DIAMONDHEAD CASINO CORP - Annual Report: 2017 (Form 10-K)

ITEM 1.      BUSINESS

The Company is a Delaware corporation which was incorporated on November 15, 1988, under the name “Europa Cruises Corporation.”  In 1989, the Company became a publicly-held company. On November 22, 2002, the Company amended its Certificate of Incorporation to change its name to “Diamondhead Casino Corporation.” The Company currently has three subsidiaries.

The Company has no current operations in any state. The Company has had no income or revenue from any operations since 2000. The Company currently has only one employee who serves in an executive officer capacity.

For the year ending December 31, 2017 and, the Company's limited resources were consumed by extensive litigation relating to various lawsuits and efforts to obtain financing. See item 3. Legal Proceedings.

Mississippi

The Company is a single asset entity. It owns, through its wholly-owned subsidiary, Mississippi Gaming Corporation, an approximate 400-acre undeveloped property located at 7051 Interstate 10, Diamondhead, Mississippi 39525 (hereafter “the Diamondhead Property” or “the Property”). The Company intends to develop the Property beginning with a casino resort. The Company is in the early development stages of the project. There can be no assurance that the substantial funds required for the design and construction of the project can be obtained or obtained on acceptable terms. Moreover, there can be no assurance that if the requisite financing for the project is obtained and the project is constructed, that the project will be successful. The Company has no current operations in Mississippi, no offices in Mississippi, and no employees in Mississippi.

Property Zoning

The Diamondhead Property is located entirely within the City of Diamondhead and Hancock County. The City of Diamondhead incorporated in February of 2012. On October 15, 2012, the Mayor and City Council adopted a Zoning Ordinance in which the City of Diamondhead zoned the entire Property as “C-2-Interstate Commercial/Gaming/Resort.” Thus, the requisite City zoning is currently in place for a casino.

Land-Based Gaming

All references in this section to Mississippi law are qualified in their entirety by reference to the actual text of the law.

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On August 29, 2005, Hurricane Katrina struck the Gulf coast of the United States causing extensive damage to Louisiana and Mississippi, including Biloxi, Gulfport, and Bay St. Louis, Mississippi. Hurricane Katrina damaged or destroyed most of the casinos on the Gulf coast. Prior to Hurricane Katrina, Mississippi law required that casinos on the Gulf coast be built in, on, or above the water and be located a minimum of fifty percent below mean high tide.

On October 17, 2005, in response to the devastation caused by Hurricane Katrina, Mississippi passed new legislation that allows casinos located in certain statutorily-described areas, including St. Louis Bay, where the Diamondhead Property is located, to be constructed on land no more than 800 feet from the mean high-water line. Under Mississippi’s new legislation, the part of the structure in which licensed gaming activities are conducted must be located entirely in an area which is located no more than eight hundred (800) feet from the mean high-water line (as defined in Section 29-15-1 of the Mississippi Code) of the waters within the State of Mississippi, which lie adjacent to the State of Mississippi south of the three (3) most southern counties in the State of Mississippi, including the Mississippi Sound, St. Louis Bay, Biloxi Bay and Pascagoula Bay or, with regard to Harrison County only, no farther north than the southern boundary of the right-of-way for U.S. Highway 90, whichever is greater. In the case of a structure that is located in whole or part on shore, the part of the structure in which licensed gaming activities are conducted must lie adjacent to state waters south of the three (3) most southern counties in the State of Mississippi, including the Mississippi Sound, St. Louis Bay, Biloxi Bay and Pascagoula Bay. When the site upon which the structure is located consists of a parcel of real property, easements and rights-of-way for public streets and highways are not construed to interrupt the contiguous nature of the parcel, nor is the footage contained within the easements and rights-of-way counted in the calculation of the distances specified above.

The Company intends to take advantage of the Mississippi legislation that allows casinos to be built on land.

Annual In-Lieu Tidelands Assessment

Since the Company intends to construct a casino on land in Mississippi, the Company will no longer require a tidelands lease from the Secretary of State. Under Mississippi’s prior law, which required that the Company’s casino be in, on, or above water and a minimum of fifty percent at or below mean high tide, the Company would have required a tidelands lease to lease water-bottoms owned by the State.

However, on or about October 17, 2005, when Mississippi passed new legislation permitting casinos to be built on land in certain locations, Mississippi also passed a companion law that requires any person possessing a license under the Mississippi Gaming Control Act, who operates a gaming establishment in any of the three most southern counties of the State (including Hancock County in which the Company’s Property is located), and who does not lease public trust tidelands from the State, to pay an annual in-lieu tidelands assessment to the Public Trust Tidelands Assessments Fund. For calendar year 2006, the annual in-lieu tidelands assessment was between $400,000 and $750,000, based on an escalating scale which is measured by the capital investment in the part of the structure in which the licensed gaming activities are conducted. For each calendar year thereafter, the Secretary of State is required to review and adjust the value of the capital investment and the annual in-lieu tidelands assessment due. Such review and adjustment shall be tied to the Consumer Price Index.

This annual in-lieu tidelands assessment will apply to any casino constructed on land on the Diamondhead Property.

Mississippi Gaming Site Approval

In the State of Mississippi, in addition to local zoning, a proposed gaming site must obtain Gaming Site Approval. Only the Mississippi Gaming Commission has the authority to grant Gaming Site Approval. On or about May 29, 2014, the title holder of the Property, Mississippi Gaming Corporation, a wholly-owned subsidiary of the Company, applied for Gaming Site Approval for a fifty (50) acre site on the Diamondhead Property. In its Notice of Intent, the applicant anticipated the casino would contain approximately 1250 slot machines and approximately 40 table games and contain an estimated 80,000 square feet of gaming space. On August 21, 2014, the Mississippi Gaming Commission granted Gaming Site Approval to Mississippi Gaming Corporation for a fifty acre site on the Diamondhead Property.

The Mississippi Gaming Commission found, in pertinent part, as follows: 1) that in accordance with the Mississippi Gaming Control Act of 1990, codified as Miss. Code Ann. § 75-76-1 et seq., Miss. Code Ann. § 19-3-79, and Miss. Code Ann. §97-33-1, as amended, the citizens of Hancock County, Mississippi voted to authorize gaming in Hancock County, and thus gaming is legal at qualifying locations within Hancock County, Mississippi; that the proposed gaming area is within 800 feet of the mean high water line of the Bay of St. Louis and is thus a legal gaming site under the Mississippi Control Act of 1990, as amended, and 13 Mississippi Administrative Code Part 2 Rule 2.2(a)(1) and (3); and that the Proposed Site is properly zoned for gaming.

