Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Nov. 04, 2016 | |
Document and Entity Information: | ||
Entity Registrant Name | DIAMONDHEAD CASINO CORP | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Trading Symbol | dhcc | |
Amendment Flag | false | |
Entity Central Index Key | 844,887 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 36,297,576 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Current assets | ||
Cash | $ 47,100 | $ 15,655 |
Other current assets | 1,064 | 498 |
Total current assets | 48,164 | 16,153 |
Land held for development (Note 3) | 5,476,097 | 5,476,097 |
Deferred financing costs (net of amortization of $84,415 at September 30, 2016 and $56,218 at December 31, 2015) | 116,685 | 144,882 |
Other assets | 80 | 80 |
Total assets | 5,641,026 | 5,637,212 |
Current liabilities | ||
Convertible notes due to related parties (Note 5) | 75,000 | 75,000 |
Convertible notes and line of credit due others (Note 5) | 1,887,500 | 1,887,500 |
Accounts payable and accrued expenses due related parties (Note 4) | 2,618,727 | 2,204,545 |
Accounts payable and accrued expenses - other (Note 4) | 1,902,113 | 1,867,867 |
Total current liabilities | 6,483,340 | 6,034,912 |
Notes payable due related parties (Note 6) | 115,000 | |
Notes payable due others (Note 6) | 22,500 | |
Debenture payable (net of unamortized discount of $46,044 at September 30, 2016 and $47,703 at December 31, 2015) (Note 6) | 3,956 | 2,297 |
Convertible debentures payable (net of unamortized discount of $1,685,011 at September 30, 2016 and $1,733,157 at December 31, 2015) (Note 7) | 114,989 | 66,843 |
Derivative liability (Note 7) | 1,922,593 | 1,704,570 |
Total liabilities | 8,662,378 | 7,808,622 |
Commitments and contingencies (Notes 2, 3,5,6,7 and 8) | ||
Stockholders' deficiency (Note 8) | ||
Preferred stock, $.01 par value; shares authorized 5,000,000, outstanding 2,086,000 at September 30, 2016 and December 31, 2015 (aggregate liquidation preference of $2,519,080 at September 30, 2016 and December 31,2015). | 20,860 | 20,860 |
Common stock, $.001 par value; shares authorized 50,000,000, issued: 39,052,472 at September 30, 2016 and December 31, 2015, outstanding: 36,297,576 at September 30, 2016 and December 31, 2015. | 39,052 | 39,052 |
Additional paid-in capital | 35,757,201 | 35,757,201 |
Unearned ESOP shares | (3,439,476) | (3,439,476) |
Accumulated deficit | (35,258,251) | (34,408,309) |
Treasury stock, at cost, 448,071 shares at September 30, 2016 and December 31, 2015 | (140,738) | (140,738) |
Total stockholders' deficiency | (3,021,352) | (2,171,410) |
Total liabilities and stockholders deficiency | $ 5,641,026 | $ 5,637,212 |
CONSOLIDATED BALANCE SHEETS (PA
CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Deferred financing costs, amortization | $ 84,415 | $ 56,218 |
Preferred stock, par or stated value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 2,086,000 | 2,086,000 |
Preferred stock, shares outstanding | 2,086,000 | 2,086,000 |
Preferred stock, aggregate liquidation preference | $ 2,519,080 | $ 2,519,080 |
Common stock, par or stated 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 | 448,071 | 448,071 |
Corporate Debt Securities | ||
Unamortized discount | $ 46,044 | $ 47,703 |
Convertible Debt Securities | ||
Unamortized discount | $ 1,685,011 | $ 1,733,157 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
COSTS AND EXPENSES | ||||
Administrative and general | $ 168,764 | $ 197,945 | $ 509,550 | $ 822,502 |
Stock-based compensation | 295,222 | 295,222 | ||
Amortization | 9,503 | 9,503 | 28,198 | 28,198 |
Other | 19,989 | 15,532 | 53,094 | 52,691 |
Costs and Expenses | 198,256 | 518,202 | 590,842 | 1,198,613 |
OTHER EXPENSES | ||||
Amortization of debt discount | (19,805) | (9,595) | (49,805) | (35,375) |
Amortization of debt discount | 19,805 | 9,595 | 49,805 | 35,375 |
Net proceeds from litigation settlement | 150,000 | |||
Reversal of previously accrued DOL penalties | 240,050 | |||
Interest expense | (105,142) | (95,478) | (305,122) | (264,563) |
Interest expense | 105,142 | 95,478 | 305,122 | 264,563 |
Change in fair value of derivative liability | 27,923 | 87,461 | (218,023) | 788,511 |
Other Expense | 152,870 | 192,534 | ||
Other (Expense) Income | (182,900) | 488,573 | ||
NET LOSS | (351,126) | (710,736) | (773,742) | (710,040) |
PREFERRED STOCK DIVIDENDS | (25,400) | (25,400) | (76,200) | (76,200) |
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS | $ (376,526) | $ (736,136) | $ (849,942) | $ (786,240) |
Net loss per common share, basic | $ (0.001) | $ (0.020) | $ (0.023) | $ (0.020) |
Weighted average number of common shares, basic | 36,297,576 | 36,297,576 | 36,297,576 | 36,297,576 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
OPERATING ACTIVITIES | ||
Net loss | $ (773,742) | $ (710,040) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Amortization | 28,198 | 28,198 |
Change in fair value of derivative liability | 218,023 | (788,511) |
Amortization of debt discount | 49,805 | 35,375 |
Stock-based compensation | 295,222 | |
Change in other assets and liabilities: | ||
Other current assets | (566) | 32,223 |
Accounts payable and accrued expenses | 372,227 | 366,954 |
Net cash used in operating activities | (106,055) | (740,579) |
FINANCING ACTIVITIES | ||
Proceeds from notes payable issued to related parties | 115,000 | |
Proceeds from notes payable issued to others | 22,500 | |
Proceeds from short term note | 2,946 | |
Payment of short term note | (2,946) | (14,905) |
Proceeds from non-interest bearing advances from related parties | 15,000 | |
Payment of non-interest bearing advances from related parties | (15,000) | |
Net cash provided by (used in) financing activities | 137,500 | (14,905) |
Net increase (decrease) in cash | 31,445 | (755,484) |
Cash beginning of period | 15,655 | 843,083 |
Cash end of period | 47,100 | 87,599 |
Cash paid for interest | 715 | 10,835 |
Non-Cash Financing activities: | ||
Warrants included in deferred financing costs | 25,100 | 25,100 |
Unpaid preferred stock dividends included in accounts payable and accrued expenses | $ 533,400 | $ 431,800 |
Note 1. Organization and Busine
Note 1. Organization and Business | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 1. Organization and Business | Note 1. Organization and Business Diamondhead Casino Corporation and Subsidiaries (the "Company") own a total of approximately 404.5 acres of unimproved land in Diamondhead, Mississippi on which the Company plans, unilaterally, or in conjunction with one or more partners, to construct a casino resort and hotel and associated amenities. |
Note 2. Liquidity and Going Con
Note 2. Liquidity and Going Concern | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 2. 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 no operations and generates no operating revenues. During the nine months ended September 30, 2016 and 2015 the Company incurred net losses applicable to common shareholders, exclusive of the recording of change in the fair value of derivatives, of $631,919 and $1,574,751, respectively. 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. 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 and other means, which are more fully described in Notes 5, 6 and 7 to these unaudited condensed consolidated financial statements. Some of these instruments are past due for payment of both principal and interest. In addition, at September 30, 2016, the Company had current liabilities totaling $6,483,340 and only $47,100 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
