UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2019March 31, 2020

or

For the transition period from                         to                  

Commission File No: 0-17529

DIAMONDHEAD CASINO CORPORATION

(Exact name of registrant as specified in charter)

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.:

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 [  ][X]

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 [  ][X]

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.

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 November 18, 2019:June 28, 2021: 36,297,576.

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

TABLE OF CONTENTS

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30,MARCH 31,

(UNAUDITED)

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

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

(UNAUDITED)

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

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018

(UNAUDITED)

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

DIAMONDHEAD CASINO CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31,

(UNAUDITED)

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

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 lawsuitslaw suits 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,Thus, 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 under the contract.

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 $1,086,187$438,835 for the ninethree months ended September 30, 2019.March 31, 2020. In addition, the Company had an accumulated deficit of $39,156,790$39,887,054 at September 30, 2019.March 31, 2020. 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 September 30, 2019,March 31, 2020, the Company had $7,917,033$8,615,210 of accounts payable and accrued expenses and only $4,667$234 cash on hand.

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

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.

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 nine months ended September 30, 2019March 31, 2020 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, 2018,2019, attached to our annual report on Form 10-K filed on April 12, 2019.10-K.

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

The reclassification of interest expense to related party have been made to the unaudited condensed consolidated 2018 statements of operations to conform to the unaudited condensed consolidated 2019 statements of operations presentation. In addition, the Company made reclassification of the accounts payable and accrued expenses to related party in the unaudited condensed consolidated 2018 cash flows. The reclassification had no effect on net earnings or cash flows as previously reported.

Land

Land held for development is carried at cost. Costs directly related to site development, such as licensing, permitting, engineering, and other costs, are capitalized. 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. This agreement was extended through December 31, 2019.

Land development costs, which have been capitalized, consist of the following at September 30, 2019March 31, 2020 and December 31, 2018:2019:

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 September 30,March 31, 2020 and December 31, 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 September 30, 2019.March 31, 2020.

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 September 30, 2019March 31, 2020 and 2018.2019.

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 arewere 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 insettlement.

On December 12, 2019, the parties entered into a written agreement.

Settlement Agreement. The Company expects the settlement agreement,Settlement Agreement, in addition to other terms and conditions will provideprovides, in pertinent part, 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 willwould 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 willwould 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 willwould 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) Ifif 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. On January 13, 2020, the parties filed a Stipulation of Voluntary Dismissal with Prejudice in the case. The principal and interest pertaining to the settlement above has been accrued through March 31, 2020.

CASE SETTLED

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)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 iswas 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. A Stipulation of Dismissal With Prejudice was filed in the case on January 13, 2020. The principal and interest pertaining to the settlement above has been accrued through March 31, 2020.

CASE SETTLED

Sussman v. Diamondhead Casino Corporation (Circuit Court for Montgomery County, Maryland)(Case No: 426962V), affirmed, Court of Special Appeals of Maryland (Case No. 0265), cert. denied, Court of Appeals of Maryland (COA-Pet-No. 0398)

In November 2016, the Company filed a Foreign Judgment with the Circuit Court of Montgomery County, Maryland to collect a judgment that had been entered against Plaintiff and other Petitioners who had filed a Chapter 7 Involuntary Bankruptcy Petition against the Company in the United States Bankruptcy Court for the District of Delaware. The Bankruptcy Court found that the Petition had been filed in bad faith and for improper purposes and awarded the Company attorney’s fees. In February 2017, the Plaintiff filed a Motion to Reopen and Vacate the Foreign Judgment. The Circuit Court entered judgment in favor of the Company and ordered the Plaintiff to post a cash bond with the Court in the amount of $36,000. The Plaintiff appealed the lower court’s decision to the Court of Special Appeals of Maryland which affirmed the decision. The Plaintiff then filed a Petition for Writ of Certiorari in the Court of Appeals of Maryland which denied the Petition. In March 2019, the Company collected the $36,000.

CASE DECIDED

Arnold J. Sussman, Robert Skaff and David J. Towner v. Diamondhead Casino Corporation(Superior Court of the State of Delaware)(Case (Case No. N18C-11-091-WCC)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 seekssought 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.present. 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 principleprincipal 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 SkaffThe cases were consolidated for hearing 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.trial. 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. TrialOn or about April 1, 2020, the Plaintiffs filed a motion for summary judgment and a brief in this case is scheduled forsupport thereof. The Company filed a brief in opposition. On 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”) for2020, 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 $91,200Court heard oral argument on the currently delinquent filings. The Company intendsmotion. On November 13, 2020, the Court granted Plaintiffs’ motion for summary judgment. On December 4, 2020, the Court entered a Final Order and Judgment in the case awarding judgment to bring its ESOP-required filings currentPlaintiffs as follows: i) Sussman: $88,151.46; ii) Skaff: $109,978.93; and when current, will attempt to enrolliii) Towner: $44,127.68. Post-judgment interest was awarded in a voluntary compliance programaccordance with the Department of Labor with respect to any penalties or fines incurred. However, there can be no assurancelegal rate in Delaware (5% plus the Company will be able to enroll in any such program or obtain a reduction of the finesfederal discount rate). The principal 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 respectinterest pertaining 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 Decembersettlement above has been accrued through March 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.2020.