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The Gaming Site Approval was granted for a period expiring three years after the date Approval to Proceed with Development is granted. The Property owner has not applied for Approval to Proceed with Development. Thus, the three year period has not yet begun to run.

Additional Permits, Authorizations and Approvals Are Required

In addition to Gaming Site Approval, the development of the Diamondhead Property requires the Company to obtain additional permits, authorizations and approvals from various federal, state, county, and/or city agencies, boards and commissions, which may include, but not be limited to, the following: U.S. Army Corps of Engineers, Environmental Protection Agency, U.S. Fish and Wildlife Service, U.S. Coast Guard, Port and Harbor Commission, Mississippi Gaming Commission, Mississippi Department of Marine Resources, Mississippi Commission on Environmental Quality, Mississippi Department of Transportation, Hancock County, and/or the City of Diamondhead. The regulatory environment relating to such permits, authorizations and approvals is uncertain and subject to constant change. There can be no assurance that all permits, authorizations and/or approvals can be obtained, or that if obtained, that they will be renewed. While there is no pending environmental litigation, the foregoing permits, authorizations and approvals remain subject to future litigation and the actions of environmental groups and various federal, state, county and/or local governments and agencies, including, but not limited to, the foregoing. The Company will be required to spend significant funds to pay the architects, surveyors, engineers, accountants, attorneys, consultants and other experts required to prepare and process the applications required for the permits, authorizations and approvals required. The amount ultimately required is unknown at this time, but the Company does not have any funds required for this purpose. There can be no assurance the Company will be able to obtain the funds required for this purpose or that it will be able to obtain the funds required on acceptable terms.

Uncertain Regulatory and Political Environment

The political environment in which the Company and/or its subsidiaries intend to operate is also uncertain, dynamic and subject to rapid change. Existing operators often propose and support legislation and/or litigation designed to make it difficult or impossible for competition to enter a market. This political and regulatory environment makes it impossible to predict the effects that the adoption of and changes in gaming laws, rules and regulations and/or competition will have on development of a gaming resort. Moreover, legislatures in states in which gaming is legal often consider wide-ranging legislation and regulations which could adversely affect operations and expected revenues. Likewise, the federal government often considers legislation which could adversely affect operations and expected revenues and certain states have legalized internet gaming. The long term effects of legalizing internet gaming on the casino industry in general and on the Company’s proposed casino operations are unknown.

Anti-Gaming Referenda

On at least three separate occasions since 1998, certain anti-gaming groups have proposed referenda that, if adopted, would have banned gaming in Mississippi and required that gaming entities cease operations within two years after the ban. All three of the proposed referenda were ruled illegal by Mississippi State trial courts. If such a referendum were to be approved by the voters, it would have a material adverse effect on the Company.

Mississippi Regulation

The Company has no current operations in Mississippi and does not operate any gaming facility in Mississippi. The Company intends to develop its Diamondhead property as a destination casino resort.

Assuming it is successful in developing its resort, the Company and its subsidiaries and/or affiliates will be subject to federal, state, county, city and local, laws, rules, ordinances and regulations with respect to the operation of any gaming facility. The following is intended to serve as a partial description of the Mississippi regulatory environment in which the Company or its subsidiaries or joint venture partner(s) would seek approvals to construct and operate a gaming facility and is not intended to be a complete, precise, or up-to-date recitation of all applicable laws, rules, regulations or ordinances that might affect the Company’s operations or with which the Company would be required to comply. Additional or more restrictive laws, rules and regulations could be adopted at any time or gambling could be completely banned.

The location of, ownership of, and operation of gaming facilities in Mississippi are subject to extensive state and local regulation, primarily through the licensing and control of the Mississippi Gaming Commission and the Mississippi State Tax Commission. The Company and/or its subsidiaries must register and be licensed under the Mississippi Gaming Control Act and its gaming operations will be subject to the regulatory control of the Mississippi Gaming Commission, the Mississippi State Tax Commission and various state, county and local regulatory agencies.

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The Mississippi Gaming Control Act gives the Mississippi Gaming Commission (the “Commission”) extensive power to enforce the Act and adopt regulations in furtherance of the Act (the “Mississippi Regulations”). The laws, regulations and supervisory procedures of Mississippi and the Mississippi Gaming Commission seek to: (1) prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity; (2) establish and maintain responsible accounting practices and procedures; (3) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and safeguarding of assets and revenues, providing reliable record keeping and making periodic reports to the Mississippi Gaming Commission; (4) prevent cheating and fraudulent practices; (5) provide a source of state and local revenues through taxation and licensing fees; and (6) ensure that gaming licensees, to the extent practicable, employ Mississippi residents. The regulations are subject to amendment and interpretation by the Commission. Changes in Mississippi law or the regulations or the Commission’s interpretation thereof may limit or otherwise materially affect the types of gaming that may be conducted and could have a material adverse effect on Mississippi gaming operations.

Approval Process

The Commission has divided the approval process into two separate phases: (1) gaming site approval; and (2) approval to proceed with development.

1.  Gaming Site Approval

Mississippi Gaming Corporation, which holds title to the Property and is a wholly-owned subsidiary of the Company, obtained Gaming Site Approval on August 21, 2014. With respect to gaming site approval, approval constitutes only the Commission’s finding that the location complies with applicable gaming laws and regulations. Gaming site approval does not entitle the recipient to proceed with development, nor does it constitute a license to engage in gaming or a right to a gaming license. Gaming site approval is a revocable privilege and no holder acquires any vested right therein. The Mississippi Gaming Commission reserves the right to revoke any site approval should the circumstances change that would make the site illegal or unsuitable.

An application for gaming site approval in the three most southern counties must include evidence satisfactory to the Commission in support thereof including: (1) a survey indicating the specific location of the property; (2) the current use of any adjacent property as well as the location of the nearest residential area, church and school; (3) evidence that all applicable zoning ordinances allow gaming at the proposed site; and (4) a survey establishing the mean high water line, performed by a qualified surveyor for performance of tidal surveys.

Gaming establishments in the three most southern counties in the State of Mississippi, including Hancock County, are permitted to be permanent inland structures. No point in the gaming area may be more than eight hundred (800) feet from the nineteen (19) year mean high water line. Harrison County establishments south of Highway 90 may exceed the eight hundred (800) foot measurement up to the southern boundary of Highway 90. All public easements and rights-of-way for public streets and highways are excluded from the 800 foot measurement. Any point of reference used to determine the 800 foot distance from the mean high water line must be located on the applicant or licensee’s premises. The applicant or licensee must own and/or lease the land that is contiguous both to the parcel used to conduct gaming and the point of reference used to determine the mean high water line, and this land must be shown to be an integral part of the project. The Commission has final authority in reviewing and approving each site as it pertains to meeting the requirements of this regulation.