Note 3. Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 3. 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 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 nine months ended September 30, 2016 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, 2015, attached as Exhibit 99.1 to our annual report on Form 10-K. Principles of Consolidation The consolidated financial statements include the accounts of Diamondhead Casino Corporation and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Estimates The preparation of 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 2015 financial statements to conform to the unaudited condensed consolidated 2016 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. Land Held for Development Land held for development is carried at cost. Costs directly related to site development, such as licenses, permitting, engineering, and other costs, are capitalized. Land development costs, which have been capitalized, consist of the following at September 30, 2016 and December 31, 2015: Land under development $4,934,323 Licenses 77,000 Engineering and costs associated with permitting 464,774 $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 The table listed below provides a reconciliation of the beginning and ending net balances for the derivative liability measured at fair value using significant unobservable inputs (Level 3) at September 30, 2016 and December 31, 2015: September 30, December 31, 2016 2015 Beginning balance $1,704,570 $3,754,233 Total decrease in unrealized appreciation (depreciation) included in net assets 218,023 (2,049,663) Ending balance $1,922,593 $1,704,570 Sensitivity Analysis to Changes in Level 3 Assumptions Significant inputs include the dates when required conditions are expected to be met under the conversion terms of the debentures, the underlying market cap due to borrowings and losses and discount for lack of marketability while the stock was delisted and reversed when the Company's stock became publicly listed again on or about October 26, 2015. In addition, use of different ranges of bond discount rates and changes in historical volatility rates would also result in a higher or lower fair value. Current assets and current liabilities are financial instruments and management believes that their carrying amounts are reasonable estimates of their fair values due to their short term nature. The convertible debentures and derivative liability approximate fair value based on Level 3 inputs, as further discussed in Note 7. 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 September 30, 2016. Net Loss per Common Share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. 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, and may never be, met. The table below summarizes the components of potential dilutive securities at September 30, 2016 and 2015. September 30, September 30, Description 2016 2015 Convertible Preferred Stock 260,000 260,000 Options to Purchase Common Shares 3,440,000 3,440,000 Private Placement Warrants 1,061,500 2,086,500 Convertible Promissory Notes 1,925,000 1,925,000 Total 6,686,500 7,711,500 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 third quarter of 2015, the Board of Directors voted to extend the expiration date of a previously-awarded option to the President to purchase 750,000 shares of common stock at $0.30 per share from October 27, 2015 to March 13, 2018 and voted to extend the expiration date of a previously-awarded option to the President to purchase 75,000 shares of common stock at $0.75 per share from October 27, 2015 to March 13, 2018. In addition, in the third quarter of 2015, the Board of Directors voted to extend the expiration date of a previously-awarded option granted to the current Chairman to purchase 150,000 shares of common stock at $1.25 per share, from October 27, 2015 to March 13, 2018 and to extend the expiration date of a previously-awarded option to purchase common stock granted to a Director of the Company to purchase 75,000 shares of common stock at $0.75, from October 27, 2015 to March 13, 2018. The Company also extended the expiration date on options issued to former employees of the Company and an Honorary Director of the Company to purchase a combined total of 90,000 shares of common stock at $0.75 per share, from October 27, 2015 to March 13, 2018. 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 209% and risk-free interest rates ranging from 0.027 to 0.97%. This resulted in a charge to the statement of loss in the amount of $295,222, increasing the loss per share of common stock $0.008 for the nine months ending September 30, 2015. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company uses projected volatility rates, which are based upon historical volatility rates, trended into future years. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's options. |
Note 4. Accounts Payable and Ac
Note 4. Accounts Payable and Accrued Expenses | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 4. 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 September 30, 2016 and December 31, 2015: September 30, December 31, 2016 2015 Description Related Parties: Accrued payroll due officers 1,694,711 1,469,711 Accrued interest due officers and directors 525,740 414,513 Accrued director fees 288,750 221,250 Base rents due to the President 63,224 49,622 Associated rental costs 28,994 32,141 Other 17,308 17,308 Total Related Parties 2,618,727 2,204,545 Non-Related Parties: Accrued interest 1,156,022 962,842 Accrued dividends 533,400 457,200 Accrued fines and penalties 13,231 232,849 Other accounts payable and accrued expenses 199,460 214,976 Total Non-related Parties 1,902,113 1,867,867 Total accounts payable and accrued expenses 4,520,840 4,072,412 |
Note 5. Convertible Notes and L
Note 5. Convertible Notes and Line of Credit | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 5. Convertible Notes and Line of Credit | Note 5. Convertible Notes and Line of Credit Line of Credit On October 23, 2008, the Company entered into an agreement with an unrelated third party for an unsecured Line of Credit up to a maximum of $1,000,000. The Line of Credit provided for funds to be drawn as needed and carries an interest rate on amounts borrowed of 9% per annum, originally payable quarterly, based on the pro rata number of days outstanding. 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. At September 30, 2016, the principal and accrued interest due on the obligation, which totals $1,650,984, remains unpaid. Convertible Notes and Warrants 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, together with a five year Warrant to purchase 50,000 shares of the Company's common stock at an exercise price of $1.00 per share. The Promissory Note is convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. The five-year Warrants issued in connection with the Units have expired. 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, together with a five year Warrant to purchase 50,000 shares of the Company's common stock at an exercise price of $1.00 per share. The Promissory Notes bear interest at 9% per annum and are convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. The five-year Warrants issued in connection with the Units have expired. The Convertible Notes issued pursuant to the Private Placements discussed above total $962,500 and became due and payable beginning in March 2012 and extending at 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. The table below summarizes the Company's debt arising from the above-described sources as of September 30, 2016 and December 31, 2015: Gross Amount Amount Due Amount Due Loan Facility Owed Related 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. Notes Payable
Note 6. Notes Payable | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 6. Notes Payable | Note 6. Notes Payable In the first four months of 2016, the Company received cash advances totaling $47,500 from seven lenders which included $25,000 from three current Directors of the Company: 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 bears interest at 8% per annum, with a full year of interest accruing in any year in which the advance remains unpaid, and matures four years from the date of issuance. The Company will file a lien on its Mississippi property in favor of the note holders to secure both principle and interest owed. In the third quarter of 2016, the Chairman of the Board of Directors of the Company loaned the Company an additional $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. The Company will file a lien on its Mississippi property in favor of the Chairman to secure both principle and interest owed. The principal due under the foregoing loans totals $137,500. A lien in the amount of $250,000 will be placed on the Company's Mississippi property to secure the principal and interest due on the debt. The lien to be placed on the Mississippi property will be second to the existing first lien on the Mississippi property in the amount of $3.85 million. The first lien is held by holders of previously-issued convertible and non-convertible Debentures ($1.85 million) and certain executives and directors ($2 million), as outlined in Note 9. The table below summarizes the Company's long term notes payable as of September 30, 2016: Sept. 30, 2016 Gross Amount Amount Due Amount Due Loan Facility Owed Related Parties Others 4 Year 8% secured note $47,500 $25,000 $22,500 4 Year 14% secured note 90,000 90,000 - Total $137,500 $115,000 $22,500 |
Note 7. Convertible Debentures
Note 7. Convertible Debentures and Derivative Liability | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 7. Convertible Debentures and Derivative Liability | Note 7. Convertible Debentures and Derivative Liability 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 in three tranches of $1,000,000 each, 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 , On December 31, 2014, investors who had purchased $950,000 of First Tranche Debentures consented to Amendment I to the Private Placement, which amended certain terms and conditions, including the conversion terms of the First Tranche Debentures. The remaining First Tranche 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 to the Private Placement, which amended 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. 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 a total of 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, the remaining $850,000 being held in escrow for the purchase of the Third Tranche Debentures was returned to the investors in July 2015. For purposes of determining the proper accounting treatment and valuation of the instruments, the Company applied the provisions set forth in ASC Topic 820, "Fair Value in Financial Instruments" and ASC Topic 815, "Accounting for Derivative Instruments and Hedging Activities." Since the Notes issued have derivative features, the embedded derivatives should be bundled and valued as a single, compound embedded derivative, bifurcated from the debt host and treated as a liability. In addition, the valuation is required to be conducted for each reporting period the instrument is in existence. The Company's stock was not trading from approximately September 4, 2014, when its stock registration was revoked, through approximately October 26, 2015, when its' stock began to trade again. The Company engaged an independent valuation expert to determine the fair value of its shares of common stock for each quarter beginning with the quarter ended September 30, 2014. For periods from September 30, 2014 through September 30, 2015, the fair value of the common stock was estimated by adjusting the most recent market price by changes in the underlying market cap due to changes in the value of net assets and applying a discount for lack of marketability inasmuch as the stock was not trading. After the stock began to trade again on or about October 26, 2015, the closing price of the stock was used in the valuation beginning with the quarter ending December 31, 2015 through this most recent valuation at September 30, 2016. Monte Carlo models were developed to value the derivative liability within the Notes using a historical volatility rate, based on comparable companies, of 168% at September 30, 2016 and 132% at December 31, 2015, and using discount bond rates based on the expected remaining term of each instrument ranging from 5.62% to 6.39% at September 30, 2016 and 6.45% to 7.07% at December 31, 2015. In addition, the valuation assumed that conversion requirements for Tranche 1 Debentures, exclusive of price, were met as of September 30, 2016, while conversion requirements for Tranche 2 Debentures were expected to be met by December 31, 2016 for the September 30, 2016 calculation. The estimated September 30, 2016 December 31, 2015 Tranche 1 $944,344 $893,731 Tranche 2 978,249 810,839 Derivative Liability $1,923,593 $1,704,570 At the initial valuation date of each Tranche, a portion of the derivative liability was allocated to the Convertible Debentures as debt discount, with the remainder being recorded as other income/expense. At March 31, 2014, the initial valuation of the First Tranche Debentures, $1,000,000 was allocated to debt discount and, at December 31, 2014, the initial valuation of the Second Tranche Debentures, $850,000 was allocated to debt discount. The debt discount is subsequently amortized to expense using an effective interest methodology. Amortization of debt discount amounted to $48,146 and $34,574 for Convertible Debentures and $1,659 and $801 for the non-convertible Debenture for the nine months ended September 30, 2016 and 2015, respectively. The interest payment on these Debentures for the calendar year 2015 in the approximate amount of $57,000 was due March 1, 2016. The Company failed to make the payment. This failure, if continuing, could represent an event of default under the terms of the Debenture. On October 25, 2016, . |
Note 8. Related Party Transacti
Note 8. Related Party Transactions | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 8. Related Party Transactions | Note 8. Related Party Transactions As of September 30, 2016, the President of the Company is owed deferred salary in the amount of $1,491,996. As of September 30, 2016, a 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 $100,390 and $82,797 for the nine months ended September 30, 2016 and 2015, respectively. Total interest accrued under this agreement totaled $483,366 and $382,976 as of September 30, 2016 and December 31, 2015, 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 $40,806 and associated rental costs of $9,303 for a total of $50,109 for the nine months ended September 30, 2016 and base rent in the amount of $40,806 and associated rental costs of $9,973 for a total of $50,779 for the nine months ended September 30, 2015. In the first nine months of 2016, the Company paid only $27,204 of the base rent due for that period. In the first nine months of 2015, the Company paid $36,272 for base rent. During the first nine months of 2016, the Company reimbursed the President for associated rental costs totaling $7,744 which had been paid personally by the President in prior periods. At September 30, 2016 and 2015, amounts owing for base rent and associated rental costs totaled $92,218 and $74,654, respectfully. 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 $288,750 and $221,250 was due and owing to the Company's current and former directors as of September 30, 2016 and December 31, 2015, 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. In June of 2016, the Company paid a Director $15,000 in connection with his efforts associated with certain litigation which resulted in the Company collecting net settlement proceeds of $150,000 in the second quarter of 2016. In the second quarter of 2016, the Chairman of the Board of Directors and the President advanced funds to the Company totaling $15,000 with no interest, contingent upon an assignment of $15,000 from the above-referenced settlement proceeds. These advances were repaid to them in the second quarter of 2016. |
Note 9. Commitments and Conting
Note 9. Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2016 | |
Notes | |
Note 9. Commitments and Contingencies | Note 9. Commitments and Contingencies The Company's obligations under the Collateralized Convertible Senior Debentures are secured by a lien on the Company's Mississippi property (the "Investors Lien"). Liens were placed on the Property in favor of the Investors for $1,850,000. The Investors Lien is in pari passu Litigation College Health & Investment, L.P. v. Diamondhead Casino Corporation (Delaware Superior Court)(C.A. No. N15C-01-119-WCC) On January 15, 2015, the plaintiff, a beneficial owner of in excess of 5% of the common stock of the Company, filed suit for breach of a Promissory Note issued March 25, 2010, in the principle amount of $150,000, with interest payable at 12% per annum, with a maturity date of March 25, 2012. Plaintiff seeks payment of principle of $150,000, interest due through December 31, 2014 in the amount of $45,000, and interest due of 12% per annum from December 31, 2014 until entry of judgment. The Notes, as well as the accrued interest thereon, are shown as current liabilities on the Company's balance sheet at December 31, 2015. On January 22, 2015, the defendant forwarded a Notice of Conversion to plaintiff, exercising the Borrower's right to convert the principal and any interest due on the Note into common stock. On February 11, 2015, the Company moved to dismiss the complaint as moot. The plaintiff filed an opposition to the motion to dismiss alleging that the Note was convertible only prior to its maturity date. On July 2, 2015, the Court agreed with the Plaintiff and denied the Company's motion to dismiss. On July 16, 2015, the Company filed an Answer and Grounds of Defense. On August 18, 2015, the Company filed a Suggestion of Bankruptcy and Automatic Stay. The matter was stayed pending the below-referenced bankruptcy action (Case No. 15-11647) College Health & Investment, L.P. v. Diamondhead Casino Corporation (In the Court of Chancery of the State of Delaware (C.A. No. 10663-CB) On February 13, 2015, the plaintiff, a beneficial owner of in excess of 5% of the common stock of the Company, filed a Verified Complaint Pursuant to 8 Del.C.§211(c), with a Verification signed by the plaintiff's General Partner, Samuel I. Burstyn, seeking an order compelling the Company to hold an annual meeting. The Company agreed to entry of an Order setting a new date for an annual meeting of June 8, 2015, a Record Date of April 24, 2015, and to clarify that there is no advance notice requirement for the submission of stockholder proposals at the Company's annual stockholders' meetings. The plaintiff sought costs and expenses, including attorneys' fees. On or about July 7, 2015, the Plaintiff filed a Motion for an Award of Attorneys' Fees and Reimbursement of Expenses in the total amount of $150,000 for both this case and the following case. The Company filed an opposition to this motion. On August 18, 2015, the Company filed a Suggestion of Bankruptcy and Automatic Stay. The matter was stayed pending the below-referenced bankruptcy action (Case No. 15-11647) College Health & Investment, L.P. v. Edson R. Arneault, Deborah A. Vitale, Gregory A. Harrison, Martin Blount and Benjamin Harrell(In the Court of Chancery of the State of Delaware)(C.A. No. 10793-CB) On March 14, 2015, the plaintiff, a beneficial owner of in excess of 5% of the common stock of the Company, filed a Verified Complaint, with a Verification signed by the plaintiff's General Partner, Samuel I. Burstyn. In Count I, the plaintiff alleges that the defendants breached their fiduciary duty of disclosure. In Count II, the plaintiff alleges that defendants breached their fiduciary duties of loyalty and care. The plaintiff sought injunctive relief, but no monetary damages other than attorney's fees. The defendants believe that plaintiff's claims are without merit and intend to vigorously defend this lawsuit. In addition, on or about July 30, 2015, the defendant directors filed Defendants' Answer and Verified Counterclaims for defamation, breach of fiduciary duty and aiding and abetting a breach of fiduciary duty. On August 19, 2015, the plaintiff filed a Motion to Dismiss the Counterclaims. As noted above, on or about July 7, 2015, the Plaintiff filed a Motion for an Award of Attorneys' Fees and Reimbursement of Expenses in the total amount of $150,000 in this case and the above-referenced case. On or about August 26, 2015, the defendants filed an Opposition to Plaintiff's Motion for an Award of Fees and Reimbursement of Expenses. On September 25, 2015, the parties entered into a Stipulation and [Proposed] Order Staying Litigation pending the below-referenced bankruptcy action (Case No. 15-11647) In re Diamondhead Casino Corporation (United States Bankruptcy Court)(District of Delaware)(Case No. 15-11647-LSS) On August 6, 2015, an Involuntary Petition was filed in the United States Bankruptcy Court by three promissory note holders under title 11, United States Code, requesting an order for relief under chapter 7 of the Bankruptcy Code. The three creditors listed combined claims of $150,000 in principal, plus interest due on certain promissory notes. On August 28, 2015, the Company filed a Motion to Dismiss the Involuntary Petition or, in the Alternative, to Convert the Case to Chapter 11 (the "Motion to Dismiss"). The Company maintained that the Petition was filed in bad faith by supporters of the dissident slate which lost the proxy contest that was decided by the stockholders on June 8, 2015 and that it was filed in retaliation for the Company's refusal, following the stockholders' vote, to place several of the losing dissident's nominees on the Board of Directors. On September 11, 15 and 17, 2015, three additional promissory note holders filed Joinders to the Involuntary Petition listing additional combined claims of $237,500 plus interest. The Company does not recognize one of the joining petitioners as a bona fide creditor of the Company. On September 17, 2015, the six Petitioners, who were represented by the same attorneys, filed an Objection to the Company's Motion to Dismiss. On September 18, 2015, the six Petitioners filed an Emergency Motion for Entry of an Order Directing the Appointment of (I) an Interim Chapter 7 Trustee, or (II) alternatively, a Chapter 11 Trustee Should the Involuntary Case be converted (the "Emergency Motion"). The Court held an evidentiary hearing on the Emergency Motion in October 2015. On November 13, 2015, the Court denied the Petitioners' Emergency Motion as it related to the request for an interim Chapter 7 trustee. On January 15, 2016, the Court held an evidentiary hearing on the Company's Motion to Dismiss the Involuntary Petitions. The parties filed briefs in support of and in opposition to the motion. On June 7, 2016, the Court entered an Order granting the Company's Motion to Dismiss the Involuntary Petitions. In its accompanying Opinion, the Court found, in part, that based on the totality of the circumstances, the Creditors' primary concern in filing the involuntary petition was to effect a change in management to benefit their investments as stockholders, which was not a proper purpose for filing an involuntary bankruptcy petition. On June 30, 2016, the Company filed a Motion for an Award of Fees and Expenses and Punitive Damages. On August 11, 2016, the Petitioning Creditors filed an Opposition to the Company's Motion for an Award of Fees and Expenses and Punitive Damages. On August 31, 2016, the Court entered an Order awarding judgment to the Company for attorneys' fees and expenses against the Petitioners, jointly and severally, in the amount of $54,886. On September 1, 2016, the Court filed an Amended Order in which it further stated that the amounts awarded were not subject to any setoff against amounts owed by the Company to the Petitioners. The Petitioners have failed, to date, to pay the Company any amounts due pursuant to this Amended Order. 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-UNA) On October 25, 2016, . Litigation Settlement In the second quarter of 2016, the Company and its wholly-owned subsidiary, Mississippi Gaming Corporation, entered into confidential settlement agreements with an unrelated third party for aggregate gross proceeds in the total amount of $225,000. The attorneys' fees amounted to one-third of the gross amount of the recovery, or $75,000, and the Company recorded net income in the amount of $150,000. The attorneys waived all expenses incurred in connection with the litigation. In June of 2016, the Company paid a Director, who was not an officer of the Company, $15,000 from these net proceeds for his efforts associated with the litigation. Employee Stock Ownership Plan The Company failed to file information returns required to be filed in connection with its Employee Stock Ownership Plan ("ESOP") for the 2015 calendar year in a timely fashion. The filings were due to be filed with the Department of Labor by October 15, 2016. The Company did not have sufficient funds to pay professionals to audit its ESOP and/or prepare and file required 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 penalties for failure to file these forms when due. 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 and the Internal Revenue Service 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. Reversal of Previously Accrued Department of Labor Penalties On June 2, 2016, the Company electronically filed annual reports with the Department of Labor ("DOL") required to be filed by its Employee Stock Ownership Plan ("ESOP") for the years ending December 31, 2010, 2011, 2012, 2013 and 2014. Each of the annual reports filed was delinquent. The Company filed its Annual Reports pursuant to the Delinquent Filer Voluntary Compliance Program ("DFVCP"). The Program allows Plans that have not previously been notified by the DOL of a failure to file a timely annual report, to voluntarily file their delinquent reports and pay a significantly reduced penalty than would have otherwise been assessed had the Company been unable to take advantage of the Program. The Company electronically paid penalties prescribed under the Program with its filings in the amount of $4,000. In prior reporting periods, the Company accrued significant amounts in anticipation of potential penalties that could have been assessed by the Department of Labor for failure to file the ESOP's annual reports. The Company believes it has now complied with the DFVCP by filing its delinquent reports and paying the prescribed penalty due under the Program. Therefore, the Company reversed the existing accrual of anticipated penalties and recorded income in the amount of $240,050 during the nine months ended September 30, 2016. |
Note 3. Summary of Significan15
Note 3. Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2016 | |
Policies | |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Diamondhead Casino Corporation and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. |
Estimates | 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 2015 financial statements to conform to the unaudited condensed consolidated 2016 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. |
Land Held For Development | Land Held for Development Land held for development is carried at cost. Costs directly related to site development, such as licenses, permitting, engineering, and other costs, are capitalized. Land development costs, which have been capitalized, consist of the following at September 30, 2016 and December 31, 2015: Land under development $4,934,323 Licenses 77,000 Engineering and costs associated with permitting 464,774 $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 The table listed below provides a reconciliation of the beginning and ending net balances for the derivative liability measured at fair value using significant unobservable inputs (Level 3) at September 30, 2016 and December 31, 2015: September 30, December 31, 2016 2015 Beginning balance $1,704,570 $3,754,233 Total decrease in unrealized appreciation (depreciation) included in net assets 218,023 (2,049,663) Ending balance $1,922,593 $1,704,570 |
Sensitivity Analysis To Changes in Level 3 Assumptions | Sensitivity Analysis to Changes in Level 3 Assumptions Significant inputs include the dates when required conditions are expected to be met under the conversion terms of the debentures, the underlying market cap due to borrowings and losses and discount for lack of marketability while the stock was delisted and reversed when the Company's stock became publicly listed again on or about October 26, 2015. In addition, use of different ranges of bond discount rates and changes in historical volatility rates would also result in a higher or lower fair value. Current assets and current liabilities are financial instruments and management believes that their carrying amounts are reasonable estimates of their fair values due to their short term nature. The convertible debentures and derivative liability approximate fair value based on Level 3 inputs, as further discussed in Note 7. |
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 September 30, 2016. |
Net Loss Per Common Share | Net Loss per Common Share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. 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, and may never be, met. The table below summarizes the components of potential dilutive securities at September 30, 2016 and 2015. September 30, September 30, Description 2016 2015 Convertible Preferred Stock 260,000 260,000 Options to Purchase Common Shares 3,440,000 3,440,000 Private Placement Warrants 1,061,500 2,086,500 Convertible Promissory Notes 1,925,000 1,925,000 Total 6,686,500 7,711,500 |
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 third quarter of 2015, the Board of Directors voted to extend the expiration date of a previously-awarded option to the President to purchase 750,000 shares of common stock at $0.30 per share from October 27, 2015 to March 13, 2018 and voted to extend the expiration date of a previously-awarded option to the President to purchase 75,000 shares of common stock at $0.75 per share from October 27, 2015 to March 13, 2018. In addition, in the third quarter of 2015, the Board of Directors voted to extend the expiration date of a previously-awarded option granted to the current Chairman to purchase 150,000 shares of common stock at $1.25 per share, from October 27, 2015 to March 13, 2018 and to extend the expiration date of a previously-awarded option to purchase common stock granted to a Director of the Company to purchase 75,000 shares of common stock at $0.75, from October 27, 2015 to March 13, 2018. The Company also extended the expiration date on options issued to former employees of the Company and an Honorary Director of the Company to purchase a combined total of 90,000 shares of common stock at $0.75 per share, from October 27, 2015 to March 13, 2018. 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 209% and risk-free interest rates ranging from 0.027 to 0.97%. This resulted in a charge to the statement of loss in the amount of $295,222, increasing the loss per share of common stock $0.008 for the nine months ending September 30, 2015. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company uses projected volatility rates, which are based upon historical volatility rates, trended into future years. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's options. |
Note 3. Summary of Significan16
Note 3. Summary of Significant Accounting Policies: Land Held For Development: Land development costs (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Land development costs | Land development costs, which have been capitalized, consist of the following at September 30, 2016 and December 31, 2015: Land under development $4,934,323 Licenses 77,000 Engineering and costs associated with permitting 464,774 $5,476,097 |
Note 3. Summary of Significan17
Note 3. Summary of Significant Accounting Policies: Fair Value Measurements: Schedule of Derivative Liability Reconciliation (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Schedule of Derivative Liability Reconciliation | The table listed below provides a reconciliation of the beginning and ending net balances for the derivative liability measured at fair value using significant unobservable inputs (Level 3) at September 30, 2016 and December 31, 2015: September 30, December 31, 2016 2015 Beginning balance $1,704,570 $3,754,233 Total decrease in unrealized appreciation (depreciation) included in net assets 218,023 (2,049,663) Ending balance $1,922,593 $1,704,570 |
Note 3. Summary of Significan18
Note 3. Summary of Significant Accounting Policies: Net Loss Per Common Share: Schedule of Components of Potential Dilutive Securities (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Schedule of Components of Potential Dilutive Securities | The table below summarizes the components of potential dilutive securities at September 30, 2016 and 2015. September 30, September 30, Description 2016 2015 Convertible Preferred Stock 260,000 260,000 Options to Purchase Common Shares 3,440,000 3,440,000 Private Placement Warrants 1,061,500 2,086,500 Convertible Promissory Notes 1,925,000 1,925,000 Total 6,686,500 7,711,500 |
Note 4. Accounts Payable and 19
Note 4. Accounts Payable and Accrued Expenses: Schedule of Accounts Payable and Accrued Expenses (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Schedule of Accounts Payable and Accrued Expenses | The table below outlines the elements included in accounts payable and accrued expenses at September 30, 2016 and December 31, 2015: September 30, December 31, 2016 2015 Description Related Parties: Accrued payroll due officers 1,694,711 1,469,711 Accrued interest due officers and directors 525,740 414,513 Accrued director fees 288,750 221,250 Base rents due to the President 63,224 49,622 Associated rental costs 28,994 32,141 Other 17,308 17,308 Total Related Parties 2,618,727 2,204,545 Non-Related Parties: Accrued interest 1,156,022 962,842 Accrued dividends 533,400 457,200 Accrued fines and penalties 13,231 232,849 Other accounts payable and accrued expenses 199,460 214,976 Total Non-related Parties 1,902,113 1,867,867 Total accounts payable and accrued expenses 4,520,840 4,072,412 |
Note 5. Convertible Notes and20
Note 5. Convertible Notes and Line of Credit: Schedule of Convertible Notes and Line of Credit (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Schedule of Convertible Notes and Line of Credit | The table below summarizes the Company's debt arising from the above-described sources as of September 30, 2016 and December 31, 2015: Gross Amount Amount Due Amount Due Loan Facility Owed Related 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. Notes Payable_ Schedule
Note 6. Notes Payable: Schedule of Notes Payable (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Schedule of Notes Payable | The table below summarizes the Company's long term notes payable as of September 30, 2016: Sept. 30, 2016 Gross Amount Amount Due Amount Due Loan Facility Owed Related Parties Others 4 Year 8% secured note $47,500 $25,000 $22,500 4 Year 14% secured note 90,000 90,000 - Total $137,500 $115,000 $22,500 |
Note 7. Convertible Debenture22
Note 7. Convertible Debentures and Derivative Liability: Schedule of Derivative Liabilities at Fair Value (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Tables/Schedules | |
Schedule of Derivative Liabilities at Fair Value | The estimated September 30, 2016 December 31, 2015 Tranche 1 $944,344 $893,731 Tranche 2 978,249 810,839 Derivative Liability $1,923,593 $1,704,570 |
Note 1. Organization and Busi23
Note 1. Organization and Business (Details) | Sep. 30, 2016a |
Details | |
Area of Land, owned | 404.5 |
Note 2. Liquidity and Going C24
Note 2. Liquidity and Going Concern (Details) - USD ($) | 9 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | Dec. 31, 2014 | |
Details | ||||
Net losses applicable to common shareholders, exclusive of recording of change in derivatives | $ (631,919) | $ (1,574,751) | ||
Total current liabilities | 6,483,340 | $ 6,034,912 | ||
Cash | $ 47,100 | $ 87,599 | $ 15,655 | $ 843,083 |
Note 3. Summary of Significan25
Note 3. Summary of Significant Accounting Policies: Land Held For Development: Land development costs (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Dec. 31, 2015 | |
Details | ||
Land under development | $ 4,934,323 | |
Licenses | 77,000 | |
Engineering and costs associated with permitting | 464,774 | |
Land held for development | $ 5,476,097 | $ 5,476,097 |
Note 3. Summary of Significan26
Note 3. Summary of Significant Accounting Policies: Fair Value Measurements: Schedule of Derivative Liability Reconciliation (Details) - Derivative Financial Instruments, Liabilities - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Beginning balance | $ 1,704,570 | $ 3,754,233 |
Total decrease in unrealized appreciation (depreciation) included in net assets | 218,023 | (2,049,663) |
Ending balance | $ 1,922,593 | $ 1,704,570 |
Note 3. Summary of Significan27
Note 3. Summary of Significant Accounting Policies: Net Loss Per Common Share (Details) | 9 Months Ended |
Sep. 30, 2016shares | |
Convertible Debt Securities | |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 5,055,555 |
Note 3. Summary of Significan28
Note 3. Summary of Significant Accounting Policies: Net Loss Per Common Share: Schedule of Components of Potential Dilutive Securities (Details) - shares | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Details | ||
Convertible Preferred Stock | 260,000 | 260,000 |
Options to Purchase Common Shares | 3,440,000 | 3,440,000 |
Private Placement Warrants | 1,061,500 | 2,086,500 |
Convertible Promissory Notes | 1,925,000 | 1,925,000 |
Total | 6,686,500 | 7,711,500 |
Note 3. Summary of Significan29
Note 3. Summary of Significant Accounting Policies: Stock Based Compensation (Details) - Employee Stock Option | 9 Months Ended |
Sep. 30, 2016USD ($)$ / sharesshares | |
Fair Value Assumptions, Method Used | Black-Scholes option-pricing model |
Dividend yield | 0.00% |
Expected volatility | 209.00% |
Allocated Share-based Compensation Expense | $ | $ 295,222 |
Minimum | |
Risk-free interest rate | 0.03% |
Maximum | |
Risk-free interest rate | 0.97% |
President | Award 1 | |
Deferred Compensation Arrangement with Individual, Shares Issued | shares | 750,000 |
Deferred Compensation Arrangement with Individual, Exercise Price | $ / shares | $ 0.30 |
President | Award 2 | |
Deferred Compensation Arrangement with Individual, Shares Issued | shares | 75,000 |
Deferred Compensation Arrangement with Individual, Exercise Price | $ / shares | $ 0.75 |
Board of Directors Chairman | |
Deferred Compensation Arrangement with Individual, Shares Issued | shares | 150,000 |
Deferred Compensation Arrangement with Individual, Exercise Price | $ / shares | $ 1.25 |
Director | |
Deferred Compensation Arrangement with Individual, Shares Issued | shares | 75,000 |
Deferred Compensation Arrangement with Individual, Exercise Price | $ / shares | $ 0.75 |
Former Employees And Honorary Director | |
Deferred Compensation Arrangement with Individual, Shares Issued | shares | 90,000 |
Deferred Compensation Arrangement with Individual, Exercise Price | $ / shares | $ 0.75 |
Note 4. Accounts Payable and 30
Note 4. Accounts Payable and Accrued Expenses: Schedule of Accounts Payable and Accrued Expenses (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Details | ||
Accrued payroll due officers | $ 1,694,711 | $ 1,469,711 |
Accrued interest due officers | 525,740 | 414,513 |
Accrued director fees | 288,750 | 221,250 |
Base rents due to the President | 63,224 | 49,622 |
Associated rental costs | 28,994 | 32,141 |
Other | 17,308 | 17,308 |
Total Related Parties | 2,618,727 | 2,204,545 |
Accrued interest | 1,156,022 | 962,842 |
Accrued dividends | 533,400 | 457,200 |
Accrued fines and penalties | 13,231 | 232,849 |
Other accounts payable and accrued expenses | 199,460 | 214,976 |
Total Non-related Parties | 1,902,113 | 1,867,867 |
Total accounts payable and accrued expenses | $ 4,520,840 | $ 4,072,412 |
Note 5. Convertible Notes and31
Note 5. Convertible Notes and Line of Credit (Details) - USD ($) | 1 Months Ended | 9 Months Ended | |
Oct. 31, 2008 | Sep. 30, 2016 | Oct. 23, 2008 | |
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000,000 | ||
Line of Credit | |||
Debt Instrument, Interest Rate, Stated Percentage | 9.00% | ||
Debt Instrument, Maturity Date | Nov. 1, 2012 | ||
Line of Credit | Employee Stock Option | October 23, 2008 | |||
Options, Granted | 50,000 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value | $ 1.75 | ||
Line of Credit, Current | $ 1,650,984 | ||
Line of Credit | Employee Stock Option | October 23, 2008 - 2 | |||
Options, Granted | 250,000 | ||
Convertible Promissory Note | |||
Debt Instrument, Face Amount | $ 962,500 | ||
Convertible Promissory Note | March 1, 2010 Private Placement | |||
Debt Instrument, Interest Rate, Stated Percentage | 12.00% | ||
Debt Instrument, Face Amount | $ 25,000 | ||
Warrants per unit | 50,000 | ||
Warrant Exercise Price | $ 1 | ||
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 | October 25, 2010 Private Placement | |||
Debt Instrument, Interest Rate, Stated Percentage | 9.00% | ||
Debt Instrument, Face Amount | $ 25,000 | ||
Warrants per unit | 50,000 | ||
Warrant Exercise Price | $ 1 | ||
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. |
Note 5. Convertible Notes and32
Note 5. Convertible Notes and Line of Credit: Schedule of Convertible Notes and Line of Credit (Details) | Sep. 30, 2016USD ($) |
Notes Payable, Current | $ 1,962,500 |
Related Parties | |
Notes Payable, Current | 75,000 |
Others | |
Notes Payable, Current | 1,887,500 |
Line of Credit | |
Notes Payable, Current | 1,000,000 |
Line of Credit | Related Parties | |
Notes Payable, Current | 0 |
Line of Credit | Others | |
Notes Payable, Current | 1,000,000 |
Convertible Promissory Note | |
Notes Payable, Current | 962,500 |
Convertible Promissory Note | March 1, 2010 Private Placement | |
Notes Payable, Current | 475,000 |
Convertible Promissory Note | October 25, 2010 Private Placement | |
Notes Payable, Current | 487,500 |
Convertible Promissory Note | Related Parties | |
Notes Payable, Current | 75,000 |
Convertible Promissory Note | Related Parties | March 1, 2010 Private Placement | |
Notes Payable, Current | 75,000 |
Convertible Promissory Note | Related Parties | October 25, 2010 Private Placement | |
Notes Payable, Current | 0 |
Convertible Promissory Note | Others | |
Notes Payable, Current | 887,500 |
Convertible Promissory Note | Others | March 1, 2010 Private Placement | |
Notes Payable, Current | 400,000 |
Convertible Promissory Note | Others | October 25, 2010 Private Placement | |
Notes Payable, Current | $ 487,500 |
Note 6. Notes Payable (Details)
Note 6. Notes Payable (Details) | 9 Months Ended |
Sep. 30, 2016USD ($) | |
Notes Payable, Noncurrent | $ 137,500 |
Notes Payable, Current | 1,962,500 |
Proceeds from notes payable issued to related parties | 115,000 |
Mississippi property | |
Secured Debt | $ 250,000 |
President | |
Debt Instrument, Interest Rate, Stated Percentage | 9.00% |
Proceeds from notes payable issued to related parties | $ 90,000 |
Related Party Transaction, Rate | 14.00% |
4 Year 8% secured note | |
Notes Payable, Noncurrent | $ 47,500 |
4 Year 8% secured note | Director | |
Notes Payable, Current | $ 25,000 |
Debt Instrument, Interest Rate, Stated Percentage | 8.00% |
Note 6. Notes Payable_ Schedu34
Note 6. Notes Payable: Schedule of Notes Payable (Details) | Sep. 30, 2016USD ($) |
Notes Payable, Noncurrent | $ 137,500 |
Related Parties | |
Notes Payable, Noncurrent | 115,000 |
Others | |
Notes Payable, Noncurrent | 22,500 |
4 Year 8% secured note | |
Notes Payable, Noncurrent | 47,500 |
4 Year 8% secured note | Related Parties | |
Notes Payable, Noncurrent | 25,000 |
4 Year 8% secured note | Others | |
Notes Payable, Noncurrent | 22,500 |
4 Year 14% secured note | |
Notes Payable, Noncurrent | 90,000 |
4 Year 14% secured note | Related Parties | |
Notes Payable, Noncurrent | 90,000 |
4 Year 14% secured note | Others | |
Notes Payable, Noncurrent | $ 0 |
Note 7. Convertible Debenture35
Note 7. Convertible Debentures and Derivative Liability (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Dec. 31, 2014USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Dec. 31, 2015USD ($) | Mar. 31, 2014USD ($) | |
Amortization of debt discount | $ 19,805 | $ 9,595 | $ 49,805 | $ 35,375 | |||
Tranche 1 | |||||||
Unamortized discount | $ 1,000,000 | ||||||
Tranche 2 | |||||||
Unamortized discount | $ 850,000 | ||||||
Convertible Debt Securities | |||||||
Unamortized discount | 1,685,011 | 1,685,011 | $ 1,733,157 | ||||
Amortization of debt discount | 48,146 | 34,574 | |||||
Convertible Debt Securities | February 14, 2014 Private Placement | |||||||
Maximum Offering Amount | 3,000,000 | ||||||
Debt Instrument, Face Amount | $ 1,000,000 | $ 1,000,000 | |||||
Debt Instrument, Interest Rate, Stated Percentage | 4.00% | 4.00% | |||||
Debt Instrument, Maturity Date, Description | mature six years from the date of issuance | ||||||
Convertible Debt Securities | February 14, 2014 Private Placement | Derivative Financial Instruments, Liabilities | |||||||
Fair Value Measurements, Valuation Techniques | Monte Carlo models | ||||||
Fair Value Assumptions, Expected Volatility Rate | 168.00% | 132.00% | |||||
Convertible Debt Securities | February 14, 2014 Private Placement | Derivative Financial Instruments, Liabilities | Minimum | |||||||
Fair Value Inputs, Discount Rate | 5.62% | 6.45% | |||||
Convertible Debt Securities | February 14, 2014 Private Placement | Derivative Financial Instruments, Liabilities | Maximum | |||||||
Fair Value Inputs, Discount Rate | 6.39% | 7.07% | |||||
Convertible Debt Securities | February 14, 2014 Private Placement | Tranche 1 | |||||||
Investors that consented to amended conversion terms, amount of offering | $ 950,000 | ||||||
Investors that did not consent to amended conversion terms, amount of offering | $ 50,000 | ||||||
Debt Instrument, Convertible, Number of Equity Instruments | 3,166,666 | ||||||
Convertible Debt Securities | February 14, 2014 Private Placement | Tranche 2 | |||||||
Investors that consented to amended conversion terms, amount of offering | $ 850,000 | ||||||
Investors that did not consent to amended conversion terms, amount of offering | $ 300,000 | ||||||
Debt Instrument, Convertible, Number of Equity Instruments | 1,888,889 | ||||||
Non-convertible Debenture | |||||||
Amortization of debt discount | $ 1,659 | $ 801 | |||||
Corporate Debt Securities | |||||||
Unamortized discount | $ 46,044 | 46,044 | $ 47,703 | ||||
Interest payable | $ 57,000 | $ 57,000 |
Note 7. Convertible Debenture36
Note 7. Convertible Debentures and Derivative Liability: Schedule of Derivative Liabilities at Fair Value (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Derivative Liability, Current | $ 1,923,593 | $ 1,704,570 |
Tranche 1 | ||
Derivative Liability, Current | 944,344 | 893,731 |
Tranche 2 | ||
Derivative Liability, Current | $ 978,249 | $ 810,839 |
Note 8. Related Party Transac37
Note 8. Related Party Transactions (Details) - USD ($) | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Accrued payroll due officers | $ 1,694,711 | $ 1,469,711 | |
Accrued interest | 1,156,022 | 962,842 | |
Operating Leases, Rent Expense, Net | $ 50,779 | ||
Accrued director fees | 288,750 | 221,250 | |
Litigation Settlement, Amount | 150,000 | ||
Office Space Lease | |||
Debt Instrument, Periodic Payment | 4,534 | ||
Base rent expense | 40,806 | 40,806 | |
Associated rental costs | 9,303 | 9,973 | |
Operating Leases, Rent Expense, Net | 50,109 | ||
Payments for Rent | 27,204 | 36,272 | |
President | |||
Accrued payroll due officers | $ 1,491,996 | ||
Debt Instrument, Interest Rate, Stated Percentage | 9.00% | ||
Rent reimbursed | $ 7,744 | ||
Accrued rents | 92,218 | $ 74,654 | |
Proceeds from Collection of Advance to Affiliate | 15,000 | ||
Payment for Advance | 15,000 | ||
Vice President | |||
Accrued payroll due officers | 121,140 | ||
Management | |||
Accrued interest | 100,390 | $ 82,797 | |
Director | |||
Directors Fees | 15,000 | ||
Litigation Settlement, Expense | $ 15,000 |
Note 9. Commitments and Conti38
Note 9. Commitments and Contingencies (Details) | 9 Months Ended |
Sep. 30, 2016USD ($) | |
Proceeds from Legal Settlements | $ 225,000 |
Legal Fees | 75,000 |
Litigation Settlement, Amount | 150,000 |
Employee Stock Ownership Plan Penalties Prescribed | 4,000 |
Reversal of previously accrued DOL penalties | $ 240,050 |
College Health & Investment, L.P. v. Diamondhead Casino Corporation | |
Debt Instrument, Interest Rate, Stated Percentage | 12.00% |
College Health & Investment, L.P. v. Diamondhead Casino Corporation | Principal | |
Loss Contingency, Damages Sought, Value | $ 150,000 |
College Health & Investment, L.P. v. Diamondhead Casino Corporation | Interest | |
Loss Contingency, Damages Sought, Value | 45,000 |
College Health & Investment, L.P. v. Diamondhead Casino Corporation 2 | |
Loss Contingency, Damages Sought, Value | 150,000 |
College Health & Investment, L.P. v. Edson R. Arneault, Deborah A. Vitale, Gregory A. Harrison, Martin Blount and Benjamin Harrell | |
Loss Contingency, Damages Sought, Value | 150,000 |
United States Bankruptcy Court | |
Loss Contingency, Damages Sought, Value | $ 237,500 |
College Health & Investment, L.P. | |
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners | 5.00% |
Management | |
Lien Amount | $ 2,000,000 |