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

Note 12.13. Subsequent Events

On November 6, 2020, the Board of Directors of the Company voted to extend to December 31, 2023, a total of 2,965,000 options to purchase common stock previously awarded to officers, directors and current and former employees of the Company. The options were scheduled to expire on December 31, 2020.

On November 9, 2020, the Board of Directors voted to award 1,290,000 options to purchase common stock to its six current directors, including three officers of the Company, at a strike price of $0.46 per share with an expiration date of December 31, 2023, as follows: Martin Blount: 200,000; Daniel Burstyn: 40,000; Robert Crow: 100,000; Benjamin Harrell: 360,000; Gregory Harrison: 450,000 and Deborah Vitale: 140,000. All options are vested.

In October 2019,January 2021, a fourth lien in the amount of $2,000,000 was placed on the Property to secure a non-interest-bearing note payable in the amount of $2,000,000, issued to secure amounts owed to the President of the Company for accrued, but unpaid, salary, rent and other expenses.

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

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

The Company intends to place a twelfth and thirteenth lien on the Property in the second quarter of 2021 to secure two non-interest bearing notes issued in May of 2021 which total $50,000 in principal and call for the issuance of a total of 100,000 shares of common stock. The notes are not convertible. As of the issuance date of these financial statements, no shares have been issued.

In July 2020, the Chairman of the Board advancedof the Company paid a total of $6,750$67,076 for property taxes due for the year 2019 on the Company’s 400-acre Diamondhead, Mississippi Property plus $1,573 in related fees. The Company intends to place a fourteenth lien on the Property in the third quarter of 2021 to secure a promissory note in the amount of $150,000 issued to the Chairman of the Board of the Company to secure the payment of accounting expenses. The conditionsthese taxes and interest due thereon.

In May 2021, the Chairman of the Board of the Company paid a total of $62,610 for property taxes due for the year 2020 on the Company’s 400-acre Diamondhead, Mississippi Property plus $1,468 in related fees. The Company intends to place a fifteenth lien on the Property in the third quarter of 2021 to secure a promissory note under whichin the amount of $100,000 issued to the Chairman agreedof the Board of the Company to make these advances are discussed in full detail in Note 8secure the payment of these unaudited condensed consolidated financial statements.taxes and interest due thereon.

Of particularIn May of 2021, the Chairman of the Board of the Company loaned the Company $50,000 on the same terms and conditions as loans made by certain unrelated third parties in 2020 and 2021. The Company intends to place a sixteenth lien on the Property in the third quarter of 2021 to secure this non-interest bearing note to those conditions, item (v)which totals $50,000 in principal and calls for the Chairman to be indemnified for any losses sustained on the saleissuance of certain100,000 shares of common stock sold to cover the above payments.stock. The Chairman has identified the common stock sold on or about October 9, 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.notes are not convertible. As of November 19, 2019, the Company would notissuance date of these financial statements, no shares have had to indemnifybeen issued.

Through the Chairman for any loss on said stock.issuance date of this report, the President advanced additional funds totaling $12,489.

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, 20182019 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.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 hadhas concentrated its efforts on the development of its Diamondhead, Mississippi Property.The development of the Diamondhead Property would beis 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 September 30, 2019,March 31, 2020, the Company had $4,667 ofminimal cash, on hand, while accounts payable and accrued expenses totaled $7,917,033$8,615,210 and the Company had an accumulated deficit of $39,156,790.$39,887,054. In addition, the Company reported a net loss applicable to common shareholders of $1,086,187$438,835 for the ninethree months ended September 30, 2019.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.