2.  Approval to Proceed with Development

With respect to obtaining the Commission’s approval to proceed with development, the following information, together with documentation to support this information, must be submitted to the Commission:

1) Architectural plans or renderings showing details of all proposed construction and renovation for the project, together with a footprint of the project and a description of the construction and type of parking facilities, as well as parking lot capacity. Commission approval requires that the project include a 500-car, or larger parking facility in close proximity to the casino complex, and infrastructure facilities shall include a 300-room, or larger hotel of at least a three diamond rating as defined by an acceptable travel publication to be determined by the Commission. In addition, infrastructure facilities must include a restaurant capable of seating at least 200 people and a fine dining facility capable of seating at least 75 people, and the casino floor must be at least 40,000 square feet. The project will also have or support an amenity that will be unique to the market and will encourage economic development and promote tourism. The Commission will have authority in determining the quality of the amenity and the ultimate approval of the amenity, and may, in its discretion, reduce the requirements above should it determine that there is a justification to do so in certain markets. The Commission will further determine, in its discretion, if the prerequisite hotel and dining facilities may be supplanted by an amenity of high value to the overall tourism market in that the amenity will likely encourage economic development and promote

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tourism. As used herein, infrastructure facilities are not such items as parking facilities, roads, sewage and water systems, or civic facilities normally provided by cities and/or counties.

The qualifying infrastructure must be owned or leased by, (i) the holder of the site approval, or (ii) an affiliated company of the holder of the site approval where both the affiliated company and the holder of the site approval have identical direct or indirect equity ownership. This regulation shall apply to any new applicant for a gaming license for a new gaming facility and to the acquisition or purchase of a licensee or gaming facility for which gaming operations have ceased prior to the time of acquisition or purchase. It does not apply to any licensee, who has been licensed by the Commission, or to any person which has received Approval to Proceed with Development from the Commission prior to December 31, 2013 (or to such licensee upon any licensing renewal after such date.)

Any change to the plan, or placement or design of the establishment, cruise vessel or vessel, shall be submitted in advance to the Executive Director for determination of whether such a change constitutes a material change. If the Executive Director determines that a material change has occurred, Commission approval is required for same.

2) Statements reflecting the total estimated cost of construction or renovation of the establishment, vessel, or cruise vessel and shore and dock facilities, distinguishing between known costs and projections, and separately identifying: facility design expense; land acquisition costs; site preparation costs; construction costs or renovation costs; equipment acquisition costs; costs of interim financing; organization, administrative and legal expenses; projected permanent financing costs; qualified infrastructure costs; and non-qualifying infrastructure costs.

3) A construction schedule for completion of the project, including an estimated date of project completion, indicating whether a performance bond will be required by the applicant to be furnished by the contractor.

4) Current financial statements, including, at a minimum, a balance sheet and profit and loss statement for the proposed licensee.

5) A detailed statement of the sources of funds for all construction and renovation proposed by the site development plans. Any funding, whether equity or debt, to be obtained, must be supported by firm written commitments satisfactory to the Commission. The applicant will have 120 days in which to close all financing and start construction or the approval is deemed void.

6) Evidence that the following agencies (if applicable) were notified of the development and/or do not oppose the site development: U.S. Corps of Engineers, U.S. Coast Guard, Mississippi Department of Transportation, Mississippi Department of Environmental Quality, Department of Marine Resources, Port and Harbor Commission, Levee Board, City and County government, and such other agencies as the Executive Director deems appropriate.

The application for a Gaming Operator’s License must be filed no later than ninety (90) days after the Commission grants approval to proceed with development. The gaming site approval will expire three (3) years from the date approval to proceed with development is granted unless the Commission grants an extension. Approval to proceed with development is not subject to sale, assignment or transfer.

Opening of a Casino

Before any gaming facility may open to the public, all infrastructure requirements must be fully operational. The development shall be completed in accordance with the approved plan and be ready for operation within the gaming site approval time period. Gaming site approval may be extended within the discretion of the Commission.

Application Information Required is Extensive and Must be Complete and Accurate

In addition to other information required by law and Commission regulations, an applicant must provide complete information regarding the proposed operation, including but not limited to, a certification that any establishment to be used by the proposed operation has been inspected and approved by all appropriate authorities; fingerprints for each individual applicant; the nature, source, and amount of any financing; the proposed uses of all available funds; the amount of funds available after opening for the actual operation of the establishment; and economic projections for the first three years of operation of the establishment. Each applicant must provide complete information regarding his or her background for the ten-year period preceding submission of the application.

Every application to become a license holder must contain the following additional information:  actual establishment blueprints, including a layout of each floor stating the projected use of each area; the number of miles from the nearest population center and a description of transportation facilities serving that population center, a description of the casino size and configuration of slot machines, video games of chance and table games; a description of the availability of fire protection and the adequacy of law enforcement at the establishment and emergency evacuation plans for hurricane and flooding disasters; a description of the

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arrangements for food and drink concessions, the names and addresses of the concessionaires and the terms of the concession contracts, if applicable; the type of slot machines and video games of chance to be used and the proposed distributors and manufacturers of this equipment; a description of the physical location, size and floor plan of the section of the establishment reserved for patrons under 21 years of age and plans for activities and staffing for this section; periods of time that the gaming areas will be in operation; a description of the proposed management of the facility, management personnel by function, and tip distribution policies; all known feasibility studies made available to the applicant which have been done on the type of gaming in the particular locale where the applicant intends to conduct gaming, and a description of procurement policies that emphasize the utilization of Mississippi employees, resources, and goods and services in the operation of the gaming establishment.

Timetable for Financing and Construction

License applicants must submit, simultaneously with submission of their completed application, a timetable for financing arrangements (including applications for approval of public offerings or private placements), and commencement and completion of construction activities, setting forth the date upon which gaming activities will commence. The timetable will be subject to approval by the Commission and monitored for compliance by the Executive Director. The Commission may grant extensions of time upon the recommendation of the Executive Director. License applicants must not advertise or promote the opening of their proposed casino nor the commencement of employee training for their proposed casino until the applicant is granted a license by the Mississippi Gaming Commission. Applicants may request a waiver of this regulation from the Executive Director, which waiver, if granted would be subject to revocation.

Unsuitable Locations

The Executive Director may recommend that an application for a license be denied if the Executive Director believes that the place or location for which the license is sought is unsuitable for the conduct of gaming operations. The Commission may deny an application for a state gaming license if it deems that the place or location for which the license is sought is unsuitable for the conduct of gaming operations. Without limiting the generality of the foregoing, the following locations may be deemed unsuitable: premises located within the immediate vicinity of residential areas, churches, schools and children’s public playgrounds; premises where gaming is contrary to any county or city ordinance, including, but not limited to, zoning ordinances restricting the permissible locations for gaming facilities, so long as such ordinances do not have the effect of absolutely excluding or prohibiting legal gaming; premises which fail to meet federal, state or local health and safety standards, and any other applicable laws or regulations; premises frequented by minors; premises lacking adequate supervision or surveillance; premises difficult to police or where adequate fire protection may be difficult; any other premises where the conduct of gaming would be inconsistent with the public policy of the State of Mississippi.

Building Standards

Any establishment to be constructed for gaming will be required to meet the Southern Standard Building Code. If the local county or city has a building code, then the local code will be the applicable standard. The Commission requires, as a condition of licensure, that gaming establishments meet strict hurricane emergency standards and procedures.

Objection by County or Municipality

Whenever the Commission receives a completed application for a gaming license proposing to operate a gaming establishment in a particular county or municipality, the Executive Director, within ten days after receipt of the application, must notify the board of supervisors of the county and, if applicable, the chief executive of the municipality in which the proposed operation will be located of the receipt of the application and specify the name of the applicant and the proposed location for the gaming establishment. The county or municipality in which the applicant proposes to operate may file a duly enacted resolution specifying any objections or endorsements with the Executive Director.

Individual Licensing of Shareholders of Corporate Licensee

The Commission may request persons, affiliated entities and greater than 5% equity owners to submit an application for finding of suitability in which event the application must be submitted within thirty days of the request.

All Officers and Directors of a Corporation Must be Licensed

All officers and directors of a corporation which holds or applies for a state gaming license must be licensed individually and, if in the judgment of the Mississippi Gaming Commission the public interest will be served by requiring any or all of the corporation’s individual stockholders, lenders, holders of evidence of indebtedness, underwriters, key executives, agents, or employees to be licensed, the corporation shall require such persons to apply for a license. An officer or director shall apply for a license within thirty

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days after he becomes an officer or director. A person required to be licensed pursuant to a decision of the commission must apply for a license within thirty days after the executive director requests him to do so.

Licensing is a Privilege and Revocable

It is the declared policy of the State of Mississippi that all establishments where gambling games are conducted or operated must be licensed and controlled so as to better protect the public health, safety, morals, good order and welfare of its inhabitants. Any license, registration, finding of suitability, or approval by the Commission is deemed to be a revocable privilege and no person holding such a license, registration, finding of suitability, or approval is deemed to have any vested rights therein.

An application for a state gaming license or any other affirmative Commission action is seeking the granting of a privilege and the burden of proving his qualification to receive any license, registration, finding of suitability or approval, is at all times on the applicant. The applicant must document compliance with all applicable federal, state and local rules, regulations and permit requirements. An applicant must accept any risk of adverse publicity, embarrassment, criticism, or other action, or financial loss which may result from action with respect to an application and expressly waive any claim for damages as a result thereof. An application for a license, finding of suitability, or registrations constitutes a request to the Executive Director for a recommendation and to the Commission for a decision upon the applicant’s general suitability, character, integrity, and ability to participate or engage in, or be associated with, the gaming industry in the manner or position sought by the application, or the manner or position generally similar thereto.

Certain Commission Considerations for Licensing

The Commission will consider various factors when deciding whether to issue a license to conduct gaming in an establishment, including but not limited to, the following: revenue provided by a facility to the state and local communities through direct taxation on its operation and indirect revenues from tourism, ancillary businesses, creation of new industry and taxes on employees and patrons. It will consider whether the proposed establishment is: economically viable and properly financed, planned in a manner that provides for adequate security for all aspects of its operation and for people working, visiting, or traveling to the establishment;  planned in a manner which promotes efficient and safe operation; is planned in a manner that provides efficient, safe, and enjoyable use by patrons of the establishment and parking facilities, concessions, the casino, access to cashier windows and rest rooms; compliance with state and federal laws regarding fire, health, construction, zoning, and other similar matters; whether the applicant will employ the persons necessary to operate the establishment in a manner consistent with the needs, safety, and interests of persons who will be in the establishment; the population of the area to be served by the establishment and the location of other establishments within and without the state. The Commission will consider the character and reputation of all persons identified with ownership and operation of the establishment and their capability to comply with rules of the Commission and the Mississippi Code; whether the proposed operation will maximize development; whether it is beneficial to Mississippi tourism, the number and quality of employment opportunities for Mississippians created and promoted by the proposed operation, and the amount and type of shore developments associated with the establishment.

A license which authorizes a holder to operate a gaming establishment is granted for no longer than three years from the date of issue and may be granted for a period of less than three years based within the discretion of the Commission.

Gaming Licenses

Neither the Company nor any of its subsidiaries has a license to operate a casino in Mississippi or in any other jurisdiction. Gaming licenses require the periodic payment of fees and taxes and are not transferable except in accordance with applicable Mississippi law and regulations and with the prior approval of the Commission. Gaming licenses in Mississippi are issued for a maximum term of three years and must be renewed periodically thereafter. There can be no assurance that the Company or any of its subsidiaries will be licensed. There can be no assurance that if licensed, new licenses can be obtained at the end of any particular licensure period. Moreover, the Commission may, at any time, and for any cause it deems reasonable, revoke, suspend, condition or limit a license or approval to own shares of stock in a company that operates in Mississippi. The Mississippi Act also requires that a publicly traded company register under the Act. The Company and/or its subsidiaries will be required to periodically submit detailed financial, operating and other reports to the Commission and Mississippi State Tax Commission. A violation under a gaming license held by a subsidiary of a Company operating in Mississippi could be deemed a violation of all other licenses, if any, then held by the Company. Numerous transactions, including substantially all loans, leases, sales of securities and similar financing transactions entered into by any subsidiary of the Company operating a casino in Mississippi must be reported to or approved by the Commission. In addition, the Commission may, at its discretion, require additional information about the operations of the Company.

Deborah Vitale, President and Chief Executive Officer of the Company, though not currently licensed, previously held a gaming license in Colorado.

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Finding of Suitability

The following persons must apply for a finding of suitability and must be found suitable by the Commission in order to be involved with a licensee: i) each person who serves as Chairman of the Board of Directors of any corporation, public or private, licensed or registered by the Commission; and ii) each person who has a vote on any issue before the Board of Directors of any corporation, public or private, licensed or registered by the Commission and who is also an employee of the corporation or any of its subsidiaries. In addition, the following persons shall apply for a finding of suitability: i) each person who serves as Chairman of the audit or compliance committee of any corporation, public or private, licensed or registered by the Commission, and ii) any executive, employee, or agent of a gaming licensee that the Commission determines as having the power to exercise a significant influence over decisions concerning any part of the operation of a gaming licensee. If the nature of the job changes from that for which the applicant is found suitable, he may be required to submit himself to a new determination of her or his suitability.

The Commission can require any employee to be found suitable if it finds that the public interest and policies set forth in the Act will be served thereby. The Commission is not restricted by job titles, but will consider the functions and responsibilities of the person, including but not limited to, persons acting in the capacity of a property level general manager, assistant general manager, or executive level personnel actively and directly engaged in the administration or supervision of the activities of a licensee. Any executive, employee or agent of a gaming licensee who is listed or should be listed in an annual employee report may be required to apply for a finding of suitability.

A finding of suitability is granted for a period of no longer than ten years from the date of issue. A finding of suitability may be granted for a period of less than ten years within the discretion of the Commission. A holder of a finding of suitability must file with the Investigations Division of the Commission by June 30th of each year, the “Investigations Division Annual Report,” providing all information requested on forms provided by the Commission and any other information requested by the Executive Director. A holder of a finding of suitability must immediately inform the Commission of any arrest or conviction.

The Commission has full and absolute power and authority, at any time, to deny any application or limit, condition, restrict, revoke, or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered, found suitable or approved,  for any cause deemed reasonable by the commission. The Commission has the power, at any time, to investigate and require the finding of suitability of any record or beneficial stockholder of the Company. The Act requires that each person who, individually or in association with others, acquires, directly or indirectly, beneficial ownership of more than 5% of any class of voting securities of a publicly traded corporation registered with the Mississippi Gaming Commission, must notify the Mississippi Gaming Commission of this acquisition. The Act also requires that each person who, individually or in association with others acquires, directly or indirectly, beneficial ownership of more than 10% of any class of voting securities of a publicly traded corporation registered with the Commission must be found suitable by the Mississippi Gaming Commission and pay the costs and fees that the Commission incurs in conducting the investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Commission may be found unsuitable. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of the Company’s securities beyond such time as the Commission prescribes, may be guilty of a misdemeanor.

The Company may be required to disclose to the Commission upon request, the identities of holders of any debt or other securities. Under the Act, the Commission may, in its discretion, (1) require holders of debt securities of registered corporations to file applications; (2) investigate such holders; and (3) require the holders to be found suitable to own such securities.

The Mississippi regulations provide that a change in control of a Company may not occur without the prior approval of the Commission. Mississippi law prohibits the Company from making a public offering of its securities without the approval of the Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi or to retire or extend obligations incurred for one or more such purposes. The Commission has the authority to grant a continuous approval of securities offerings subject to renewal every three years by certain issuers.

Employees associated with gaming in Mississippi must obtain work permits that are subject to immediate suspension under certain circumstances. The Commission will refuse to issue a work permit to a person who has been convicted of a felony, committed certain misdemeanors or knowingly violated the Mississippi Gaming Control Act, and it may refuse to issue a work permit to a gaming employee for any other reasonable cause.

The Company believes there may be persons with prior felony convictions, who are affiliated with certain shareholders, who beneficially own in excess of 5% of a class of voting stock of the Company, who may be found unsuitable by the Mississippi Gaming Commission.  Article X of the Company’s Articles of Incorporation, as amended, provides that the “Company may repurchase or redeem shares, at fair market value, held by any person or entity whose status as a shareholder, in the opinion of the Company’s Board of Directors, jeopardizes the approval, continued existence, or renewal by any gaming regulatory authority, of a contract to manage

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gaming operations, or any other tribal, federal or state license or franchise held by the Company or any of its subsidiaries.” However, there can be no assurance the Company would have sufficient funds to purchase shares held by such a person or entity.  In the event the Company was unable to purchase such shares, its ability to obtain a license could be materially and adversely affected.

License Fees and Taxes

License fees and taxes are payable to the State of Mississippi and to the counties and cities in which the Mississippi Gaming Subsidiary’s respective operations will be conducted. The license fee payable to the State of Mississippi is based upon “gaming receipts,” which are generally defined as gross receipts less payouts to customers as winnings. The fee equals 4% of the first $50,000 or less of gross revenue per calendar month, plus 6% of the next $84,000 of gross revenue per calendar month, plus 8% of gross revenue over $134,000 per calendar month. License fees paid in any taxable year are allowed as a credit against the Mississippi State income tax liability of a licensee for that taxable year.

A licensee must pay an annual license fee of $5,000. In addition, each licensee must pay a license fee based on the number of games it operates. If it operates over 35 games, the fee is equal to $81,200 plus $100 for each game over 35 games. In addition to state gaming license fees or taxes, a municipality or county may impose a gross revenue fee upon a licensee based on all gaming receipts derived from the establishment equal to approximately 4%. An additional license tax may apply to gaming devices.

Beer, Wine and Liquor Licensing

The sale of alcoholic beverages by casinos, including beer and wine, is subject to licensing, regulation and control by both the local jurisdiction and the Alcoholic Beverage Control Division (the “ABC”) of the Mississippi Department of Revenue. All licenses are revocable and non-transferable. The ABC has full power to limit, condition, suspend or revoke any license, and any disciplinary action could, and revocation would, have a material adverse impact upon the operations of an affected casino, its financial condition and its results of operations.

Extensive Non-Gaming Laws and Regulations

In addition to the foregoing, the Company and/or its subsidiaries will be subject to additional federal, state, county and city, safety, food, alcohol, health, employment, and other laws, rules, regulations and ordinances that apply to non-gaming businesses generally.  In addition, Regulations adopted by the Financial Crimes Enforcement Network of the U.S. Treasury Department require currency transactions in excess of $10,000 occurring within a gaming day to be reported, including identification of the patron by name and social security number. Substantial penalties can be imposed for failure to comply with these and numerous other regulations. The foregoing is just one example of the pervasiveness of the non-gaming laws, rules, regulations and ordinances that would apply to a casino operator.

Competition

There is intense competition in the Mississippi market in which the Company intends to operate and in surrounding markets. The Company will compete directly with other existing gaming facilities located in Mississippi and in bordering states, including Louisiana. In addition, there may be additional casinos opening on the Gulf Coast of Mississippi and in Diamondhead where the Company's Property is located. The Company will also be competing directly and indirectly, with gaming facilities throughout the United States and throughout the world, as well as with Native American gaming operations which enjoy certain tax advantages. The Company expects this competition to increase as new gaming operators enter these markets, existing competitors expand their operations, gaming activities expand in existing jurisdictions, gaming is legalized in new jurisdictions, and legalized gaming expands on the internet. Assuming it is successful in developing a destination casino resort, the Company will also be competing with other forms of gaming and entertainment, including but not limited to, bingo, online gambling, pull tab games, card parlors, sports-book operations, pari-mutuel betting, dog racing, lotteries, jai-alai, video lottery terminals, and video poker terminals.

The following chart identifies casinos which are located in Mississippi and with which the Company will compete. Except for distances, the information contained in the chart is derived from the Mississippi Gaming Commission’s Monthly Survey Information (Property Data) for the period January 1, 2018 through January 31, 2018.

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Louisiana Competition

The Company believes that its greatest competition will come from any existing and any new casinos that might be constructed in or around Diamondhead, Bay St. Louis, Gulfport and Biloxi, Mississippi due to their close proximity to the Diamondhead Property. While the Company’s primary competition will come from the foregoing, the Company’s Diamondhead, Mississippi casino will also compete with casinos and other gaming located in the adjacent State of Louisiana.

Louisiana has four land-based casinos. Inasmuch as the Company’s casino will be land-based, the Company’s primary competition is expected to come from Harrah’s land-based casino located in downtown New Orleans. This casino is approximately one hour from the Diamondhead site. Three of the land-based casinos in Louisiana are Indian casinos, which are located in Marksville in central Louisiana and in Kinder and Charenton in southern Louisiana. These are not expected to represent significant competition because of their distance from the Diamondhead site.

Based on the Louisiana Gaming Control Board's 21st Annual Report to the Louisiana State Legislature for 2017,  there are fifteen riverboat casinos authorized to operate in Louisiana. There are six riverboat casinos in the Shreveport-Bossier City area, which is about 360 miles from the Diamondhead Property; three in Lake Charles, which is approximately 246 miles from the Diamondhead Property; three in East Baton Rouge Parish, which is approximately 123 miles from the Diamondhead Property; and one each in Kenner, Harvey and Amelia, which are approximately 73, 71, and 139 miles, respectively, from the Diamondhead Property. As of June 30, 2016, there were approximately 1,798 video poker outlets and 13,160 video poker devices in the 31 parishes in Louisiana where video poker gaming had been approved in the local option election of November 5, 1996. These machines are authorized in bars, restaurants, hotels, off-track betting parlors and truckstops. Louisiana also has slot machine gaming at racetracks. Louisiana generated direct gaming revenue of $705,517,316, a decrease of $8,341,668 from the previous fiscal year. Riverboat gaming continues to be the most dominant area in gaming in Louisiana, providing more than half of the state's gaming revenue. The cumulative effect of the foregoing could be seen as having a significant competitive effect on the Diamondhead Property project.

ITEM 1A.  RISK FACTORS

Smaller reporting companies are not required to provide the information required by this item.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

This section is not applicable to smaller reporting companies.

ITEM 2.  PROPERTIES

Diamondhead, Mississippi Property

The Company owns, through its wholly-owned subsidiary, Mississippi Gaming Corporation, an approximate 400-acre tract of unimproved land in Diamondhead, Mississippi. The property is located at 7051 Interstate 10, Diamondhead, Mississippi 39525 (hereafter “the Diamondhead Property” or “the Property”). The Property is located entirely within the City of Diamondhead and Hancock County. The Property is zoned “C-2-Interstate Commercial/Gaming/Resort.”

Liens on Diamondhead Property

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

The first lien is composed of an “Executives Lien” for a maximum of $2 million in favor of certain executives to whom monies are owed for accrued, but unpaid salaries, expenses and Directors fees. The President of the Company is the primary beneficiary of this lien.

The first lien on the Property is also composed of an Investors' Lien, which secures the investment of purchasers of securities in a Private Placement dated February 14, 2014, as amended.  There is a lien in the aggregate amount of $1 million in favor of the Holders of the original and/or Amended and Restated First Tranche Collateralized Convertible Senior Debentures issued for an aggregate of $1 million and a lien in the aggregate amount of $850,000 in favor of the Holders of the Second Tranche Collateralized Convertible Senior Debentures issued for an aggregate of $850,000.

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In 2016, a second lien in the maximum amount of $250,000 was placed on the Property to secure the principal and interest due on various notes payable which were issued in 2016. The details of these notes are more fully discussed in Note 7 of the attached consolidated financial statements attached to this report.

The Amended and Restated First Tranche Collateralized Convertible Senior Debentures and the Second Tranche Collateralized Convertible Senior Debentures are convertible, under certain circumstances, to common stock of the Company. If and when these Debentures have been converted to common stock of the Company, the liens securing these Debentures would be removed. There can be no assurance that the foregoing Debentures will be able to be converted to common stock of the Company and that these liens would be removed. Moreover, certain Debenture holders have filed suit against the Company for the principal and interest due under these Debentures. Therefore, the lien underlying these Debentures is not likely to be removed based on the conversion of the Debentures to stock.

Residential Lot

In January 2010, the Company purchased a small, residential lot located on a canal southwest of the Property near the back entrance of the Property. The Company paid $65,000 for the lot. The purchase price was paid with 108,000 shares of common stock of the Company. The property, which comprises less than a quarter of an acre, was acquired to permit the Company to control the appearance and approach to the back entrance of its commercial Property. The residential lot is located at 3518 Diamondhead Drive South, Diamondhead, Mississippi 39525.

Office Location

The Company leases a furnished and equipped townhouse office from its President at 1013 Princess Street, in Alexandria, Virginia 22314, pursuant to a Landlord/Tenant Month to Month Lease. The terms of the lease, as adjusted for square footage and certain other applicable differences, were based on the terms of the last lease signed by the Company with an unrelated third party for unfurnished office space leased in Largo, Florida. The Company pays a base rent in the amount of $4,534 per month for approximately 2,473 square feet of commercial space, in addition to any and all expenses relating to the property, including property taxes, property insurance, telephone, electric, water and cable. The Company’s executive office and all of its active files are located in this office.

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ITEM 3.   LEGAL PROCEEDINGS

CASE SETTLED

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 principal amount of $150,000, with interest payable at 12% per annum, with a maturity date of March 25, 2012. Plaintiff was seeking payment of principal 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 Note, as well as the accrued interest thereon, are shown as current liabilities on the Company’s current balance sheet. 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 due to the below-referenced bankruptcy action (Case No. 15-11647) which has now concluded. On July 7, 2017, the Court notified counsel for the parties that if no proceedings were taken within the next thirty days, that this action would be dismissed by the Court for want of prosecution. On August 4, 2017, the plaintiff filed a Motion for Summary Judgment. On or about October 11, 2017, the parties settled this case and the following two cases filed by the same Plaintiff, by entering into an Agreement of Settlement and Release.  In this case, the parties also filed a Stipulation and Order of Judgment with the Court in favor of the Plaintiff in the amount of $244,537, plus post judgment interest at the legal rate, with the understanding that the Plaintiff would forebear from execution on said Judgment, with certain exceptions, for one year. The settlement agreement required that Daniel Burstyn, the son of the General Partner of the Plaintiff, be appointed to the Board of Directors of the Company until the Judgment was paid in full, to the extent any of the current members of the Board of Directors remained in control of the Company and that a non-interest bearing promissory note, in the principal amount of $50,000, with a maturity date of October 11, 2021, be issued to College Health. The Stipulation and Order of Judgment was filed on October 13, 2017 and entered by the Court on October 16, 2017.

CASE SETTLED

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, who was 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 due to the below-referenced bankruptcy action (Case No. 15-11647) which concluded in 2016. No further activity occurred in this case which was settled, as noted above, on or about October 11, 2017. The parties filed a Stipulation of Dismissal in the case, dismissing this case with prejudice. The Stipulation of Dismissal was filed with the Court and entered on October 13, 2017.

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CASE SETTLED

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 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 alleged that the defendants breached their fiduciary duty of disclosure. In Count II, the plaintiff alleged that defendants breached their fiduciary duties of loyalty and care. The plaintiff sought injunctive relief, but no monetary damages other than attorney’s fees. 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) which concluded in 2016. No further activity occurred in this case which was settled, as noted above, on or about October 11, 2017. The parties filed a Stipulation of Dismissal in the case, dismissing this case with prejudice, subject to the approval of the Court. The Stipulation of Dismissal was filed with the Court and entered on October 13, 2017.

CASE DISMISSED/ATTORNEYS FEES AND EXPENSES AWARDED TO THE COMPANY

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 did 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.

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The Company filed a collection action against the Petitioners in a Maryland state court to collect the attorneys' fees and expenses awarded by the Bankruptcy Court. In the first quarter of 2017, the Company collected $20,000 from one Petitioner. The Company is in the process of attempting to collect the remainder of the judgment due from another Petitioner, who was ordered by the Maryland court to post a cash bond in the amount of $36,000. The collection action is now on appeal.

CASE PENDING

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 the Company in the United States District Court for the District of Delaware for monies due and owing pursuant to certain Collateralized Convertible Senior Debentures issued on March 31, 2014 and December 31, 2014. The plaintiffs are seeking $1.4 million, plus interest from January 1, 2015, together with costs and fees.  The Company was served with the Complaint on October 31, 2016. On November 21, 2016, the Company filed a motion to dismiss for lack of subject matter jurisdiction due to failure to plead diversity. On February 21, 2017, the plaintiffs filed a motion for leave to amend their complaint based upon declarations of citizenship filed with the court. On September 26, 2017, the motion for leave to amend was granted and the Company's motion to dismiss was granted in part and denied in part. The Court also granted plaintiffs leave to file a Second Amended Complaint which was filed on October 2, 2017. On October 16, 2017, the Company filed Defendant's Answer and Affirmative Defenses and Counterclaim. On November 2, 2017, the Plaintiffs filed an Answer to the Counterclaim. The parties have exchanged discovery in the case. Trial in this matter is currently scheduled for March 22, 2019.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

Part II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price

The market price of the Company’s common stock is highly volatile. A lack of liquidity in the stock, announcements by the Company, its competitors, the industry, or other casino-related, gaming-related, economy-related, or various other announcements, can lead to wide swings in the market price of the Common Stock.

The following table sets forth the high and low closing price quotations of the Common Stock in each quarter during the periods set forth. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

On April 1, 2018, there were 850 registered holders of record of the Common Stock of the Company.  

Dividends on Common Stock

We have never paid any cash dividends on our Common Stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings, if any, to fund operations and promote our business strategy. Any future determination to pay cash dividends on our Common Stock will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, if any, capital requirements, and such other factors as the Board of Directors deems relevant.

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Equity Compensation Plans

Plan Stock Options

On December 19, 1988, the Company adopted a stock option plan (the “Plan”) for its officers and management personnel under which options could be granted to purchase up to 1,000,000 shares of the Company’s common stock. Accordingly, the Company reserved 1,000,000 shares for issuance under the Plan. The option price may not be less than 100% of the market value of the shares on the date of the grant.  The options expire within ten years from the date of grant.  At December 31, 2017, no options from this plan were issued or exercised.

Non-Plan Stock Options

The Company has, from time to time, awarded non-plan stock options to its Directors, Officers and key employees. The table below summarizes the status of all non-plan options currently outstanding issued to Company Directors, Officers, and former Officers and employees of the Company.

On January 3, 2018, the Board of Directors voted to extend from March 13, 2018 to December 31, 2020, the expiration date for a total of 3,115,000 currently outstanding options previously issued to the Chairman, the President, the Vice President and two former employees of the Company. The Company is expected to record stock-based compensation expense of $21,570 in the first quarter of 2018.

Recent Sales of Equity Securities

None.

Repurchase of Equity Securities

None.

ITEM 6.  SELECTED FINANCIAL DATA

Not required for smaller reporting companies.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read together with the consolidated financial statements and related notes thereto, for the years ended December 31, 2017 and 2016, attached to this report.

Liquidity, Capital Resources, and Financial Results

Overview

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

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Liquidity

The Company has incurred continued losses over the years and certain conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company has had no operations since it ended its gambling cruise ship operations in 2000. Since that time, the Company has concentrated its efforts on the development of its Diamondhead, Mississippi Property. The development of the Diamondhead Property is dependent on obtaining the necessary capital, through equity and/or debt financing, unilaterally, or in conjunction with one or more partners, to master plan, design, obtain permits for, construct, staff, open, and operate a casino resort. In the past, the Company has been able to sustain itself through various short term borrowings, however, as of December 31, 2017, the Company's cash on hand amounted to $65, while accounts payable and accrued expenses totaled $5,851,208 and the Company had an accumulated deficit of $36,679,875. In addition, the Company reported a net loss applicable to common shareholders of $1,309,603 for the year ended December 31, 2017. 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, 2016, 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 $1,400,000 of the $1,850,000 of Debentures issued, filed a Complaint against the Company in the United States District Court for the District 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 $1.4 million in principal plus interest from January 1, 2015, together with costs and fees.  

