

The fair value measurement of the derivative indemnification liability at June 30, 2019 listed in Note 4 below was developed using Level 1 inputs.

 

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 at June 30, 2019.

 

Net Loss per Common Share

 

Basic loss per share is computed by dividing net loss applicable 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 have not yet been met and may never be met.

 

The table below summarizes the components of potential dilutive securities at June 30, 2019 and 2018.

 

   June 30,   June 30, 
Description  2019   2018 
         
Convertible Preferred Stock   260,000    260,000 
Options to Purchase Common Shares   3,415,000    3,415,000 
Convertible Promissory Notes   1,925,000    1,925,000 
           
Total   5,600,000    5,600,000 

 

7
 

 

Stock Based Compensation

 

The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards either modified or granted to employees and directors based upon estimated fair values. In the first quarter of 2018, the Board of Directors voted to extend the expiration dates of previously-awarded option grants from March 13, 2018 to December 31, 2020 with respect to the following: i) options previously granted to the President to purchase 750,000 shares of common stock at $0.30 per share, 75,000 shares of common stock at $0.75 per share and 2,000,000 shares of common stock at $0.19 per share; ii) options previously granted to the current Chairman of the Board to purchase 150,000 shares of common stock at $1.25 per share; iii) options previously granted to a Director of the Company to purchase 75,000 shares of common stock at $0.75; and iv) options previously granted to former employees of the Company to purchase a combined total of 65,000 shares of common stock at $0.75 per share. No share-based awards were issued or amended in 2019.

 

In determining the fair value of each option modified, the Black-Scholes option-pricing model, consistent with the provisions of ASC Topic 718, was used. The valuations were determined using the weighted-average assumptions of 0% dividend yield, expected volatility of 103% and a risk-free interest rate of 2.79%. This resulted in a charge to the statement of operations in the amount of $21,570 for the six months ending June 30, 2018.

 

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

 

Recently Adopted Accounting Pronouncements

 

In June 2018, FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting” which addresses accounting for issuance of all share-based payments on the same accounting model. Previously, accounting for share-based payments to employees was covered by Accounting Standards Codification (“ASC”) Topic 718, while accounting for such payments to non-employees was covered by ASC Topic 505. As it considered recently issued updates to ASC Topic 718, the FASB, as part of its simplification initiatives, decided that ASC Topic 718 would also be used as the guidance for non-employee share-based awards. Under this new guidance, both employee and non-employee awards will essentially follow the same model, with small variances related to determining the term assumption when valuing a non-employee award as well as a different expense attribution model for non-employee awards. The ASU is effective beginning in calendar year 2019 and did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires lessees to recognize lease assets and lease liabilities on the consolidated balance sheet and requires expanded disclosures about leasing arrangements. We adopted the standard on January 1, 2019. Based on our assessment of the new standard on our unaudited condensed consolidated financial statements we have concluded that the impact is insignificant to our unaudited condensed consolidated financial statements based on the month-to-month nature of our singular lease currently in effect.

 

Note 4. Accounts Payable and Accrued Expenses

 

The table below outlines the elements included in accounts payable and accrued expenses at June 30, 2019 and December 31, 2018:

 

   June 30,   December 31, 
Description  2019   2018 
Related parties:          
Accrued payroll due officers  $2,519,711   $2,369,711 
Accrued interest due officers and directors   1,198,179    1,029,062 
Accrued director fees   523,750    478,750 
Base rents due to the President   212,846    185,642 
Associated rental costs   71,237    61,341 
Derivative indemnification   240,507    - 
Other   17,308    17,308 
Total related parties  $4,783,538   $4,141,814 
           
Non-related parties:          
Accrued interest  $1,898,564   $1,743,658 
Accrued dividends   812,800    762,000 
Accrued fines and penalties   104,850    77,700 
Other   262,455    256,948 
Total non-related parties  $3,078,669   $2,840,306 

 

As of June 30, 2019, the Chairman had advanced a total of $316,615, net of repayment of $16,250, to the Company under certain conditions. The conditions of the notes under which the Chairman agreed to make these advances are discussed in full detail in Note 8 of these unaudited condensed consolidated financial statements.

 

Of particular note to those conditions, item (v) calls for the Chairman to be indemnified for any losses sustained on the sale of common stock of another publicly traded company, sold to raise the funds necessary to make the above advances. The Chairman has identified the common stock sold and has 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.

 

As listed in the above schedule, had the Company paid the notes in full at June 30, 2019, in addition to the principal and interest due, the Company would have been additionally liable for a derivative indemnification of $240,507 in additional funds to indemnify the Chairman for his lost equity on the stock sale. No liability for this circumstance existed at December 31, 2018.

 

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 June 30, 2019 and December 31, 2018, the unpaid principal and accrued interest due on the obligation totaled $1,898,299 and $1,853,669, respectively.

 

Convertible Notes

 

Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum. The Promissory Notes are and were convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor.

 

8
 

 

Pursuant to an additional Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000. The Promissory Notes bear interest at 9% per annum and are and were convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor.

 

The Convertible Notes issued pursuant to the two Private Placements discussed above 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 of the aforementioned debt obligations remain unpaid and in default under the repayment terms of the notes. In addition, a total of $704,584 and $654,998 of accrued interest on the above notes remains outstanding at June 30, 2019 and December 31, 2018, respectively.

 

The table below summarizes the Company’s debt arising from the above-described sources as of June 30, 2019 and December 31, 2018:

 

   Principal   Amount Due     
   Amount   Related   Amount Due 
Loan Facility  Owed   Parties   Others 
             
Line of Credit  $1,000,000   $-   $1,000,000 
                
Private Placements:               
March 1, 2010   475,000    75,000    400,000 
October 25, 2010   487,500    -    487,500 
                
Total Private Placements   962,500    75,000    887,500 
                
Total  $1,962,500   $75,000   $1,887,500 

 

Note 6. Convertible Debentures Payable

 

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 of the Debentures offered in the principal amount of $3,000,000. The Debentures, once issued, bear interest at 4% per annum after 180 days, mature six years from the date of issuance, and are secured by a lien on the Company’s Mississippi property. 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 carry an Anti-Dilution Provision. If the Company issues any shares of Common Stock or other securities after March 31, 2014 at a price per security that is less than the conversion price of a Debenture, then the Debenture shall have a new conversion price equal to the price per security that is less than the Conversion Price of the Debenture. The foregoing provision shall 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. Should an event take place which would trigger the provision, the Company would be required to record dividend expense in an amount equal to the difference in the fair value of the embedded derivatives before the event versus the fair value of the derivative after the triggering event.

 

On March 31, 2014, the First Closing occurred when subscriptions in the amount of $3,000,000 were received in Escrow and accepted by the Company. The Escrow Agent released $1,000,000 to the Company and the Company issued First Tranche Debentures in the aggregate principle amount of $1,000,000.

 

The Company’s stock registration was revoked effective September 4, 2014. Therefore, on December 4, 2014, the Company extended offers to the investors to amend the Private Placement. The Company offered to amend certain terms and conditions, including the conversion terms of the First Tranche Debentures, which were issued on March 31, 2014 (“Amendment I”). The Company separately offered to amend certain terms and conditions, including those relating to issuance and conversion of the Second and Third Tranche Debentures, as well as the period of time within which to perform the Third Tranche Closing Obligations, as amended (“Amendment II”).

 

On December 31, 2014, investors who had purchased $950,000 of First Tranche Debentures consented to the amended conversion terms of Amendment I. The remaining Debenture in the amount of $50,000 remains as originally issued with no conversion rights. Thus, the First Tranche Debentures can be converted into a total of 3,166,666 shares of common stock. On December 31, 2014, the Second Closing occurred when investors representing $850,000 of Second Tranche Debentures consented to Amendment II. The Escrow Agent released $850,000 to the Company and the Company issued Second Tranche Debentures in the aggregate principle amount of $850,000. Thus, the Second Tranche Debentures can be converted into 1,888,889 shares of common stock. The Escrow Agent refunded $300,000 to those investors who did not consent to Amendment II.

 

The Company did not meet the closing obligations for the Third Tranche Debentures as of June 30, 2015, as was required, pursuant to the terms of the Private Placement, as amended. Therefore, in July 2015, the remaining $850,000 then being held in escrow for the purchase of the Third Tranche Debentures was returned to the investors.

 

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 Debentures agreements in the amount of $279,233 and as a result, the Debentures payable are reported as current liabilities. Certain Debenture holders maintain that the Company is in default, not only with respect to interest due under the Debentures, but with respect to principal due under the Debentures in the amount of $1,850,000, as well. See Note 12. Commitments and Contingencies-Litigation.

 

Total accrued interest due on all Debentures amounted to $315,929 and $279,233 at June 30, 2019 and December 31, 2018, respectively.

 

Note 7. Short Term Notes and Interest Bearing Advance

 

Property Liability Insurance Financing

 

In January 2019, the Company financed $2,734 of the premium due for liability insurance on its Mississippi property. The financing requires monthly installments of $258 of principal and interest at a rate of 7.751% through December of 2019. At June 30, 2019, a principal balance of $1,515 remained outstanding on the note.

 

Promissory Note

 

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 is 12.5% per annum and payable March 1 of each year the note remains outstanding. Payment in full of the Note is due June 9, 2019. The Note is presently in default but interest continues to accrue. 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, which were due March 1, 2018 and March 1, 2019, were not made. Accrued interest on the note amounted to $3,858 and $2,928 at June 30, 2019 and December 31, 2018, respectively.

 

Bank Credit Facility

 

Wells Fargo Bank provides an unsecured credit facility of up to $15,000 to the Company. The facility requires a variable monthly payment of amounts borrowed plus interest, which is applied at 11.24% on direct charges and 24.99% on any cash advanced through the facility. In the fourth quarter of 2018, the lending bank cancelled privileges under the facility for non-payment and at June 30, 2019, a principal balance of $18,004 remained outstanding on the facility.

 

10
 

 

Interest Bearing Advance

 

On February 2, 2017, the Company borrowed $25,000 from an unrelated third party. The Company expects to enter into a formal note for these funds. However, the terms of the note have not been finalized. The Note is expected to carry an annual interest rate of approximately 12.5% with an original projected due date of December 31, 2017. 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 Diamondhead property. Accrued interest on the advance amounted to $7,517 and $5,967 at June 30, 2019 and December 31, 2018 respectively.

 

The table below summarizes the short-term notes and interest bearing advance at June 30, 2019 and December 31, 2018.

 

   Interest   June 30,   December 31, 
Description of Facility  Rate   2019   2018 
             
Property liability insurance financing   7.751%  $1,515   $- 
                
Promissory note   12.5%   15,000    15,000 
                
Bank credit facility   11.24% - 24.99%   18,004    18,004 
                
Interest bearing advance   12.50%   25,000    25,000 
Total short term notes and interest bearing advance       $59,519   $58,004 

 

Note 8. Current Notes Payable Due to Related Parties

 

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 an 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 (Case No. 426962-V); and (v) he be indemnified for any losses sustained on the sale of that common stock sold to cover the credit card payments. The Chairman has identified the common stock to be sold and will provide the Company with the documentation required to document the sale of said stock and to calculate the future loss, if any, on said stock. On June 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 principal 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 $27,542 and $18,762 at June 30, 2019 and December 31, 2018, respectively.

 

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 will provide the Company with the documentation required to document the sale of said stock and to calculate the losses on said stock for all amounts loaned to the Company from the sale of said stock. On June 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.

 

11
 

 

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. However, the additional funds will be secured by a fourth lien to be placed on the Property in favor of the Chairman.

 

At June 30, 2019, the Chairman had advanced a total of $248,987, net of repayments of $16,250, under both the March 2018 and March 2019 arrangements and was owed accrued interest in the amount of $68,136 and $30,788 at June 30, 2019 and December 31, 2018, respectively.

 

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 (Case No. 426962-V).

 

As of June 30, 2019, the President had advanced a total of $35,594 net of repayments of $19,917, 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 June 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 $13,761 and $8,421 at June 30, 2019 and December 31, 2018, respectively.

 

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 to the officers and directors discussed above were due in June 2019 and totaled $352,209 and $309,015 in aggregate, at June 30, 2019 and December 31, 2018, respectively.

 

Note 9. Long Term Notes Payable

 

In 2016, the Company received cash advances totaling $47,500 from seven lenders which included $25,000 from three current Directors of the Company. 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 $15,600 and $11,400 at June 30, 2019 and December 31, 2018, respectively.

 

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 $36,730 and $30,482 at June 30, 2019 and December 31, 2018 respectively.

 

The principal due under the two foregoing loan arrangements totals $137,500. The Company has filed a second lien on its Mississippi property in favor of the note holders to secure both principal and interest in the maximum amount of $250,000. The lien is second to the existing first lien on the Mississippi property in the principal amount of $3.85 million.

 

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.

 

12
 

 

The table below summarizes the Company’s long-term notes payable as of June 30, 2019 and December 31, 2018:

 

Loan Facility 

Principal

Amount

Owed

  

Amount

Due

Related Parties

  

Amount

Due

Others

 
             
4 Year 8% secured note  $47,500   $25,000   $22,500 
                
4 Year 14% secured note   90,000    90,000    - 
                
4 Year 0% note   50,000    -    50,000 
                
Total Long-Term Notes Payable  $187,500   $115,000   $72,500 

 

Note 10. Related Party Transactions

 

As of June 30, 2019, the President of the Company is owed deferred salary in the amount of $2,391,996 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 $104,937 and $91,536 for the six months ended June 30, 2019 and 2018, respectively. Total interest accrued under this agreement totaled $980,986 and $876,074 as of June 30, 2019 and December 31, 2018, respectively.

 

Effective September 1, 2011, the Company entered into a month-to-month lease with the President and then-Chairman of the Board of Directors of the Company, for office space in a furnished and fully equipped townhouse office building 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 $27,204 and associated rental costs of $10,111 for a total of $37,315 for the six months ended June30, 2019 and base rent in the amount of $27,204 and associated rental costs of $9,236 for a total of $36,440 for the six months ended June 30, 2018. No payments associated with the base rents were made in the first six months of 2019. At June 30, 2019 and December 31, 2018, amounts owing for base rent and associated rental costs totaled $284,083 and $246,983, 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 $523,750 and $478,750 was due and owing to the Company’s current and former directors as of June 30, 2019 and December 31, 2018, 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.

 

See Notes 4, 5, 8, 9, 11 and 12 for other related party transactions.

 

Note 11. Commitments and Contingencies

 

Liens

 

The Company’s obligations under the Collateralized Convertible Senior Debentures are secured by a lien on the Company’s Diamondhead, Mississippi property (the “Investors Lien”). On March 31, 2014, the Company issued $1 million of First Tranche Collateralized Convertible Senior Debentures and, on December 31, 2014, the Company issued $850,000 of Second Tranche Collateralized Convertible Senior Debentures. Thus, on September 26, 2014, a first lien was placed on the Diamondhead Property in favor of the Investors to secure the principal due in the amount of $1,850,000 and interest due thereon. 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 Diamondhead Property in the maximum amount of $250,000 on the Diamondhead property to secure certain notes payable, including notes to related parties, totaling $137,500 in principal and accrued interest incurred.

 

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

 

13
 

 

Litigation

 

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, the above-named Debenture holders filed a Complaint against Diamondhead Casino Corporation (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. The plaintiffs are seeking $1.4 million, plus interest from January 1, 2015, together with costs and fees. The Company was served with the Complaint on October 31, 2016. On November 21, 2016, the Company filed a motion to dismiss for lack of subject matter jurisdiction due to failure to plead diversity. On February 21, 2017, the plaintiffs filed a motion for leave to amend their complaint based upon declarations of citizenship filed with the court. On September 26, 2017, the motion for leave to amend was granted and the Company’s motion to dismiss was granted in part and denied in part. The Court also granted plaintiffs leave to file a Second Amended Complaint which was filed on October 2, 2017. On October 16, 2017, the Company filed Defendant’s Answer and Affirmative Defenses and Counterclaim. On November 2, 2017, the Plaintiffs filed an Answer to the Counterclaim. The parties have exchanged discovery in the case. On September 27, 2018, the Plaintiffs’ filed a motion for summary judgment. On October 18, 2018, the Company filed its opposition to the motion for summary judgment. On November 8, 2018, the Plaintiff’s filed their reply to the Company’s opposition. On January 2, 2019, the Court canceled the trial previously scheduled for March 22, 2019. On April 2, 2019, the Court heard argument on the Plaintiff’s motion for summary judgment. On June 4, 2019, the Court denied Plaintiffs’ motion for summary judgment. On June 14, 2019, the Plaintiffs filed a motion for leave to file a third amended complaint. On June 26, 2019, the Company filed an opposition to the motion. On July 1, 2019, the plaintiffs filed their reply. On July 24, 2019, the Court denied the motion for leave to amend without prejudice. On June 7, 2019, the Court scheduled a mediation conference for July 11, 2019. At the mediation conference, the parties reached a settlement agreement in principle which is being memorialized in a written agreement.

 

The Company expects the settlement agreement, in addition to other terms and conditions, will provide as follows: i) in the event Mississippi Gaming Corporation (“MGC”) has entered into a contract for the sale of the Diamondhead Property on or before December 31, 2019, the Plaintiffs will be paid the principal due under the debentures and interest stated in the debentures of four percent (4%) per annum through the payment date; ii) in the event MGC has entered into a contract for the sale of the Property on or before June 30, 2020, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of five percent (5%) per annum through the payment date; iii) in the event MGC has not entered into a contract for the sale of the Property on or before June 30, 2020, but has done so on or before December 31, 2021, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4% ) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the payment date; and iv) If MGC has not entered into a contract for the sale of the Property on or before December 31, 2021, the Plaintiffs will be entitled to a Judgment for the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the date of Judgment. Following entry of Judgment, interest will accrue at the then post-judgment rate of interest charged pursuant to the laws of the State of Delaware. There is a provision for the payment of reasonable attorneys fees to counsel for Plaintiffs in the event MGC has not entered into a contract for the sale of the Property on or before December 31, 2019. If the parties cannot agree on the amount that constitutes reasonable attorneys fees, the parties will submit the matter to the Court for determination, but in no event will such fees exceed $160,000 unless there is a default in the Settlement Agreement.

 

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)

 

On February 28, 2019, the above-named Debenture holder filed a Complaint against Diamondhead Casino Corporation (the Company) in the Superior Court of the State of Delaware for monies due and owing pursuant to certain Collateralized Convertible Senior Debentures issued on March 31, 2014 and December 31, 2014. The plaintiff is seeking $100,000, plus interest from January 1, 2015, together with costs and fees. The Company was served with the Complaint on March 8, 2019. On March 28, 2019, the Company filed its Answer, Affirmative Defenses and Counterclaim and Affidavit of Defense. The plaintiff in this case is represented by the same law firms that represent plaintiffs in the above-referenced case. Thus, at the mediation conference held on July 11, 2019 in the above case, the parties agreed that the same settlement agreement reached in that case would apply to the plaintiff in this case as well.

 

Arnold J. Sussman, Robert Skaff and David J. Towner v. Diamondhead Casino Corporation (Superior Court of the State of Delaware)(Case No. N18C-11-091-WCC)

 

On November 9, 2018, Sussman filed suit against the Company for breach of a Promissory Note issued November 10, 2010, in the principal amount of $50,000, with interest payable at 9% per annum, with a maturity date of November 10, 2012. Plaintiff seeks payment of principal of $50,000 and interest due from June 30, 2012 to present, which Plaintiff alleges is approximately $28,500 as of October 31, 2018. The Note, as well as the accrued interest thereon, are shown as current liabilities on the Company’s balance sheet. On December 6, 2018, the Company’s registered agent was served with the Sussman Complaint. On November 28, 2018, Skaff and Towner also filed suit against the Company in the same court for breach of Promissory Notes (Case No. N18C-11-232 ALR). Skaff filed suit i) for breach of a note issued on November 29, 2010, in the principle amount of $37,500 with interest payable at 9% per annum, with a maturity date of November 29, 2012 and ii) for breach of a note issued on June 21, 2011, in the principal amount of $25,000 with interest payable at 9% per annum, with a maturity date of June 21, 2013. Towner filed suit for breach of a note issued on November 29, 2010, in the principal amount of $25,000 with interest payable at 9% per annum, with a maturity date of November 29, 2012. Skaff alleges interest is due on his two notes from June 30, 2012 in the amount of $36,038 as of November 28, 2018. Towner alleges interest is due on his note from June 30, 2012 in the amount of $14,413 as of November 28, 2018. On December 6, 2018, the Company’s registered agent was served with the Skaff and Towner Complaint. All of the foregoing Notes, as well as the accrued interest thereon, are shown as current liabilities on the Company’s balance sheet. Counsel for the Plaintiffs in the foregoing cases requested that the cases be consolidated and the Company agreed to the consolidation. On February 15, 2019, the Plaintiffs filed their Consolidated Complaint. On March 7, 2019, the Company filed its Answer and Affirmative Defenses and Affidavit of Defense. Trial in this case is scheduled for July 13, 2020.

 

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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, 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 $91,200 on the currently delinquent filings. 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 has not filed its consolidated federal tax return for the years ended December 31, 2018, 2017 and 2016. The Company believes no tax is due with that return. Diamondhead Casino Corporation and its active subsidiary, Mississippi Gaming Corporation, are delinquent with respect to the filing of their franchise tax annual reports for 2018 with the state of Delaware. A second active subsidiary, Casino World, Inc, is also delinquent with respect to the filing of their franchise tax annual report for the years ended December 31, 2016, 2017 and 2018 with the state of Delaware. Casino World Inc. is delinquent with respect to its filings of franchise tax returns with the State of Mississippi for the years ending December 31, 2016, 2017 and 2018, while Mississippi Gaming Corporation is delinquent with respect to its franchise tax return for the year ending December 31, 2018 with the State of Mississippi.

 

The Company has made provision for the expected taxes due on these state filings in their unaudited condensed consolidated financial statements for the six months ending June 30, 2019.

 

Note 12. Subsequent Events

 

In July 2019, the Chairman of the Board advanced a total of $74,909 for the payment of expenses and taxes due on the Diamondhead Property. The conditions of the note under which the Chairman agreed to make these advances are discussed in full detail in Note 8 of these unaudited condensed consolidated financial statements.

 

Of particular note to those conditions, item (v) calls for the Chairman to be indemnified for any losses sustained on the sale of certain common stock sold to cover the above payments. The Chairman has identified the common stock sold on July 30, 2019 to cover these payments and has 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. As of July 30, 2019, the Company would have to indemnify the Chairman $432,198 for his loss on said stock.

 

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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, 2018 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 had concentrated its efforts on the development of its Diamondhead, Mississippi Property. The development of the Diamondhead Property would be 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, however, as of June 30, 2019, the Company had $3,732 of cash on hand, while accounts payable and accrued expenses totaled $7,862,207 and the Company had an accumulated deficit of $39,020,810. In addition, the Company reported a net loss applicable to common shareholders of $950,207 for the six months ended June 30, 2019. Therefore, in order to sustain itself, it is imperative that the Company secure a source of funds to provide further working capital.

 

In addition, a Line of Credit in the amount of $1,000,000 obtained in October 2008, was payable in November 2012 and Convertible Notes issued pursuant to two Private Placements offered in 2010, totaling $962,500 in principal at December 31, 2018, had become payable beginning in March 2012 and extending at various dates through June 2013. As of the date of the filing of this report, none of the aforementioned debt obligations have been satisfied and the Company is in default of the repayment terms of those facilities. In addition, holders of Debentures representing $1,500,000 of the $1,850,000 of Debentures issued, filed Complaints against the Company in the United States District Court for the District of Delaware and in the Superior Court for the State of Delaware for amounts they assert are due and owing pursuant to certain Collateralized Convertible Senior Debentures issued on March 31, 2014 and December 31, 2014. The plaintiffs are seeking $1.5 million in principal plus interest from January 1, 2015, together with costs and fees.

 

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 March 25, 2019, Mississippi Gaming Corporation entered into a brokerage agreement with an unrelated third party to seek a buyer for all or part of the Property or, alternatively, to seek a joint venture partner for the project. In addition, in the event it becomes necessary in order to protect the Company’s assets, the Board of Directors has authorized the Company to file a petition for reorganization under Chapter 11 of the United States Bankruptcy Code.

 

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 six months ended June 30, 2019, the Company realized a net loss applicable to common stockholders of $950,207 as opposed to a net loss applicable to common stockholders of $711,016 for the six months ended June 30, 2018, an increase of $239,191. The net loss is primarily attributable to an indemnification derivative liability. The change in indemnification derivative liability amounted to $658,350 for the first quarter of 2019 and $240,507 for the second quarter of 2019, a decrease of $417,843. The indemnification derivative liability arises from a condition in the notes issued to the Chairman of the Board of Directors of the Company pursuant to which the Company agreed to indemnify the Chairman for any losses he may incur from the sale of certain other equity holdings sold to raise the capital used to lend to the Company and/or pay certain taxes and expenses on behalf of the Company.

 

Administrative and general expenses incurred totaled $338,941 and $317,490 for the six months ending June 30, 2019 and 2018, respectively. The table below depicts the major categories comprising these expenses:

 

   June 30,   June 30, 
DESCRIPTION  2019   2018 
Payroll and Related Taxes  $150,000   $150,000 
Director Fees   45,000    40,000 
Professional Services   65,340    55,104 
Rents and Insurances   39,102    38,156 
Fines and Penalties   28,554    18,100 
All Other Expenses   10,945    16,130 
           
Total General and Administrative Expenses  $338,941   $317,490 

 

Other Income and Expense

 

Interest expense incurred totaled $324,023 and $284,971 for the six months ended June 30, 2019 and 2018, respectively, an increase of $39,052. The increase in 2019 is primarily attributable to the impact of accrued interest on unpaid wages which continues to accrue quarterly as well as the impact from new borrowings arising during the last two quarters of 2018 and first two quarters of 2019.

 

In the first quarter of 2019, the Company received $36,000 in proceeds from a litigation settlement.

 

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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 $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 March 25, 2019, Mississippi Gaming Corporation, a wholly-owned subsidiary of the Company and the title owner of the Diamondhead Property (the “Owner”), entered into an agreement with an unrelated commercial real estate brokerage firm to sell all or part of the Diamondhead, Mississippi Property or, alternatively, to find a joint venture partner for the project. The agreement provides for an exclusive right to sell all or part of the Property beginning March 25, 2019 and ending October 31, 2019, unless extended by the parties. The agreement provides for a commission equal to three percent (3%) of the gross sales price for property sold if the Buyer does not have a broker or four percent (4%) of the gross sales price of property sold if the Buyer does have a broker, in which case the commission due will be split between the brokers. In the event the Owner consummates and closes a deal with a Joint Venture Partner introduced to the Owner by the broker, the Owner will pay the broker a commission equal to four percent (4%) of the amount contributed by the Joint Venture Partner as its capital contribution. This will not apply in the event the Owner consummates a deal with a Joint Venture Partner who is not introduced to the Owner by the broker. The agreement does not apply to loans obtained by or on behalf of the Owner using the Property as collateral or as security for a loan. The agreement also provides for a reduced commission to the broker in the event of a sale to certain potential purchasers already involved in discussions with the Owner.

 

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 Policies

 

Estimates

 

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

 

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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 at June 30, 2019.

 

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.

 

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.

 

The fair value measurement of the derivative indemnification liability at June 30, 2019 was developed using Level 1 inputs.

 

Stock-Based Compensation Expense

 

In determining the fair value of options and warrants granted or modified, the Company uses the Black-Scholes option-pricing model, consistent with the provisions of ASC Topic 718. Valuations are determined using the weighted-average assumptions of dividend yield, expected volatility and risk-free interest rates.

 

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

 

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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 June 30, 2019. 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 effective at the reasonable assurance level as of June 30, 2019.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended) during the quarter ended June 30, 2019 that are expected to materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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, the above-named Debenture holders filed a Complaint against Diamondhead Casino Corporation (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. The plaintiffs are seeking $1.4 million, plus interest from January 1, 2015, together with costs and fees. The Company was served with the Complaint on October 31, 2016. On November 21, 2016, the Company filed a motion to dismiss for lack of subject matter jurisdiction due to failure to plead diversity. On February 21, 2017, the plaintiffs filed a motion for leave to amend their complaint based upon declarations of citizenship filed with the court. On September 26, 2017, the motion for leave to amend was granted and the Company’s motion to dismiss was granted in part and denied in part. The Court also granted plaintiffs leave to file a Second Amended Complaint which was filed on October 2, 2017. On October 16, 2017, the Company filed Defendant’s Answer and Affirmative Defenses and Counterclaim. On November 2, 2017, the Plaintiffs filed an Answer to the Counterclaim. The parties have exchanged discovery in the case. On September 27, 2018, the Plaintiffs’ filed a motion for summary judgment. On October 18, 2018, the Company filed its opposition to the motion for summary judgment. On November 8, 2018, the Plaintiff’s filed their reply to the Company’s opposition. On January 2, 2019, the Court canceled the trial previously scheduled for March 22, 2019. On April 2, 2019, the Court heard argument on the Plaintiff’s motion for summary judgment. On June 4, 2019, the Court denied Plaintiffs’ motion for summary judgment. On June 14, 2019, the Plaintiffs filed a motion for leave to file a third amended complaint. On June 26, 2019, the Company filed an opposition to the motion. On July 1, 2019, the plaintiffs filed their reply. On July 24, 2019, the Court denied the motion for leave to amend without prejudice. On June 7, 2019, the Court scheduled a mediation conference for July 11, 2019. At the mediation conference, the parties reached a settlement agreement in principle which is being memorialized in a written agreement.

 

The Company expects the settlement agreement, in addition to other terms and conditions, will provide as follows: i) in the event Mississippi Gaming Corporation (“MGC”) has entered into a contract for the sale of the Diamondhead Property on or before December 31, 2019, the Plaintiffs will be paid the principal due under the debentures and interest stated in the debentures of four percent (4%) per annum through the payment date; ii) in the event MGC has entered into a contract for the sale of the Property on or before June 30, 2020, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of five percent (5%) per annum through the payment date; iii) in the event MGC has not entered into a contract for the sale of the Property on or before June 30, 2020, but has done so on or before December 31, 2021, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4% ) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the payment date; and iv) If MGC has not entered into a contract for the sale of the Property on or before December 31, 2021, the Plaintiffs will be entitled to a Judgment for the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the date of Judgment. Following entry of Judgment, interest will accrue at the then post-judgment rate of interest charged pursuant to the laws of the State of Delaware. There is a provision for the payment of reasonable attorneys fees to counsel for Plaintiffs in the event MGC has not entered into a contract for the sale of the Property on or before December 31, 2019. If the parties cannot agree on the amount that constitutes reasonable attorneys fees, the parties will submit the matter to the Court for determination, but in no event will such fees exceed $160,000 unless there is a default in the Settlement Agreement.

 

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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)

 

On February 28, 2019, the above-named Debenture holder filed a Complaint against Diamondhead Casino Corporation (the Company) in the Superior Court of the State of Delaware for monies due and owing pursuant to certain Collateralized Convertible Senior Debentures issued on March 31, 2014 and December 31, 2014. The plaintiff is seeking $100,000, plus interest from January 1, 2015, together with costs and fees. The Company was served with the Complaint on March 8, 2019. On March 28, 2019, the Company filed its Answer, Affirmative Defenses and Counterclaim and Affidavit of Defense. The plaintiff in this case is represented by the same law firms that represent plaintiffs in the above-referenced case. Thus, at the mediation conference held on July 11, 2019 in the above case, the parties agreed that the same settlement agreement reached in that case would apply to the plaintiff in this case as well.

 

Arnold J. Sussman, Robert Skaff and David J. Towner v. Diamondhead Casino Corporation (Superior Court of the State of Delaware)(Case No. N18C-11-091-WCC)

 

On November 9, 2018, Sussman filed suit against the Company for breach of a Promissory Note issued November 10, 2010, in the principal amount of $50,000, with interest payable at 9% per annum, with a maturity date of November 10, 2012. Plaintiff seeks payment of principal of $50,000 and interest due from June 30, 2012 to present, which Plaintiff alleges is approximately $28,500 as of October 31, 2018. The Note, as well as the accrued interest thereon, are shown as current liabilities on the Company’s balance sheet. On December 6, 2018, the Company’s registered agent was served with the Sussman Complaint. On November 28, 2018, Skaff and Towner also filed suit against the Company in the same court for breach of Promissory Notes (Case No. N18C-11-232 ALR). Skaff filed suit i) for breach of a note issued on November 29, 2010, in the principle amount of $37,500 with interest payable at 9% per annum, with a maturity date of November 29, 2012 and ii) for breach of a note issued on June 21, 2011, in the principal amount of $25,000 with interest payable at 9% per annum, with a maturity date of June 21, 2013. Towner filed suit for breach of a note issued on November 29, 2010, in the principal amount of $25,000 with interest payable at 9% per annum, with a maturity date of November 29, 2012. Skaff alleges interest is due on his two notes from June 30, 2012 in the amount of $36,038 as of November 28, 2018. Towner alleges interest is due on his note from June 30, 2012 in the amount of $14,413 as of November 28, 2018. On December 6, 2018, the Company’s registered agent was served with the Skaff and Towner Complaint. All of the foregoing Notes, as well as the accrued interest thereon, are shown as current liabilities on the Company’s balance sheet. Counsel for the Plaintiffs in the foregoing cases requested that the cases be consolidated and the Company agreed to the consolidation. On February 15, 2019, the Plaintiffs filed their Consolidated Complaint. On March 7, 2019, the Company filed its Answer and Affirmative Defenses and Affidavit of Defense. Trial in this case is scheduled for July 13, 2020.

 

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

 

The Company is currently in default on the following indebtedness:

 

1) Line of credit with a specified due date of November 1, 2012 in the amount of $1,000,000. Total principal and interest in arrears through June 30, 2019 totals $1,898,299.

 

2) Convertible notes issued pursuant to a private placement dated March 25, 2010 with an original due date of two years from date of issue (due on various dates in 2012) in the principal amount of $475,000. Total principal and interest in arrears through June 30, 2019 totals $872,458.

 

3) Convertible notes issued pursuant to a private placement dated October 25, 2010 with an original due date of two years from date of issue (due on various dates ranging from 2012 through 2013) in the principal amount of $487,500. Total principal and interest in arrears through June 30, 2019 totals $794,625.

 

21
 

 

4) Convertible Debentures and one non-convertible debenture issued March 2014 due March 2020 in the principal amount of $1,000,000. The Company is in default of required interest payable through December 31, 2018 in the amount of $160,000. Total principal and interest owing through June 30, 2019 totals $1,179,836.

 

5) Convertible Debentures issued December 2014 due December 2020 in the principal amount of $850,000. The Company is in default of required interest payable through December 31, 2018 in the amount of $119,233. Total principal and interest owing through June 30, 2019 totals $986,093.

 

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 second quarter of 2019 in the amount of i) $7,500 on its Series S preferred stock; ii) $7,500 on its Series S-NR preferred stock; and iii) $10,400 on its Series S-PIK preferred stock. The table below summarizes total preferred stock dividends in arrears at June 30, 2019.

 

   Total Amount 
Description  In Arrears 
     
Series S  $240,000 
Series S-NR   240,000 
Series S-PIK   332,800 
      
Total In Arrears  $812,800 

 

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 and Rule15d-14.

 

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.

 

101.INS   XBRL Instance Document
101.SHC   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

22
 

 

SIGNATURES

 

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

 

  DIAMONDHEAD CASINO CORPORATION
     
Date: August 14, 2019   /s/ Deborah A. Vitale
  By: Deborah A. Vitale
    Chief Executive Officer

 

23
 

 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATIONS

 

I, Deborah A. Vitale, certify that:

 

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

 

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

 

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

 

4. As the Issuer’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and I have:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Date: August 14, 2019

 

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

 

 
 

EX-31.2 3 ex31-2.htm

 

Exhibit 31.2

 

CERTIFICATIONS

 

I, Deborah A Vitale, certify that:

 

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

 

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

 

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

 

4. As the issuer’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and I have:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Date: August 14, 2019

 

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

 

 
 

 

EX-32.1 4 ex32-1.htm

 

EXHIBIT 32.1

 

CERTIFICATION

 

In connection with the Quarterly Report of Diamondhead Casino Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Deborah A. Vitale, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2019 /s/ Deborah A. Vitale
  Deborah A. Vitale
  Chief Executive Officer

 

 
 

EX-32.2 5 ex32-2.htm

 

EXHIBIT 32.2

 

CERTIFICATION

 

In connection with the Quarterly Report of Diamondhead Casino Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Deborah A. Vitale, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2019 /s/ DEBORAH A. VITALE
  Deborah A. Vitale
  Chief Financial Officer

 

 
 

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No share-based awards were issued or amended in 2019. 5476097 77000 464774 4934323 77000 464774 5476097 4934323 962500 (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 $10.00 per share. 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Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 12, 2019
Document And Entity Information    
Entity Registrant Name DIAMONDHEAD CASINO CORP  
Entity Central Index Key 0000844887  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   36,297,576
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2019  
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Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Current assets    
Cash $ 3,732
Other current assets 2,011 16,608
Total current assets 5,743 16,608
Land (Note 3) 5,476,097 5,476,097
Other assets 80 80
Total assets 5,481,920 5,492,785
Current liabilities    
Convertible notes and line of credit payable (Note 5) 1,962,500 1,962,500
Debenture payable (net of unamortized finance costs of $719 at June 30, 2019 and $1,194 at December 31, 2018) (Note 6) 49,281 48,806
Convertible debentures payable (net of unamortized finance costs of $28,955 at June 30, 2019 and $43,026 at December 31, 2018) (Note 6) 1,771,045 1,756,974
Short term notes and interest bearing advance (Note 7) 59,519 58,004
Current notes payable due related parties (Note 8) 352,209 309,015
Accounts payable and accrued expenses due related parties (Note 4) 4,783,538 4,141,814
Accounts payable and accrued expenses - others (Note 4) 3,078,669 2,840,306
Total current liabilities 12,056,761 11,117,419
Notes payable due related parties (Note 9) 115,000 115,000
Notes payable due others (Note 9) 72,500 72,500
Total liabilities 12,244,261 11,304,919
Commitments and contingencies (Notes 3 and 12)
Stockholders' deficiency    
Preferred stock, $.01 par value; shares authorized 5,000,000, outstanding 2,086,000 at June 30, 2019 and December 31, 2018 (aggregate liquidation preference of $2,519,080 at June 30, 2019 and December 31, 2018). 20,860 20,860
Common stock, $.001 par value; shares authorized 50,000,000, issued: 39,052,472 at June 30, 2019 and December 31, 2018, outstanding: 36,297,576 at June 30, 2019 and December 31, 2018. 39,052 39,052
Additional paid-in capital 35,430,445 35,430,445
Unearned ESOP shares (3,083,672) (3,083,672)
Accumulated deficit (39,020,810) (38,070,603)
Treasury stock, at cost, 686,706 shares at June 30, 2019 and December 31, 2018. (148,216) (148,216)
Total stockholders' deficiency (6,762,341) (5,812,134)
Total liabilities and stockholders' deficiency $ 5,481,920 $ 5,492,785
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares outstanding 2,086,000 2,086,000
Preferred stock, liquidation preference, value $ 2,519,080 $ 2,519,080
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 39,052,472 39,052,472
Common stock, shares outstanding 36,297,576 36,297,576
Treasury stock, shares 686,706 686,706
Corporate Debt Securities [Member]    
Unamortized finance costs $ 719 $ 1,194
Convertible Senior Debentures [Member]    
Unamortized finance costs $ 28,955 $ 43,026
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
COSTS AND EXPENSES        
Administrative and general $ 151,242 $ 146,754 $ 338,941 $ 317,490
Stock-based compensation 21,570
Other 15,968 20,215 31,936 36,185
Total costs and expenses 167,210 166,969 370,877 375,245
Interest expense:        
Related parties 62,507 60,046 169,116 140,190
Other 80,525 73,117 154,907 144,781
Change in derivative indemnification liability - related party (417,843) 240,507
Litigation settlement (36,000)
Total other (income) expense (274,811) 133,163 528,530 284,971
NET INCOME(LOSS) 107,601 (300,132) (899,407) (660,216)
PREFERRED STOCK DIVIDENDS (25,400) (25,400) (50,800) (50,800)
NET INCOME(LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 82,201 $ (325,532) $ (950,207) $ (711,016)
Net income(loss) per common share, basic and fully diluted $ 0.00 $ (.01) $ (0.03) $ (.01)
Weighted average number of common shares outstanding, basic and fully diluted 36,297,576 36,297,576 36,297,576 36,297,576
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.19.2
Consolidated Statements of Changes in Stockholders' Deficiency (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2018
Mar. 31, 2018
Jun. 30, 2019
Jun. 30, 2018
Preferred Stock [Member]            
Balance $ 20,860 $ 20,860 $ 20,860 $ 20,860 $ 20,860 $ 20,860
Balance, shares 2,086,000 2,086,000 2,086,000 2,086,000 2,086,000 2,086,000
Stock-based compensation          
Dividends    
Net loss    
Balance $ 20,860 $ 20,860 $ 20,860 $ 20,860 $ 20,860 $ 20,860
Balance, shares 2,086,000 2,086,000 2,086,000 2,086,000 2,086,000 2,086,000
Common Stock [Member]            
Balance $ 39,052 $ 39,052 $ 39,052 $ 39,052 $ 39,052 $ 39,052
Balance, shares 39,052,472 39,052,472 39,052,472 39,052,472 39,052,472 39,052,472
Stock-based compensation          
Dividends    
Net loss    
Balance $ 39,052 $ 39,052 $ 39,052 $ 39,052 $ 39,052 $ 39,052
Balance, shares 39,052,472 39,052,472 39,052,472 39,052,472 39,052,472 39,052,472
Additional Paid-In Capital [Member]            
Balance $ 35,430,445 $ 35,430,445 $ 35,547,932 $ 35,526,362 $ 35,430,445 $ 35,526,362
Stock-based compensation       21,570    
Dividends    
Net loss    
Balance 35,430,445 35,430,445 35,547,932 35,547,932 35,430,445 35,547,932
Unearned ESOP Shares [Member]            
Balance $ (3,083,672) $ (3,083,672) $ (3,202,274) $ (3,202,274) $ (3,083,672) $ (3,202,274)
Balance, shares 2,068,190 2,068,190 2,147,735 2,147,735 2,068,190 2,147,735
Stock-based compensation          
Dividends    
Net loss    
Balance $ (3,083,672) $ (3,083,672) $ (3,202,274) $ (3,202,274) $ (3,083,672) $ (3,202,274)
Balance, shares 2,068,190 2,068,190 2,147,735 2,147,735 2,068,190 2,147,735
Accumulated Deficit [Member]            
Balance $ (39,103,011) $ (38,070,603) $ (37,065,359) $ (36,679,875) $ (38,070,603) $ (36,679,875)
Stock-based compensation          
Dividends (25,400) (25,400) (25,400) (25,400)    
Net loss 107,601 (1,007,008) (300,132) (360,084)    
Balance (39,020,810) (39,103,011) (37,390,891) (37,065,359) (39,020,810) (37,390,891)
Treasury Stock [Member]            
Balance $ (148,216) $ (148,216) $ (147,101) $ (147,101) $ (148,216) $ (147,101)
Balance, shares 686,706 686,706 607,161 607,161 686,706 607,161
Stock-based compensation          
Dividends    
Net loss    
Balance $ (148,216) $ (148,216) $ (147,101) $ (147,101) $ (148,216) $ (147,101)
Balance, shares 686,706 686,706 607,161 607,161 686,706 607,161
Balance $ (6,844,542) $ (5,812,134) $ (4,806,890) $ (4,442,976) $ (5,812,134) $ (4,442,976)
Stock-based compensation       21,570    
Dividends (25,400) (25,400) (25,400) (25,400)    
Net loss 107,601 (1,007,008) (300,132) (360,084) (899,407) (660,216)
Balance $ (6,762,341) $ (6,844,542) $ (5,132,422) $ (4,806,890) $ (6,762,341) $ (5,132,422)
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
OPERATING ACTIVITIES    
Net loss $ (899,407) $ (660,216)
Adjustments to reconcile net loss to net cash used in operating activities:    
Amortization 14,546 14,540
Stock-based compensation 21,570
Change in derivative indemnification liability 240,507
Change in assets and liabilities:    
Other assets 14,597 (1,558)
Accounts payable and accrued expenses 588,780 468,156
Net cash used in operating activities (40,977) (157,508)
FINANCING ACTIVITIES    
Proceeds from notes payable issued to related parties 79,361 161,033
Payments of notes payable issued to related parties (36,167)
Proceeds from short term notes and interest bearing advances 2,734 5,520
Payments of short term notes (1,219) (2,998)
Net cash provided by financing activities 44,709 163,555
Net increase in cash 3,732 6,047
Cash beginning of period 65
Cash end of period 3,732 6,112
Cash paid for interest 919 1,145
Non-cash financing activities:    
Unpaid preferred stock dividends included in accounts payable and accrued expenses $ 50,800 $ 50,800
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Business
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Business

Note 1. Organization and Business

 

Diamondhead Casino Corporation and its Subsidiaries (the “Company”) own a total of approximately 400 acres of unimproved land in Diamondhead, Mississippi (“the Property”). Active subsidiaries of the Company include Mississippi Gaming Corporation, which owns the approximate 400-acre site and Casino World, Inc.

 

The Company’s intent was 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. Due to its lack of financial resources and certain lawsuits filed against it, the Company has been 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. Therefore, on March 25, 2019, Mississippi Gaming Corporation entered into a brokerage agreement with an unrelated third party to seek a buyer for all or part of the Property or, alternatively, to seek a joint venture partner for the project.

 

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.19.2
Liquidity and Going Concern
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Liquidity and Going Concern

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 $950,207 for the six months ended June 30, 2019. In addition, the Company had an accumulated deficit of $39,020,810 at June 30, 2019. Due to its lack of financial resources and certain lawsuits filed against it, the Company has been forced to explore other alternatives, including a sale of part or all of the Property. In addition, in the event it becomes necessary in order to protect the Company’s assets, the Board of Directors has authorized the Company to file a petition for reorganization under Chapter 11 of the United States Bankruptcy Code.

 

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 continue 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 June 30, 2019, the Company had $7,862,207 of accounts payable and accrued expenses and only $3,732 cash on hand.

 

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

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

 

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 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 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 and six months ended June 30, 2019 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, 2018, attached to our annual report on Form 10-K filed on April 12, 2019.

 

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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain reclassifications have been made to the unaudited condensed consolidated 2018 financial statements to conform to the unaudited condensed consolidated 2019 financial statements presentation. The reclassifications of interest expense had no effect on net earnings or cash flows as previously reported.

 

Land

 

Land is carried at cost. Costs directly related to site development, such as permitting, engineering, and other costs, are capitalized. In the first quarter of 2019, the Company entered into a brokerage agreement for sale of all or part of the Property, or, alternatively, to seek a joint venture partner for the project.

 

Land development costs, which have been capitalized, consist of the following at June 30, 2019 and December 31, 2018:

 

Land  $4,934,323 
Licenses   77,000 
Engineering and costs associated with permitting   464,774 
      
Total land  $5,476,097 

 

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.

 

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.

 

The fair value measurement of the derivative indemnification liability at June 30, 2019 listed in Note 4 below was developed using Level 1 inputs.

 

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 at June 30, 2019.

 

Net Loss per Common Share

 

Basic loss per share is computed by dividing net loss applicable 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 have not yet been met and may never be met.

 

The table below summarizes the components of potential dilutive securities at June 30, 2019 and 2018.

 

   June 30,   June 30, 
Description  2019   2018 
         
Convertible Preferred Stock   260,000    260,000 
Options to Purchase Common Shares   3,415,000    3,415,000 
Convertible Promissory Notes   1,925,000    1,925,000 
           
Total   5,600,000    5,600,000 

 

Stock Based Compensation

 

The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards either modified or granted to employees and directors based upon estimated fair values. In the first quarter of 2018, the Board of Directors voted to extend the expiration dates of previously-awarded option grants from March 13, 2018 to December 31, 2020 with respect to the following: i) options previously granted to the President to purchase 750,000 shares of common stock at $0.30 per share, 75,000 shares of common stock at $0.75 per share and 2,000,000 shares of common stock at $0.19 per share; ii) options previously granted to the current Chairman of the Board to purchase 150,000 shares of common stock at $1.25 per share; iii) options previously granted to a Director of the Company to purchase 75,000 shares of common stock at $0.75; and iv) options previously granted to former employees of the Company to purchase a combined total of 65,000 shares of common stock at $0.75 per share. No share-based awards were issued or amended in 2019.

 

In determining the fair value of each option modified, the Black-Scholes option-pricing model, consistent with the provisions of ASC Topic 718, was used. The valuations were determined using the weighted-average assumptions of 0% dividend yield, expected volatility of 103% and a risk-free interest rate of 2.79%. This resulted in a charge to the statement of operations in the amount of $21,570 for the six months ending June 30, 2018.

 

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

 

Recently Adopted Accounting Pronouncements

 

In June 2018, FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting” which addresses accounting for issuance of all share-based payments on the same accounting model. Previously, accounting for share-based payments to employees was covered by Accounting Standards Codification (“ASC”) Topic 718, while accounting for such payments to non-employees was covered by ASC Topic 505. As it considered recently issued updates to ASC Topic 718, the FASB, as part of its simplification initiatives, decided that ASC Topic 718 would also be used as the guidance for non-employee share-based awards. Under this new guidance, both employee and non-employee awards will essentially follow the same model, with small variances related to determining the term assumption when valuing a non-employee award as well as a different expense attribution model for non-employee awards. The ASU is effective beginning in calendar year 2019 and did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires lessees to recognize lease assets and lease liabilities on the consolidated balance sheet and requires expanded disclosures about leasing arrangements. We adopted the standard on January 1, 2019. Based on our assessment of the new standard on our unaudited condensed consolidated financial statements we have concluded that the impact is insignificant to our unaudited condensed consolidated financial statements based on the month-to-month nature of our singular lease currently in effect.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.19.2
Accounts Payable and Accrued Expenses
6 Months Ended
Jun. 30, 2019
Payables and Accruals [Abstract]  
Accounts Payable and Accrued Expenses

Note 4. Accounts Payable and Accrued Expenses

 

The table below outlines the elements included in accounts payable and accrued expenses at June 30, 2019 and December 31, 2018:

 

   June 30,   December 31, 
Description  2019   2018 
Related parties:          
Accrued payroll due officers  $2,519,711   $2,369,711 
Accrued interest due officers and directors   1,198,179    1,029,062 
Accrued director fees   523,750    478,750 
Base rents due to the President   212,846    185,642 
Associated rental costs   71,237    61,341 
Derivative indemnification   240,507    - 
Other   17,308    17,308 
Total related parties  $4,783,538   $4,141,814 
           
Non-related parties:          
Accrued interest  $1,898,564   $1,743,658 
Accrued dividends   812,800    762,000 
Accrued fines and penalties   104,850    77,700 
Other   262,455    256,948 
Total non-related parties  $3,078,669   $2,840,306 

 

As of June 30, 2019, the Chairman had advanced a total of $316,615, net of repayment of $16,250, to the Company under certain conditions. The conditions of the notes under which the Chairman agreed to make these advances are discussed in full detail in Note 8 of these unaudited condensed consolidated financial statements.

 

Of particular note to those conditions, item (v) calls for the Chairman to be indemnified for any losses sustained on the sale of common stock of another publicly traded company, sold to raise the funds necessary to make the above advances. The Chairman has identified the common stock sold and has 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.

 

As listed in the above schedule, had the Company paid the notes in full at June 30, 2019, in addition to the principal and interest due, the Company would have been additionally liable for a derivative indemnification of $240,507 in additional funds to indemnify the Chairman for his lost equity on the stock sale. No liability for this circumstance existed at December 31, 2018.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Notes and Line of Credit
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Convertible Notes and Line of Credit

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 June 30, 2019 and December 31, 2018, the unpaid principal and accrued interest due on the obligation totaled $1,898,299 and $1,853,669, respectively.

 

Convertible Notes

 

Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum. The Promissory Notes are and were convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor.

 

Pursuant to an additional Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000. The Promissory Notes bear interest at 9% per annum and are and were convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor.

 

The Convertible Notes issued pursuant to the two Private Placements discussed above 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 of the aforementioned debt obligations remain unpaid and in default under the repayment terms of the notes. In addition, a total of $704,584 and $654,998 of accrued interest on the above notes remains outstanding at June 30, 2019 and December 31, 2018, respectively.

 

The table below summarizes the Company’s debt arising from the above-described sources as of June 30, 2019 and December 31, 2018:

 

   Principal   Amount Due     
   Amount   Related   Amount Due 
Loan Facility  Owed   Parties   Others 
             
Line of Credit  $1,000,000   $-   $1,000,000 
                
Private Placements:               
March 1, 2010   475,000    75,000    400,000 
October 25, 2010   487,500    -    487,500 
                
Total Private Placements   962,500    75,000    887,500 
                
Total  $1,962,500   $75,000   $1,887,500 

 

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Debentures Payable
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Convertible Debentures Payable

Note 6. Convertible Debentures Payable

 

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 of the Debentures offered in the principal amount of $3,000,000. The Debentures, once issued, bear interest at 4% per annum after 180 days, mature six years from the date of issuance, and are secured by a lien on the Company’s Mississippi property. 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 carry an Anti-Dilution Provision. If the Company issues any shares of Common Stock or other securities after March 31, 2014 at a price per security that is less than the conversion price of a Debenture, then the Debenture shall have a new conversion price equal to the price per security that is less than the Conversion Price of the Debenture. The foregoing provision shall 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.

 

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. Should an event take place which would trigger the provision, the Company would be required to record dividend expense in an amount equal to the difference in the fair value of the embedded derivatives before the event versus the fair value of the derivative after the triggering event.

 

On March 31, 2014, the First Closing occurred when subscriptions in the amount of $3,000,000 were received in Escrow and accepted by the Company. The Escrow Agent released $1,000,000 to the Company and the Company issued First Tranche Debentures in the aggregate principle amount of $1,000,000.

 

The Company’s stock registration was revoked effective September 4, 2014. Therefore, on December 4, 2014, the Company extended offers to the investors to amend the Private Placement. The Company offered to amend certain terms and conditions, including the conversion terms of the First Tranche Debentures, which were issued on March 31, 2014 (“Amendment I”). The Company separately offered to amend certain terms and conditions, including those relating to issuance and conversion of the Second and Third Tranche Debentures, as well as the period of time within which to perform the Third Tranche Closing Obligations, as amended (“Amendment II”).

 

On December 31, 2014, investors who had purchased $950,000 of First Tranche Debentures consented to the amended conversion terms of Amendment I. The remaining Debenture in the amount of $50,000 remains as originally issued with no conversion rights. Thus, the First Tranche Debentures can be converted into a total of 3,166,666 shares of common stock. On December 31, 2014, the Second Closing occurred when investors representing $850,000 of Second Tranche Debentures consented to Amendment II. The Escrow Agent released $850,000 to the Company and the Company issued Second Tranche Debentures in the aggregate principle amount of $850,000. Thus, the Second Tranche Debentures can be converted into 1,888,889 shares of common stock. The Escrow Agent refunded $300,000 to those investors who did not consent to Amendment II.

 

The Company did not meet the closing obligations for the Third Tranche Debentures as of June 30, 2015, as was required, pursuant to the terms of the Private Placement, as amended. Therefore, in July 2015, the remaining $850,000 then being held in escrow for the purchase of the Third Tranche Debentures was returned to the investors.

 

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 Debentures agreements in the amount of $279,233 and as a result, the Debentures payable are reported as current liabilities. Certain Debenture holders maintain that the Company is in default, not only with respect to interest due under the Debentures, but with respect to principal due under the Debentures in the amount of $1,850,000, as well. See Note 12. Commitments and Contingencies-Litigation.

 

Total accrued interest due on all Debentures amounted to $315,929 and $279,233 at June 30, 2019 and December 31, 2018, respectively.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.19.2
Short Term Notes and Interest Bearing Advance
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Short Term Notes and Interest Bearing Advance

Note 7. Short Term Notes and Interest Bearing Advance

 

Property Liability Insurance Financing

 

In January 2019, the Company financed $2,734 of the premium due for liability insurance on its Mississippi property. The financing requires monthly installments of $258 of principal and interest at a rate of 7.751% through December of 2019. At June 30, 2019, a principal balance of $1,515 remained outstanding on the note.

 

Promissory Note

 

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 is 12.5% per annum and payable March 1 of each year the note remains outstanding. Payment in full of the Note is due June 9, 2019. The Note is presently in default but interest continues to accrue. 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, which were due March 1, 2018 and March 1, 2019, were not made. Accrued interest on the note amounted to $3,858 and $2,928 at June 30, 2019 and December 31, 2018, respectively.

 

Bank Credit Facility

 

Wells Fargo Bank provides an unsecured credit facility of up to $15,000 to the Company. The facility requires a variable monthly payment of amounts borrowed plus interest, which is applied at 11.24% on direct charges and 24.99% on any cash advanced through the facility. In the fourth quarter of 2018, the lending bank cancelled privileges under the facility for non-payment and at June 30, 2019, a principal balance of $18,004 remained outstanding on the facility.

 

Interest Bearing Advance

 

On February 2, 2017, the Company borrowed $25,000 from an unrelated third party. The Company expects to enter into a formal note for these funds. However, the terms of the note have not been finalized. The Note is expected to carry an annual interest rate of approximately 12.5% with an original projected due date of December 31, 2017. 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 Diamondhead property. Accrued interest on the advance amounted to $7,517 and $5,967 at June 30, 2019 and December 31, 2018 respectively.

 

The table below summarizes the short-term notes and interest bearing advance at June 30, 2019 and December 31, 2018.

 

   Interest   June 30,   December 31, 
Description of Facility  Rate   2019   2018 
             
Property liability insurance financing   7.751%  $1,515   $- 
                
Promissory note   12.5%   15,000    15,000 
                
Bank credit facility   11.24% - 24.99%   18,004    18,004 
                
Interest bearing advance   12.50%   25,000    25,000 
Total short term notes and interest bearing advance       $59,519   $58,004 
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.19.2
Current Notes Payable Due to Related Parties
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Current Notes Payable Due To Related Parties

Note 8. Current Notes Payable Due to Related Parties

 

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 an 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 (Case No. 426962-V); and (v) he be indemnified for any losses sustained on the sale of that common stock sold to cover the credit card payments. The Chairman has identified the common stock to be sold and will provide the Company with the documentation required to document the sale of said stock and to calculate the future loss, if any, on said stock. On June 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 principal 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 $27,542 and $18,762 at June 30, 2019 and December 31, 2018, respectively.

 

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 will provide the Company with the documentation required to document the sale of said stock and to calculate the losses on said stock for all amounts loaned to the Company from the sale of said stock. On June 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. However, the additional funds will be secured by a fourth lien to be placed on the Property in favor of the Chairman.

 

At June 30, 2019, the Chairman had advanced a total of $248,987, net of repayments of $16,250, under both the March 2018 and March 2019 arrangements and was owed accrued interest in the amount of $68,136 and $30,788 at June 30, 2019 and December 31, 2018, respectively.

 

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 (Case No. 426962-V).

 

As of June 30, 2019, the President had advanced a total of $35,594 net of repayments of $19,917, 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 June 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 $13,761 and $8,421 at June 30, 2019 and December 31, 2018, respectively.

 

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 to the officers and directors discussed above were due in June 2019 and totaled $352,209 and $309,015 in aggregate, at June 30, 2019 and December 31, 2018, respectively.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.19.2
Long-Term Notes Payable
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Long Term Notes Payable

Note 9. Long Term Notes Payable

 

In 2016, the Company received cash advances totaling $47,500 from seven lenders which included $25,000 from three current Directors of the Company. 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 $15,600 and $11,400 at June 30, 2019 and December 31, 2018, respectively.

 

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 $36,730 and $30,482 at June 30, 2019 and December 31, 2018 respectively.

 

The principal due under the two foregoing loan arrangements totals $137,500. The Company has filed a second lien on its Mississippi property in favor of the note holders to secure both principal and interest in the maximum amount of $250,000. The lien is second to the existing first lien on the Mississippi property in the principal amount of $3.85 million.

 

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 table below summarizes the Company’s long-term notes payable as of June 30, 2019 and December 31, 2018:

 

Loan Facility 

Principal

Amount

Owed

  

Amount

Due

Related Parties

  

Amount

Due

Others

 
             
4 Year 8% secured note  $47,500   $25,000   $22,500 
                
4 Year 14% secured note   90,000    90,000    - 
                
4 Year 0% note   50,000    -    50,000 
                
Total Long-Term Notes Payable  $187,500   $115,000   $72,500 
XML 27 R16.htm IDEA: XBRL DOCUMENT v3.19.2
Related Party Transactions
6 Months Ended
Jun. 30, 2019
Related Party Transactions [Abstract]  
Related Party Transactions

Note 10. Related Party Transactions

 

As of June 30, 2019, the President of the Company is owed deferred salary in the amount of $2,391,996 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 $104,937 and $91,536 for the six months ended June 30, 2019 and 2018, respectively. Total interest accrued under this agreement totaled $980,986 and $876,074 as of June 30, 2019 and December 31, 2018, respectively.

 

Effective September 1, 2011, the Company entered into a month-to-month lease with the President and then-Chairman of the Board of Directors of the Company, for office space in a furnished and fully equipped townhouse office building 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 $27,204 and associated rental costs of $10,111 for a total of $37,315 for the six months ended June30, 2019 and base rent in the amount of $27,204 and associated rental costs of $9,236 for a total of $36,440 for the six months ended June 30, 2018. No payments associated with the base rents were made in the first six months of 2019. At June 30, 2019 and December 31, 2018, amounts owing for base rent and associated rental costs totaled $284,083 and $246,983, 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 $523,750 and $478,750 was due and owing to the Company’s current and former directors as of June 30, 2019 and December 31, 2018, 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.

 

See Notes 4, 5, 8, 9, 11 and 12 for other related party transactions.

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Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 11. Commitments and Contingencies

 

Liens

 

The Company’s obligations under the Collateralized Convertible Senior Debentures are secured by a lien on the Company’s Diamondhead, Mississippi property (the “Investors Lien”). On March 31, 2014, the Company issued $1 million of First Tranche Collateralized Convertible Senior Debentures and, on December 31, 2014, the Company issued $850,000 of Second Tranche Collateralized Convertible Senior Debentures. Thus, on September 26, 2014, a first lien was placed on the Diamondhead Property in favor of the Investors to secure the principal due in the amount of $1,850,000 and interest due thereon. 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 Diamondhead Property in the maximum amount of $250,000 on the Diamondhead property to secure certain notes payable, including notes to related parties, totaling $137,500 in principal and accrued interest incurred.

 

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

 

Litigation

 

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, the above-named Debenture holders filed a Complaint against Diamondhead Casino Corporation (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. The plaintiffs are seeking $1.4 million, plus interest from January 1, 2015, together with costs and fees. The Company was served with the Complaint on October 31, 2016. On November 21, 2016, the Company filed a motion to dismiss for lack of subject matter jurisdiction due to failure to plead diversity. On February 21, 2017, the plaintiffs filed a motion for leave to amend their complaint based upon declarations of citizenship filed with the court. On September 26, 2017, the motion for leave to amend was granted and the Company’s motion to dismiss was granted in part and denied in part. The Court also granted plaintiffs leave to file a Second Amended Complaint which was filed on October 2, 2017. On October 16, 2017, the Company filed Defendant’s Answer and Affirmative Defenses and Counterclaim. On November 2, 2017, the Plaintiffs filed an Answer to the Counterclaim. The parties have exchanged discovery in the case. On September 27, 2018, the Plaintiffs’ filed a motion for summary judgment. On October 18, 2018, the Company filed its opposition to the motion for summary judgment. On November 8, 2018, the Plaintiff’s filed their reply to the Company’s opposition. On January 2, 2019, the Court canceled the trial previously scheduled for March 22, 2019. On April 2, 2019, the Court heard argument on the Plaintiff’s motion for summary judgment. On June 4, 2019, the Court denied Plaintiffs’ motion for summary judgment. On June 14, 2019, the Plaintiffs filed a motion for leave to file a third amended complaint. On June 26, 2019, the Company filed an opposition to the motion. On July 1, 2019, the plaintiffs filed their reply. On July 24, 2019, the Court denied the motion for leave to amend without prejudice. On June 7, 2019, the Court scheduled a mediation conference for July 11, 2019. At the mediation conference, the parties reached a settlement agreement in principle which is being memorialized in a written agreement.

 

The Company expects the settlement agreement, in addition to other terms and conditions, will provide as follows: i) in the event Mississippi Gaming Corporation (“MGC”) has entered into a contract for the sale of the Diamondhead Property on or before December 31, 2019, the Plaintiffs will be paid the principal due under the debentures and interest stated in the debentures of four percent (4%) per annum through the payment date; ii) in the event MGC has entered into a contract for the sale of the Property on or before June 30, 2020, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of five percent (5%) per annum through the payment date; iii) in the event MGC has not entered into a contract for the sale of the Property on or before June 30, 2020, but has done so on or before December 31, 2021, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4% ) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the payment date; and iv) If MGC has not entered into a contract for the sale of the Property on or before December 31, 2021, the Plaintiffs will be entitled to a Judgment for the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the date of Judgment. Following entry of Judgment, interest will accrue at the then post-judgment rate of interest charged pursuant to the laws of the State of Delaware. There is a provision for the payment of reasonable attorneys fees to counsel for Plaintiffs in the event MGC has not entered into a contract for the sale of the Property on or before December 31, 2019. If the parties cannot agree on the amount that constitutes reasonable attorneys fees, the parties will submit the matter to the Court for determination, but in no event will such fees exceed $160,000 unless there is a default in the Settlement Agreement.

 

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)

 

On February 28, 2019, the above-named Debenture holder filed a Complaint against Diamondhead Casino Corporation (the Company) in the Superior Court of the State of Delaware for monies due and owing pursuant to certain Collateralized Convertible Senior Debentures issued on March 31, 2014 and December 31, 2014. The plaintiff is seeking $100,000, plus interest from January 1, 2015, together with costs and fees. The Company was served with the Complaint on March 8, 2019. On March 28, 2019, the Company filed its Answer, Affirmative Defenses and Counterclaim and Affidavit of Defense. The plaintiff in this case is represented by the same law firms that represent plaintiffs in the above-referenced case. Thus, at the mediation conference held on July 11, 2019 in the above case, the parties agreed that the same settlement agreement reached in that case would apply to the plaintiff in this case as well.

 

Arnold J. Sussman, Robert Skaff and David J. Towner v. Diamondhead Casino Corporation (Superior Court of the State of Delaware)(Case No. N18C-11-091-WCC)

 

On November 9, 2018, Sussman filed suit against the Company for breach of a Promissory Note issued November 10, 2010, in the principal amount of $50,000, with interest payable at 9% per annum, with a maturity date of November 10, 2012. Plaintiff seeks payment of principal of $50,000 and interest due from June 30, 2012 to present, which Plaintiff alleges is approximately $28,500 as of October 31, 2018. The Note, as well as the accrued interest thereon, are shown as current liabilities on the Company’s balance sheet. On December 6, 2018, the Company’s registered agent was served with the Sussman Complaint. On November 28, 2018, Skaff and Towner also filed suit against the Company in the same court for breach of Promissory Notes (Case No. N18C-11-232 ALR). Skaff filed suit i) for breach of a note issued on November 29, 2010, in the principle amount of $37,500 with interest payable at 9% per annum, with a maturity date of November 29, 2012 and ii) for breach of a note issued on June 21, 2011, in the principal amount of $25,000 with interest payable at 9% per annum, with a maturity date of June 21, 2013. Towner filed suit for breach of a note issued on November 29, 2010, in the principal amount of $25,000 with interest payable at 9% per annum, with a maturity date of November 29, 2012. Skaff alleges interest is due on his two notes from June 30, 2012 in the amount of $36,038 as of November 28, 2018. Towner alleges interest is due on his note from June 30, 2012 in the amount of $14,413 as of November 28, 2018. On December 6, 2018, the Company’s registered agent was served with the Skaff and Towner Complaint. All of the foregoing Notes, as well as the accrued interest thereon, are shown as current liabilities on the Company’s balance sheet. Counsel for the Plaintiffs in the foregoing cases requested that the cases be consolidated and the Company agreed to the consolidation. On February 15, 2019, the Plaintiffs filed their Consolidated Complaint. On March 7, 2019, the Company filed its Answer and Affirmative Defenses and Affidavit of Defense. Trial in this case is scheduled for July 13, 2020.

 

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, 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 $91,200 on the currently delinquent filings. 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 has not filed its consolidated federal tax return for the years ended December 31, 2018, 2017 and 2016. The Company believes no tax is due with that return. Diamondhead Casino Corporation and its active subsidiary, Mississippi Gaming Corporation, are delinquent with respect to the filing of their franchise tax annual reports for 2018 with the state of Delaware. A second active subsidiary, Casino World, Inc, is also delinquent with respect to the filing of their franchise tax annual report for the years ended December 31, 2016, 2017 and 2018 with the state of Delaware. Casino World Inc. is delinquent with respect to its filings of franchise tax returns with the State of Mississippi for the years ending December 31, 2016, 2017 and 2018, while Mississippi Gaming Corporation is delinquent with respect to its franchise tax return for the year ending December 31, 2018 with the State of Mississippi.

 

The Company has made provision for the expected taxes due on these state filings in their unaudited condensed consolidated financial statements for the six months ending June 30, 2019.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.19.2
Subsequent Events
6 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events

Note 12. Subsequent Events

 

In July 2019, the Chairman of the Board advanced a total of $74,909 for the payment of expenses and taxes due on the Diamondhead Property. The conditions of the note under which the Chairman agreed to make these advances are discussed in full detail in Note 8 of these unaudited condensed consolidated financial statements.

 

Of particular note to those conditions, item (v) calls for the Chairman to be indemnified for any losses sustained on the sale of certain common stock sold to cover the above payments. The Chairman has identified the common stock sold on July 30, 2019 to cover these payments and has 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. As of July 30, 2019, the Company would have to indemnify the Chairman $432,198 for his loss on said stock.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Principles of Consolidation

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

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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications

 

Certain reclassifications have been made to the unaudited condensed consolidated 2018 financial statements to conform to the unaudited condensed consolidated 2019 financial statements presentation. The reclassifications of interest expense had no effect on net earnings or cash flows as previously reported. 

Land

Land

 

Land is carried at cost. Costs directly related to site development, such as permitting, engineering, and other costs, are capitalized. In the first quarter of 2019, the Company entered into a brokerage agreement for sale of all or part of the Property, or, alternatively, to seek a joint venture partner for the project.

 

Land development costs, which have been capitalized, consist of the following at June 30, 2019 and December 31, 2018:

 

Land  $4,934,323 
Licenses   77,000 
Engineering and costs associated with permitting   464,774 
      
Total land  $5,476,097 

Fair Value Measurements

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.

 

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.

 

The fair value measurement of the derivative indemnification liability at June 30, 2019 listed in Note 4 below was developed using Level 1 inputs.

Long-Lived Assets

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 at June 30, 2019.

Net Loss Per Common Share

Net Loss per Common Share

 

Basic loss per share is computed by dividing net loss applicable 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 have not yet been met and may never be met.

 

The table below summarizes the components of potential dilutive securities at June 30, 2019 and 2018.

 

   June 30,   June 30, 
Description  2019   2018 
         
Convertible Preferred Stock   260,000    260,000 
Options to Purchase Common Shares   3,415,000    3,415,000 
Convertible Promissory Notes   1,925,000    1,925,000 
           
Total   5,600,000    5,600,000 

 

Stock Based Compensation

Stock Based Compensation

 

The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards either modified or granted to employees and directors based upon estimated fair values. In the first quarter of 2018, the Board of Directors voted to extend the expiration dates of previously-awarded option grants from March 13, 2018 to December 31, 2020 with respect to the following: i) options previously granted to the President to purchase 750,000 shares of common stock at $0.30 per share, 75,000 shares of common stock at $0.75 per share and 2,000,000 shares of common stock at $0.19 per share; ii) options previously granted to the current Chairman of the Board to purchase 150,000 shares of common stock at $1.25 per share; iii) options previously granted to a Director of the Company to purchase 75,000 shares of common stock at $0.75; and iv) options previously granted to former employees of the Company to purchase a combined total of 65,000 shares of common stock at $0.75 per share. No share-based awards were issued or amended in 2019.

 

In determining the fair value of each option modified, the Black-Scholes option-pricing model, consistent with the provisions of ASC Topic 718, was used. The valuations were determined using the weighted-average assumptions of 0% dividend yield, expected volatility of 103% and a risk-free interest rate of 2.79%. This resulted in a charge to the statement of operations in the amount of $21,570 for the six months ending June 30, 2018.

 

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

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

 

In June 2018, FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting” which addresses accounting for issuance of all share-based payments on the same accounting model. Previously, accounting for share-based payments to employees was covered by Accounting Standards Codification (“ASC”) Topic 718, while accounting for such payments to non-employees was covered by ASC Topic 505. As it considered recently issued updates to ASC Topic 718, the FASB, as part of its simplification initiatives, decided that ASC Topic 718 would also be used as the guidance for non-employee share-based awards. Under this new guidance, both employee and non-employee awards will essentially follow the same model, with small variances related to determining the term assumption when valuing a non-employee award as well as a different expense attribution model for non-employee awards. The ASU is effective beginning in calendar year 2019 and did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires lessees to recognize lease assets and lease liabilities on the consolidated balance sheet and requires expanded disclosures about leasing arrangements. We adopted the standard on January 1, 2019. Based on our assessment of the new standard on our unaudited condensed consolidated financial statements we have concluded that the impact is insignificant to our unaudited condensed consolidated financial statements based on the month-to-month nature of our singular lease currently in effect.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Schedule of Land Development Cost Capitalized

Land development costs, which have been capitalized, consist of the following at June 30, 2019 and December 31, 2018:

 

Land  $4,934,323 
Licenses   77,000 
Engineering and costs associated with permitting   464,774 
      
Total land  $5,476,097 
Schedule of Components of Potential Dilutive Securities

The table below summarizes the components of potential dilutive securities at June 30, 2019 and 2018.

 

   June 30,   June 30, 
Description  2019   2018 
         
Convertible Preferred Stock   260,000    260,000 
Options to Purchase Common Shares   3,415,000    3,415,000 
Convertible Promissory Notes   1,925,000    1,925,000 
           
Total   5,600,000    5,600,000 
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.19.2
Accounts Payable and Accrued Expenses (Tables)
6 Months Ended
Jun. 30, 2019
Payables and Accruals [Abstract]  
Schedule of Accounts Payable and Accrued Expenses

The table below outlines the elements included in accounts payable and accrued expenses at June 30, 2019 and December 31, 2018:

 

   June 30,   December 31, 
Description  2019   2018 
Related parties:          
Accrued payroll due officers  $2,519,711   $2,369,711 
Accrued interest due officers and directors   1,198,179    1,029,062 
Accrued director fees   523,750    478,750 
Base rents due to the President   212,846    185,642 
Associated rental costs   71,237    61,341 
Derivative indemnification   240,507    - 
Other   17,308    17,308 
Total related parties  $4,783,538   $4,141,814 
           
Non-related parties:          
Accrued interest  $1,898,564   $1,743,658 
Accrued dividends   812,800    762,000 
Accrued fines and penalties   104,850    77,700 
Other   262,455    256,948 
Total non-related parties  $3,078,669   $2,840,306
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Notes and Line of Credit (Tables)
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Schedule of Convertible Notes and Line of Credit

The table below summarizes the Company’s debt arising from the above-described sources as of June 30, 2019 and December 31, 2018:

 

   Principal   Amount Due     
   Amount   Related   Amount Due 
Loan Facility  Owed   Parties   Others 
             
Line of Credit  $1,000,000   $-   $1,000,000 
                
Private Placements:               
March 1, 2010   475,000    75,000    400,000 
October 25, 2010   487,500    -    487,500 
                
Total Private Placements   962,500    75,000    887,500 
                
Total  $1,962,500   $75,000   $1,887,500 
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.19.2
Short Term Notes and Interest Bearing Advance (Tables)
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Schedule of Short Term Notes and Interest Bearing Advance

The table below summarizes the short-term notes and interest bearing advance at June 30, 2019 and December 31, 2018.

 

   Interest   June 30,   December 31, 
Description of Facility  Rate   2019   2018 
             
Property liability insurance financing   7.751%  $1,515   $- 
                
Promissory note   12.5%   15,000    15,000 
                
Bank credit facility   11.24% - 24.99%   18,004    18,004 
                
Interest bearing advance   12.50%   25,000    25,000 
Total short term notes and interest bearing advance       $59,519   $58,004 
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.19.2
Long-Term Notes Payable (Tables)
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Schedule of Long Term Notes Payable

The table below summarizes the Company’s long-term notes payable as of June 30, 2019 and December 31, 2018:

 

Loan Facility 

Principal

Amount

Owed

  

Amount

Due

Related Parties

  

Amount

Due

Others

 
             
4 Year 8% secured note  $47,500   $25,000   $22,500 
                
4 Year 14% secured note   90,000    90,000    - 
                
4 Year 0% note   50,000    -    50,000 
                
Total Long-Term Notes Payable  $187,500   $115,000   $72,500 
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Business (Details Narrative)
Jun. 30, 2019
a
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Area of land, owned 400
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.19.2
Liquidity and Going Concern (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]          
Net loss applicable to common stockholders $ 82,201 $ (325,532) $ (950,207) $ (711,016)  
Accumulated deficit (39,020,810)   (39,020,810)   $ (38,070,603)
Accounts payable and accrued expenses 7,862,207   7,862,207    
Cash on hand $ 3,732   $ 3,732  
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Impairment of long-lived assets      
Antidilutive securities excluded from computation of earnings per share     5,600,000 5,600,000
Share-based payment awards, description       In the first quarter of 2018, the Board of Directors voted to extend the expiration dates of previously-awarded option grants from March 13, 2018 to December 31, 2020 with respect to the following: i) options previously granted to the President to purchase 750,000 shares of common stock at $0.30 per share, 75,000 shares of common stock at $0.75 per share and 2,000,000 shares of common stock at $0.19 per share; ii) options previously granted to the current Chairman of the Board to purchase 150,000 shares of common stock at $1.25 per share; iii) options previously granted to a Director of the Company to purchase 75,000 shares of common stock at $0.75; and iv) options previously granted to former employees of the Company to purchase a combined total of 65,000 shares of common stock at $0.75 per share. No share-based awards were issued or amended in 2019.
Number of options previously granted to purchase of common stock      
Exercise price of options granted      
Dividend yield     0.00%  
Expected volatility     103.00%  
Risk-free interest rate     2.79%  
Stock based compensation $ 21,570
Employee Stock Option One [Member] | President [Member]        
Number of options previously granted to purchase of common stock     750,000  
Exercise price of options granted     $ 0.30  
Employee Stock Option Two [Member] | President [Member]        
Number of options previously granted to purchase of common stock     75,000  
Exercise price of options granted     $ 0.75  
Employee Stock Option Three [Member] | President [Member]        
Number of options previously granted to purchase of common stock     2,000,000  
Exercise price of options granted     $ 0.19  
Employee Stock Option [Member] | Chairman of Board [Member]        
Number of options previously granted to purchase of common stock     150,000  
Exercise price of options granted     $ 1.25  
Employee Stock Option [Member] | Directors [Member]        
Number of options previously granted to purchase of common stock     75,000  
Exercise price of options granted     $ 0.75  
Employee Stock Option [Member] | Former Employees [Member]        
Number of options previously granted to purchase of common stock     65,000  
Exercise price of options granted     $ 0.75  
Convertible Debentures [Member]        
Antidilutive securities excluded from computation of earnings per share     5,055,555  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies - Schedule of Land Development Cost Capitalized (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Total Land $ 5,476,097 $ 5,476,097
Land [Member]    
Total Land 4,934,323 4,934,323
Licenses [Member]    
Total Land 77,000 77,000
Engineering and Costs Associated With Permitting [Member]    
Total Land $ 464,774 $ 464,774
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies - Schedule of Components of Potential Dilutive Securities (Details) - shares
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Total 5,600,000 5,600,000
Convertible Preferred Stock [Member]    
Total 260,000 260,000
Options to Purchase Common Shares [Member]    
Total 3,415,000 3,415,000
Convertible Promissory Notes [Member]    
Total 1,925,000 1,925,000
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.19.2
Accounts Payable and Accrued Expenses (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Repayment of related party debt $ 36,167  
Derivative indemnification 240,507  
Chairman [Member]      
Due from officers 316,615    
Repayment of related party debt 16,250    
Derivative indemnification $ 240,507    
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.19.2
Accounts Payable and Accrued Expenses - Schedule of Accounts Payable and Accrued Expenses (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Payables and Accruals [Abstract]    
Accrued payroll due officers $ 2,519,711 $ 2,369,711
Accrued interest due officers and directors 1,198,179 1,029,062
Accrued director fees 523,750 478,750
Base rents due to the President 212,846 185,642
Associated rental costs 71,237 61,341
Derivative indemnification 240,507
Other 17,308 17,308
Total related parties 4,783,538 4,141,814
Accrued interest 1,898,564 1,743,658
Accrued dividends 812,800 762,000
Accrued fines and penalties 104,850 77,700
Other 262,455 256,948
Total non-related parties $ 3,078,669 $ 2,840,306
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Notes and Line of Credit (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Oct. 25, 2010
Mar. 01, 2010
Jun. 30, 2019
Dec. 31, 2008
Dec. 31, 2019
Jan. 31, 2019
Dec. 31, 2018
Oct. 31, 2017
Sep. 26, 2014
Line of credit facility, maximum borrowing capacity       $ 1,000,000          
Line of credit interest rate       9.00%          
Debt instrument, maturity date     Jun. 30, 2019 Nov. 01, 2012          
Debt instrument, interest rate, stated percentage           7.751%     4.00%
Line of Credit [Member]                  
Number of options awarded       50,000          
Share-based compensation arrangement by share-based payment award, options, vested, weighted average grant date fair value       $ 1.75          
Line of credit     $ 1,898,299   $ 1,853,669        
Line of Credit [Member] | Lender [Member]                  
Number of options awarded       250,000          
Share-based compensation arrangement by share-based payment award, options, vested, weighted average grant date fair value       $ 1.75          
Convertible Promissory Note [Member]                  
Debt instrument, face amount               $ 150,000  
Accrued interest     704,584       $ 654,998    
Convertible Promissory Note [Member] | Two Private Placement [Member]                  
Note payable     $ 962,500            
Convertible Promissory Note [Member] | March 1, 2010 Private Placement [Member]                  
Debt instrument, term   2 years              
Debt instrument, convertible, number of equity instruments   50,000              
Debt instrument, convertible, terms of conversion feature   Convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor.              
Convertible Promissory Note [Member] | March 1, 2010 Private Placement [Member]                  
Debt instrument, face amount   $ 25,000              
Debt instrument, interest rate, stated percentage   12.00%              
Convertible Promissory Note [Member] | October 25, 2010 Private Placement [Member]                  
Debt instrument, term 2 years                
Debt instrument, face amount $ 25,000                
Debt instrument, interest rate, stated percentage 9.00%                
Debt instrument, convertible, number of equity instruments 50,000                
Debt instrument, convertible, terms of conversion feature Convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor.                
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Notes and Line of Credit - Schedule of Convertible Notes and Line of Credit (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Convertible notes and line of credit payable $ 1,962,500 $ 1,962,500
Related Parties [Member]    
Convertible notes and line of credit payable 75,000 75,000
Others [Member]    
Convertible notes and line of credit payable 1,887,500 1,887,500
Line of Credit [Member]    
Convertible notes and line of credit payable 1,000,000 1,000,000
Line of Credit [Member] | Related Parties [Member]    
Convertible notes and line of credit payable
Line of Credit [Member] | Others [Member]    
Convertible notes and line of credit payable 1,000,000 1,000,000
March 1, 2010 Private Placement [Member] | Convertible Promissory Note [Member]    
Convertible notes and line of credit payable 475,000 475,000
March 1, 2010 Private Placement [Member] | Convertible Promissory Note [Member] | Related Parties [Member]    
Convertible notes and line of credit payable 75,000 75,000
March 1, 2010 Private Placement [Member] | Convertible Promissory Note [Member] | Others [Member]    
Convertible notes and line of credit payable 400,000 400,000
October 25, 2010 Private Placement [Member] | Convertible Promissory Note [Member]    
Convertible notes and line of credit payable 487,500 487,500
October 25, 2010 Private Placement [Member] | Convertible Promissory Note [Member] | Related Parties [Member]    
Convertible notes and line of credit payable
October 25, 2010 Private Placement [Member] | Convertible Promissory Note [Member] | Others [Member]    
Convertible notes and line of credit payable 487,500 487,500
Private Placement [Member]    
Convertible notes and line of credit payable 962,500 962,500
Private Placement [Member] | Related Parties [Member]    
Convertible notes and line of credit payable 75,000 75,000
Private Placement [Member] | Others [Member]    
Convertible notes and line of credit payable $ 887,500 $ 887,500
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Debentures Payable (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
Mar. 31, 2014
Jul. 31, 2015
Jun. 30, 2019
Dec. 31, 2014
Dec. 31, 2008
Jan. 31, 2019
Dec. 31, 2018
Sep. 26, 2014
Debt instrument, interest rate, stated percentage           7.751%   4.00%
Debt maturity date     Jun. 30, 2019   Nov. 01, 2012      
Escrow Agent [Member]                
Subscription received in escrow $ 3,000,000              
Proceeds from release of subscriptions 1,000,000              
February 14, 2014 Private Placement [Member] | Convertible Senior Debentures [Member]                
Maximum offering amount     $ 3,000,000          
Debt instrument face amount     $ 3,000,000          
Debt instrument, interest rate, stated percentage     4.00%          
Debt instrument, maturity date, description     Mature six years from the date of issuance          
February 14, 2014 Private Placement [Member] | Convertible Senior Debentures [Member]                
Debt instrument, convertible, conversion price     $ 0.75          
February 14, 2014 Private Placement [Member] | Convertible Senior Debentures [Member] | Tranche 1 [Member]                
Investors that consented to amended conversion terms, amount of offering     $ 1,000,000          
Conversion of debenture into shares of common stock     3,333,333          
Debt instrument, convertible, conversion price     $ 0.30          
February 14, 2014 Private Placement [Member] | Convertible Senior Debentures [Member] | Tranche 2 [Member]                
Investors that consented to amended conversion terms, amount of offering     $ 1,000,000          
Conversion of debenture into shares of common stock     2,222,222          
Debt instrument, convertible, conversion price     $ 0.45          
February 14, 2014 Private Placement [Member] | Convertible Senior Debentures [Member] | Tranche 3 [Member]                
Investors that consented to amended conversion terms, amount of offering     $ 1,000,000          
Conversion of debenture into shares of common stock     1,818,182          
Debt instrument, convertible, conversion price     $ 0.55          
February 14, 2014 Private Placement [Member] | Convertible Senior Debentures [Member] | Tranche 3 [Member] | Common Stock [Member]                
Conversion of debenture into shares of common stock     1,333,333          
First Tranche Debentures [Member]                
Debt instrument face amount $ 1,000,000              
Proceeds from issuance of debentures       $ 950,000        
Total convertible debentures     $ 950,000          
Debt maturity date     Mar. 31, 2020          
First Tranche Remaining Debentures [Member]                
Conversion of debenture into shares of common stock       3,166,666        
Proceeds from issuance of debentures       $ 50,000        
Second Tranche Debentures [Member]                
Total convertible debentures     $ 850,000          
Debt maturity date     Dec. 31, 2020          
Second Tranche Debentures [Member] | Second Closing [Member]                
Conversion of debenture into shares of common stock       1,888,889        
Proceeds from release of subscriptions       $ 850,000        
Proceeds from issuance of debentures       850,000        
Investors that did not consent to amended conversion terms, amount of offering       300,000        
Second Tranche Debentures [Member] | Second Closing [Member] | Escrow Agent [Member]                
Proceeds from release of subscriptions       $ 850,000        
Third Tranche Debentures [Member]                
Number of debentures returned   $ 850,000            
Total convertible debentures     $ 50,000          
Debt maturity date     Mar. 31, 2020          
Debentures [Member]                
Debt instrument face amount     $ 279,233          
Convertible Debentures [Member]                
Total convertible debentures     1,850,000          
Accrued interest due     $ 315,929       $ 279,233  
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.19.2
Short Term Notes and Interest Bearing Advance (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
Jun. 09, 2017
Feb. 02, 2017
Jan. 31, 2019
Jun. 30, 2019
Dec. 31, 2008
Dec. 31, 2018
Sep. 26, 2014
Financed premium liability insurance amount     $ 2,734        
Debt monthly installments of principal and interest     $ 258        
Debt interest rate     7.751%       4.00%
Short term note       $ 1,515      
Debt instrument, maturity date       Jun. 30, 2019 Nov. 01, 2012    
Line of credit facility, maximum borrowing capacity         $ 1,000,000    
Short term borrowings       $ 59,519   $ 58,004  
Lender [Member]              
Increase in interest rate per annum   3.00%          
Unrelated Third Party [Member]              
Debt interest rate   12.50%          
Debt instrument, maturity date   Dec. 31, 2017          
Accrued interest       7,517   5,967  
Short term borrowings   $ 25,000          
Promissory Note [Member]              
Debt interest rate 12.50%            
Proceeds from notes payable $ 15,000            
Debt instrument, maturity date Jun. 09, 2019            
Accrued interest       3,858   2,928  
Short term borrowings           15,000  
Bank Credit Facility [Member]              
Line of credit facility, maximum borrowing capacity       15,000      
Short term borrowings       $ 18,004   $ 18,004  
Bank Credit Facility [Member] | Minimum [Member]              
Debt interest rate       11.24%      
Bank Credit Facility [Member] | Maximum [Member]              
Debt interest rate       24.99%      
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.19.2
Short Term Notes and Interest Bearing Advance - Schedule of Short Term Notes and Interest Bearing Advance (Details) - USD ($)
Jun. 30, 2019
Jan. 31, 2019
Dec. 31, 2018
Jun. 09, 2017
Sep. 26, 2014
Interest Rate   7.751%     4.00%
Total short term notes and interest bearing advance $ 59,519   $ 58,004    
Promissory Note [Member]          
Interest Rate 12.50%        
Total short term notes and interest bearing advance $ 15,000        
Property Liability Insurance Financing [Member]          
Interest Rate 7.751%        
Total short term notes and interest bearing advance $ 1,515      
Bank Credit Facility [Member]          
Total short term notes and interest bearing advance $ 18,004   18,004    
Bank Credit Facility [Member] | Minimum [Member]          
Interest Rate 11.24%        
Bank Credit Facility [Member] | Maximum [Member]          
Interest Rate 24.99%        
Interest Bearing Advance [Member]          
Interest Rate 12.50%        
Total short term notes and interest bearing advance $ 25,000   25,000    
Promissory Note [Member]          
Interest Rate       12.50%  
Total short term notes and interest bearing advance     $ 15,000    
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.19.2
Current Notes Payable Due to Related Parties (Details Narrative)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Aug. 21, 2018
USD ($)
Jun. 30, 2018
USD ($)
Jul. 24, 2017
USD ($)
Jun. 09, 2017
Mar. 31, 2018
USD ($)
Jul. 31, 2017
USD ($)
a
Sep. 30, 2016
USD ($)
Jun. 30, 2019
USD ($)
a
Jun. 30, 2018
USD ($)
Dec. 31, 2008
USD ($)
Jul. 30, 2019
USD ($)
Jan. 31, 2019
Dec. 31, 2018
USD ($)
Nov. 30, 2018
USD ($)
Aug. 25, 2016
Sep. 26, 2014
Area of land, owned | a               400                
Debt instrument, interest rate, stated percentage                       7.751%       4.00%
Repayment of related party debt               $ 36,167              
Proceeds from related parties               $ 79,361 $ 161,033              
Credit facilities, maximum amount                   $ 1,000,000            
Debt instrument, maturity date               Jun. 30, 2019   Nov. 01, 2012            
Notes payable to officers and directors               $ 352,209         $ 309,015      
Promissory Note [Member]                                
Debt instrument, interest rate, stated percentage       12.50%                        
Accrued interest due               3,858         2,928      
Debt instrument, maturity date       Jun. 09, 2019                        
Mississippi Gaming Corporation [Member] | Secured Promissory Note [Member]                                
Accrued interest due               27,542         18,762      
Chairman [Member]                                
Debt instrument, interest rate, stated percentage         15.00%                      
Accrued interest due                         30,788      
Debt instrument, face amount         $ 200,000                 $ 100,000    
Terms on advances from chairman description         (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 will provide the Company with the documentation required to document the sale of said stock and to calculate the losses on said stock for all amounts loaned to the Company from the sale of said stock. On June 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.                      
Repayment of related party debt               16,250                
Chairman [Member] | Subsequent Event [Member]                                
Accrued interest due                     $ 68,136          
Due from officers                     $ 248,987          
Board of Directors [Member] | March 2019 [Member]                                
Debt instrument, face amount               $ 200,000                
President [Member]                                
Debt instrument, interest rate, stated percentage               9.00%                
Secured obligation $ 100,000                              
Due from officers               $ 35,594                
Repayment of related party debt               19,917                
Proceeds from related parties     $ 20,000                          
Incurred expenses               18,000                
President [Member] | Loan One [Member]                                
Loan amount         $ 25,000     25,000                
President [Member] | Loan Two [Member]                                
Loan amount         15,000     15,000                
President [Member] | Two Loans [Member]                                
Credit facilities, maximum amount         15,000                      
President [Member] | Third Lien [Member]                                
Loan amount         100,000                      
President [Member] | Secured Promissory Note [Member]                                
Accrued interest due               13,761         8,421      
Maximum [Member] | Board of Directors [Member]                                
Proceeds from related parties         $ 100,000                      
Related party transaction, terms and manner of settlement         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 (Case No. 426962-V).                      
Maximum [Member] | President [Member]                                
Secured promissory note   $ 100,000                            
Payable During any Calendar Year [Member]                                
Debt instrument, interest rate, stated percentage                               11.00%
Chairman of the Board of Directors [Member]                                
Increase (decrease) in property and other taxes payable           $ 67,628                    
Debt instrument, interest rate, stated percentage                             14.00%  
Proceeds from related parties             $ 90,000                  
Chairman of the Board of Directors [Member] | Promissory Note [Member]                                
Accrued interest due               36,730         $ 30,482      
Chairman [Member]                                
Secured obligation 100,000                              
Due from officers               316,615                
Repayment of related party debt               16,250                
Chairman [Member] | Promissory Note [Member]                                
Secured obligation $ 200,000                              
Chairman [Member] | Maximum [Member]                                
Secured promissory note   100,000                            
Chairman [Member] | Maximum [Member] | Promissory Note [Member]                                
Secured promissory note   $ 200,000                            
Mississippi Property [Member]                                
Area of land, owned | a           400                    
Diamondhead Property [Member]                                
Secured promissory note               400,000                
Diamondhead Property [Member] | Chairman of Board [Member]                                
Secured promissory note               300,000                
Diamondhead Property [Member] | President [Member]                                
Secured promissory note               $ 100,000                
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.19.2
Long Term Notes Payable (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Aug. 25, 2016
Oct. 31, 2017
Sep. 30, 2016
Jun. 30, 2019
Jun. 30, 2018
Jan. 31, 2019
Dec. 31, 2018
Jun. 09, 2017
Dec. 31, 2016
Dec. 16, 2016
Sep. 26, 2014
Debt instrument, interest rate, stated percentage           7.751%         4.00%
Proceeds from related parties       $ 79,361 $ 161,033            
Convertible Promissory Note [Member]                      
Accrued interest due       704,584     $ 654,998        
Debt instrument, face amount   $ 150,000                  
Chairman of the Board of Directors [Member]                      
Debt instrument, interest rate, stated percentage 14.00%                    
Proceeds from related parties     $ 90,000                
Debt instrument term 4 years                    
Long-Term Notes Payable [Member] | Seven Lenders [Member]                      
Due from related parties                 $ 47,500    
Debt instrument, interest rate, stated percentage 8.00%                    
Accrued interest due       15,600     11,400        
Long-Term Notes Payable [Member] | Three Current Directors [Member]                      
Due from related parties                 $ 25,000    
Promissory Note [Member]                      
Debt instrument, interest rate, stated percentage               12.50%      
Accrued interest due       3,858     2,928        
Promissory Note [Member] | Chairman of the Board of Directors [Member]                      
Accrued interest due       36,730     $ 30,482        
Notes Payable Principal Due [Member]                      
Debt instrument, face amount                   $ 137,500  
Notes Payable Principal Due [Member] | Mississippi Property [Member]                      
Debt instrument, face amount       137,500              
Notes Payable Principal Due [Member] | Mississippi Property [Member] | Second Lien [Member]                      
Debt principal and interest amount       250,000              
Notes Payable Principal Due [Member] | Mississippi Property [Member] | First Lien [Member]                      
Debt principal and interest amount       $ 3,850,000              
Four Year Note Issued In Settlement [Member]                      
Debt instrument, interest rate, stated percentage   0.00%                  
Debt instrument term   4 years                  
Legal fees paid in settlement   $ 50,000                  
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.19.2
Long Term Notes Payable - Schedule of Long Term Notes Payable (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Principal Amount Owed $ 187,500 $ 187,500
Amount Due Related Parties 115,000 115,000
Amount Due Others 72,500 72,500
4 Year 8% Secured Note [Member]    
Principal Amount Owed 47,500 47,500
Amount Due Related Parties 25,000 25,000
Amount Due Others 22,500 22,500
4 Year 14% Secured Note [Member]    
Principal Amount Owed 90,000 90,000
Amount Due Related Parties 90,000 90,000
Amount Due Others
4 Year 0% Secured Note [Member]    
Principal Amount Owed 50,000 50,000
Amount Due Related Parties
Amount Due Others $ 50,000 $ 50,000
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.19.2
Related Party Transactions (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jan. 31, 2019
Dec. 31, 2018
Sep. 26, 2014
Debt instrument, interest rate, stated percentage     7.751%   4.00%
Current And Former Directors [Member]          
Accrued directors fees $ 523,750 $ 478,750      
Office Space Lease [Member]          
Monthly base rent 4,534        
Base rent expense 27,204 27,204      
Associated rental costs 10,111 9,236      
Operating leases, rent expense, net 37,315 36,440      
President [Member]          
Accrued payroll due officers $ 2,391,996        
Debt instrument, interest rate, stated percentage 9.00%        
Accrued rent $ 284,083     $ 246,983  
Vice President and Current Chairman of Board of Directors [Member]          
Accrued payroll due officers 121,140        
Management [Member]          
Interest expense 104,937 $ 91,536      
Accrued interest 980,986     $ 876,074  
Directors [Member]          
Directors fees $ 15,000        
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.19.2
Commitments and Contingencies (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
Feb. 28, 2019
Nov. 28, 2018
Nov. 09, 2018
Jun. 09, 2017
Oct. 25, 2016
Sep. 26, 2014
Oct. 31, 2018
Jun. 30, 2019
Dec. 31, 2008
Jan. 31, 2019
Dec. 31, 2018
Aug. 21, 2018
Dec. 16, 2016
Dec. 31, 2014
Mar. 31, 2014
Debt instrument, interest rate, stated percentage           4.00%       7.751%          
Debt instrument maturity date               Jun. 30, 2019 Nov. 01, 2012            
Accrued current delinquent filings               $ 262,455     $ 256,948        
Employee Stock Ownership Plan [Member]                              
Accrued current delinquent filings               91,200              
Seven Debenture Holders US District Court Case [Member]                              
Loss contingency, damages sought, value $ 100,000       $ 1,400,000                    
Sussman [Member]                              
Loss contingency, damages sought, value     $ 50,000                        
Debt instrument maturity date     Jun. 30, 2012                        
Loss contingency allegation amount             $ 28,500                
Notes Payable Principal Due [Member]                              
Debt instrument, face amount                         $ 137,500    
Promissory Note [Member]                              
Debt instrument, interest rate, stated percentage       12.50%                      
Debt instrument maturity date       Jun. 09, 2019                      
Promissory Note [Member] | Sussman [Member] | November 10, 2010 [Member]                              
Debt instrument, face amount     $ 50,000                        
Debt instrument, interest rate, stated percentage     9.00%                        
Debt instrument maturity date     Nov. 10, 2012                        
Promissory Note [Member] | Skaff and Towner [Member] | November 29, 2010 [Member]                              
Debt instrument, face amount   $ 37,500                          
Debt instrument, interest rate, stated percentage   9.00%                          
Debt instrument maturity date   Nov. 29, 2012                          
Promissory Note [Member] | Skaff and Towner [Member] | June 21, 2011 [Member]                              
Debt instrument, face amount   $ 25,000                          
Debt instrument, interest rate, stated percentage   9.00%                          
Debt instrument maturity date   Jun. 21, 2013                          
Promissory Note [Member] | Towner [Member] | November 29, 2010 [Member]                              
Debt instrument, face amount   $ 25,000                          
Debt instrument, interest rate, stated percentage   9.00%                          
Debt instrument maturity date   Nov. 29, 2012                          
Promissory Note [Member] | Towner [Member] | June 30, 2012 [Member]                              
Litigation settlement, expense   $ 14,413                          
Promissory Note [Member] | Skaff [Member] | June 30, 2012 [Member]                              
Litigation settlement, expense   $ 36,038                          
Second Lien [Member]                              
Amount owed                         $ 250,000    
Mississippi Property [Member] | Notes Payable Principal Due [Member]                              
Debt instrument, face amount               $ 137,500              
Third Lien [Member] | Diamondhead Property [Member]                              
Amount owed                       $ 400,000      
Mississippi Gaming Corporation [Member] | Settlement Agreement [Member]                              
Debt instrument, interest rate, stated percentage               4.00%              
Debt instrument, interest rate description               i) in the event Mississippi Gaming Corporation ("MGC") has entered into a contract for the sale of the Diamondhead Property on or before December 31, 2019, the Plaintiffs will be paid the principal due under the debentures and interest stated in the debentures of four percent (4%) per annum through the payment date; ii) in the event MGC has entered into a contract for the sale of the Property on or before June 30, 2020, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of five percent (5%) per annum through the payment date; iii) in the event MGC has not entered into a contract for the sale of the Property on or before June 30, 2020, but has done so on or before December 31, 2021, the Plaintiffs will be paid the principal due under the debentures, interest of four percent (4% ) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the payment date; and iv) If MGC has not entered into a contract for the sale of the Property on or before December 31, 2021, the Plaintiffs will be entitled to a Judgment for the principal due under the debentures, interest of four percent (4%) per annum through December 31, 2019 and, beginning January 1, 2020, interest of six percent (6%) per annum through the date of Judgment.              
Attorneys fees               $ 160,000              
Collateralized Convertible Senior Debentures [Member] | Investors Lien [Member] | Mississippi Property [Member]                              
Secure principal and interest amount due           $ 1,850,000                  
Collateralized Convertible Senior Debentures [Member] | Executives Lien [Member] | Mississippi Property [Member]                              
Amount owed               $ 2,000,000              
Collateralized Convertible Senior Debentures [Member] | Tranche 1 [Member] | Investors Lien [Member]                              
Debt instrument, face amount                             $ 1,000,000
Collateralized Convertible Senior Debentures [Member] | Tranche 2 [Member] | Investors Lien [Member]                              
Debt instrument, face amount                           $ 850,000  
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.19.2
Subsequent Events (Details Narrative) - Subsequent Event [Member] - Chairman [Member] - USD ($)
Jul. 31, 2019
Jul. 30, 2019
Advances from chairman $ 74,909  
Indemnify to chairman, amount   $ 432,198
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