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 DirectorsThe brokerage agreement has authorizedexpired, but the Company continues to file a petition for reorganizationwork with the broker on the same terms that applied under Chapter 11 of the United States Bankruptcy Code.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 formForm 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 ninethree months ended September 30,March 31, 2020 and 2019, the Company realized aincurred net losslosses applicable to common stockholders of $1,086,187 as opposed to a net$438,835 and $1,032,408, respectively. The decrease in the loss, applicable to common stockholders of $1,014,924 for the nine months ended September 30, 2018, a increase of $71,263. The net losswhich totaled $593,573, is primarily attributable to having to record an increase in real estate taxes and other expenses. No indemnification was incurred in the third quarter of 2019. The indemnification derivative liability arises from a condition in the notes issued toamount of $658,350 in the Chairmanfirst quarter 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. There is no indemnification liability of any amount as of September 30, 2019 inasmuch as the Chairman has incurred no loss, as of said date, on the sale of the stock sold to raise the capital used to lend to the Company and/or pay certain taxes and expenses on behalf of the Company.2019.

Administrative and general expenses incurred totaled $523,574$193,428 and $448,944$187,699 for the ninethree months ending September 30,March 31, 2020 and 2019, and 2018, respectively. The table below depicts the major categories comprising these expenses:

Other Income and Expense

Interest expense incurred totaled $463,065$203,095 and $414,666$180,991 for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively, an increase of $48,399.$22,104. The increase in 20192020 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 20182019 and first three quartersquarter of 2019.2020.

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

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”)(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 was amended, effective October 31, 2019, to extend the listing period through December 31, 2019. 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

Estimates

The preparationRefer to Note 3 of the notes to the 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.

Long-Lived Assetsstatements.

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, 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 September 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.

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 September 30, 2019.March 31, 2020. 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 September 30, 2019.March 31, 2020.

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 September 30, 2019March 31, 2020 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

CASE SETTLED

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 arewere 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 insettlement.

On December 12, 2019, the parties entered into a written agreement.

Settlement Agreement. The Company expects the settlement agreement,Settlement Agreement, in addition to other terms and conditions will provideprovides, in pertinent part, 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 willwould 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 willwould 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 willwould 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) Ifif 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. On January 13, 2020, the parties filed a Stipulation of Voluntary Dismissal with Prejudice in the case. The principal and interest pertaining to the settlement above has been accrued through March 31, 2020.

CASE SETTLED

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)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 iswas 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. A Stipulation of Dismissal With Prejudice was filed in the case on January 13, 2020. The principal and interest pertaining to the settlement above has been accrued through March 31, 2020.

CASE SETTLED

Sussman v. Diamondhead Casino Corporation (Circuit Court for Montgomery County, Maryland)(Case No: 426962V), affirmed, Court of Special Appeals of Maryland (Case No. 0265), cert. denied, Court of Appeals of Maryland (COA-Pet-No. 0398)

In November 2016, the Company filed a Foreign Judgment with the Circuit Court of Montgomery County, Maryland to collect a judgment that had been entered against Plaintiff and other Petitioners who had filed a Chapter 7 Involuntary Bankruptcy Petition against the Company in the United States Bankruptcy Court for the District of Delaware. The Bankruptcy Court found that the Petition had been filed in bad faith and for improper purposes and awarded the Company attorney’s fees. In February 2017, the Plaintiff filed a Motion to Reopen and Vacate the Foreign Judgment. The Circuit Court entered judgment in favor of the Company and ordered the Plaintiff to post a cash bond with the Court in the amount of $36,000. The Plaintiff appealed the lower court’s decision to the Court of Special Appeals of Maryland which affirmed the decision. The Plaintiff then filed a Petition for Writ of Certiorari in the Court of Appeals of Maryland which denied the Petition. In March 2019, the Company collected the $36,000.

CASE DECIDED

Arnold J. Sussman, Robert Skaff and David J. Towner v. Diamondhead Casino Corporation(Superior Court of the State of Delaware)(Case (Case No. N18C-11-091-WCC)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 seekssought 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.present. 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 principleprincipal 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 SkaffThe cases were consolidated for hearing 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.trial. 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. TrialOn or about April 1, 2020, the Plaintiffs filed a motion for summary judgment and a brief in this case is scheduled forsupport thereof. The Company filed a brief in opposition. On July 13, 2020, the Court heard oral argument on the motion. On November 13, 2020, the Court granted Plaintiffs’ motion for summary judgment. On December 4, 2020, the Court entered a Final Order and Judgment in the case awarding judgment to Plaintiffs as follows: i) Sussman: $88,151.46; ii) Skaff: $109,978.93; and iii) Towner: $44,127.68. Post-judgment interest was awarded in accordance with the legal rate in Delaware (5% plus the federal discount rate). The principal and interest pertaining to the settlement above has been accrued through March 31, 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 defaultRefer to the footnotes for all defaults on the following indebtedness:Company’s 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 September 30, 2019 totals $1,920,984.

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 third quarterfirst three months of 20192020 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 September 30, 2019.March 31, 2020.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits