Forward Looking Statements
This section should be read together with the consolidated financial statements
and related notes thereto, for the year ended December 31, 2019 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.
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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.
Liquidity
The Company has incurred continued losses over the years and certain conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The Company has had no operations since it ended its gambling cruise
ship operations in 2000. Since that time, the Company has concentrated its
efforts on the development of its Diamondhead, Mississippi Property. The
development of the Diamondhead Property is dependent on obtaining the necessary
capital, through equity and/or debt financing, unilaterally, or in conjunction
with one or more partners, to master plan, design, obtain permits for,
construct, staff, open, and operate a casino resort. In the past, the Company
has been able to sustain itself through various short term borrowings, however,
as of March 31, 2020, the Company had minimal cash, while accounts payable and
accrued expenses totaled $8,615,210 and the Company had an accumulated deficit
of $39,887,054. In addition, the Company reported a net loss applicable to
common shareholders of $438,835 for the three months ended March 31, 2020.
Therefore, in order to sustain itself, it is imperative that the Company secure
a source of funds to provide further working capital.
Management of the Company believes it will be difficult to secure suitable
financing that would allow it to continue to pursue ultimate development of the
Property. Therefore, on 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. The brokerage agreement has expired, but the Company continues to
work with the broker on the same terms that applied under the contract.
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.
COVID-19
The Company had no casino or other operations in 2020 when COVID-19 surfaced.
Therefore, the Company did not experience the adverse consequences that other
casino companies experienced from COVID-19 based on their cessation of
casino-related operations. However, as a result of COVID, the Company's sole
employee, its President, was unable to travel domestically or internationally to
meet with potential investors or potential joint venture partners or to meet
with outside, independent contractors. The extent to which COVID-19 may have
affected the market for financing new construction in the hospitality, hotel and
casino industries given the impact of COVID-19 on this segment of the economy is
unknown. The Company did not incur any extraordinary expenses as a result of
COVID-19, nor did it obtain any loans under the CARES Act.
Financial Results and Analysis
During the three months ended March 31, 2020 and 2019, the Company incurred net
losses applicable to common stockholders of $438,835 and $1,032,408,
respectively. The decrease in the loss, which totaled $593,573, is primarily
attributable to having to record an indemnification derivative liability in the
amount of $658,350 in the first quarter of 2019.
Administrative and general expenses incurred totaled $193,428 and $187,699 for
the three months ending March 31, 2020 and 2019, respectively. The table below
depicts the major categories comprising these expenses:
March 31, March 31,
DESCRIPTION 2020 2019
Payroll and Related Taxes $ 75,000 $ 75,000
Director Fees 22,500 22,500
Professional Services 49,980 49,840
Rents and Insurances 19,690 19,518
Fines and Penalties 18,400 14,904
All Other Expenses 7,858 5,937
Total General and Administrative Expenses $ 193,428 $ 187,699
Other Income and Expense
Interest expense incurred totaled $203,095 and $180,991 for the three months
ended March 31, 2020 and 2019, respectively, an increase of $22,104. The
increase in 2020 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 three quarters of 2019 and first quarter of
2020.
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 twenty-five million dollars $25,000,000.
The Company believes this Agreement is no longer in effect. However, there can
be no assurance that CAMC will not attempt to maintain otherwise which would
lead to litigation.
Brokerage Agreement
On 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. The brokerage agreement has expired, but the Company continues
to work with the broker on the same terms that applied under the contract.
There are no other off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future effect on our financial condition, changes
in financial condition, revenues and expenses, results of operations, liquidity,
capital expenditures or capital resources, that are material to our
stockholders.
Related Party
In July, 2017, the Chairman of the Board paid $67,628 for all property taxes
due, together with all interest due thereon, to Hancock County, Mississippi for
an approximate 400-acre tract of land ("the Diamondhead Property"), owned by
Mississippi Gaming Corporation, a wholly-owned subsidiary of the Company. In
2018, the Chairman advanced additional funds totaling $205,250 to the Company.
In 2019, the Chairman advanced additional funds totaling $125,396 to the
Company. As of March 31, 2020, the Chairman had advanced a total of $398,274 to
the Company. The conditions of the notes under which the Chairman agreed to make
the foregoing payments and advances are discussed in full detail in Note 8 of
attached unaudited condensed consolidated financial statements.
Of particular note to those conditions is item (v) which calls for the Chairman
to be indemnified for any loss sustained on the sale of certain common stock
sold to cover the property taxes paid. The Chairman 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.
Had the Company paid the note in full at December 31, 2019 and March 31, 2020,
in addition to the principal and interest due, the Company would not have been
liable for any additional funds to indemnify the Chairman pursuant to the terms
of the notes.
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
Refer to Note 3 of the notes to the unaudited condensed consolidated financial
statements.
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