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

Financial Results and Analysis

As reflected in the accompanying consolidated financial statements, the Company recorded a net loss applicable to common shareholders of $1,208,003 for the year ending December 31, 2017 and a net loss applicable to common shareholders of $784,073, as adjusted, for the year ending December 31, 2016, and expects continued losses for the foreseeable future. General and administrative expenses incurred totaled $667,260 and $665,610 for the years ending December 31, 2017 and 2016, respectively. The table below depicts the major categories comprising those expenses:

The amount reported as payroll includes amounts not actually paid to employees, but accrued as debt payable to employees. The Company compensated only one employee in 2017, the President and CEO of the Registrant, who also served as a Director, Chief Financial Officer, Treasurer and Secretary of the Registrant and held various positions in the Registrant’s subsidiaries.

Professional fees increased $34,386 in 2017 over the prior year. The increase was due to legal fees paid in settlement of certain lawsuits.

In 2016, the Company incurred a one-time expense for a payment in the amount of $15,000 to a Director 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. No such expense was incurred in 2017.

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Interest expense incurred in 2017 totaled $498,334. This included interest of $333,968 accrued for outstanding notes, debentures, a line of credit, amortization of finance cost and interest of $164,366 accrued for unpaid payroll due officers. Interest expense incurred in 2016 totaled $449,705. This included interest of $312,339 accrued for outstanding notes, debentures, a line of credit, amortization of finance costs and interest of $137,366 accrued for unpaid payroll due officers. The increase in interest on notes, debentures and the line of credit in the amount of $25,694 is primarily due to interest accruing under the terms of new interest bearing loans obtained in 2017, which totaled $102,628 in principal.

Off-Balance Sheet Arrangements

Management Agreement

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

Related Party

On July 26, 2017, the Chairman 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. The taxes had to be paid by July 31, 2017 to avoid a tax sale. The conditions of the note under which the Chairman agreed to make this payment are discussed in full detail in Note 6 of these 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, 2017, in addition to the principal and interest due, the company would have been liable for approximately $167,580 in additional funds to indemnify the Chairman for his loss from the sale of the stock to pay the taxes due.

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

Accounting Pronouncements Adopted in the Consolidated Financial Statements

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-11 -  Earnings per Share (Topic 260); Distinguishing Form Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatory Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. Topic 815, Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. The amendments in Part I of this Update change the classification of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.

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As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity-linked classified financial instruments, the amendments require entities that present earnings per share in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and a reduction of income available to common shareholders in basic earnings per share.

The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that are now presented as pending content in the Codification, to a scope exception. These amendments do not have an accounting effect.

The Company adopted the provisions of the update in its December 31, 2017 consolidated financial statements and elected the retrospective transition method whereby comparative consolidated financial statements for the prior year have been recast to reflect the impact of the adoption for comparability reasons. The effect of the recast on net income applicable to common shareholders is more fully discussed in Note 8 of the accompanying consolidated financial statements

In March 2018, the FASB issued ASU 2018-05 – Income Taxes (Topic 740) and amendments Securities and Exchange paragraphs pursuant to SEC Staff Accounting Bulletin No. 118. The amendments incorporate into Accounting Standards Codification recent SEC guidance related to the income tax accounting implications of the Tax Cut and Jobs Act. The amendments were effective upon issuance. The Company does not expect the amendments to have a material effect on its financial statements.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Impairment of Long-Lived Assets

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

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosure under this item is not required for smaller reporting companies.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements for the years ended December 31, 2017 and 2016 are attached to this report.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.   CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

In connection with the preparation of this Annual Report on Form 10-K, our management, with the participation of the Chief Executive Officer/Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017. 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 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.

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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 December 31, 2017.

Management’s Report on Internal Control Over Financial Reporting 

The management, under the supervision of our Chief Executive Officer/Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

The Chief Executive Officer/Chief Financial Officer conducted an evaluation of the effectiveness of internal control over financial reporting. Based on this evaluation, the Chief Executive Officer/ Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the fourth quarter of the year ending December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM  9B.   OTHER INFORMATION

None.

Part III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Officers are appointed annually by the Board of Directors to hold office until an officer’s successor has been duly appointed and qualified, unless an officer dies, resigns, is replaced, or is removed by the Board of Directors. Directors are elected to serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified. A majority of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at a meeting, in person or telephonically, to constitute a quorum. Any action required or permitted to be taken by the Board of Directors individually or collectively, may be taken without a meeting if all members of the Board of Directors consent, in writing, to the action.

Background of Current Executive Officer and Directors

Deborah A. Vitale has served as President, Chief Executive Officer and Treasurer of the Company since February 1998, as Chief Financial Officer of the Company since September 2011, and as Chairman of the Board of the Company from March 1995 through March 31, 2014. Ms. Vitale served as Secretary of the Company from November 1994 until July 2002, and as Interim Secretary from January 11, 2012 until appointed Secretary again on January 29, 2015. As President and CEO, Ms. Vitale was responsible for all phases of the day-to-day operations of four casino ships sailing out of three Florida ports into international waters and for the management and supervision of approximately 400 casino, marine and land-based employees. She has been a Director of the Company since December 1992. On February 14, 1997, Ms. Vitale was appointed Chairman of the Board of Directors of Casino World, Inc. and Chairman of the Board of Directors of Mississippi Gaming Corporation, each a subsidiary of the Company.  On

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September 2, 1997, Ms. Vitale was appointed President of Casino World, Inc. and Mississippi Gaming Corporation.  On March 31, 2014, Ms. Vitale stepped down as Chairman of the Board of the Company and as President and CEO of Casino World, Inc. On June 16, 2015, Ms. Vitale was again appointed Chairman of the Board and President of Casino World, Inc. Ms. Vitale is a trial attorney by background with over thirty years of experience handling complex civil litigation. Ms. Vitale is licensed to practice law in Washington, D.C., Maryland, and Virginia. The Board believes Ms. Vitale is qualified to serve as a Director due to her experience as President and Chief Executive Officer of the Company, her management experience in operating ship-based casinos, her knowledge of and participation in all aspects of the Diamondhead Project, and her extensive legal background and experience.

Martin C. Blount has served as a Director of the Company since June 9, 2010. Since approximately 1986, Mr. Blount has been a stock broker and a registered investment banking representative. Since approximately April of 2013, Mr. Blount has also served as a licensed structured settlement agent for various parties. Mr. Blount also represents professional athletes and is a certified Major League Baseball agent. Mr. Blount is a graduate of West Virginia Wesleyan College and holds a B.A. degree in Sociology. The Board believes Mr. Blount is qualified to serve as a Director due to his prior experience as a Director of the Company and his experience in the securities and financial industry.

Benjamin J. Harrell has served as a Director of the Company since July 18, 2002. On June 16, 2015, Mr. Harrell was appointed a Vice President of the Company. Mr. Harrell was the founder and served as President and CEO of Pete Fountain Productions, Inc. from 1979 until it was acquired in 1999 by Production Group International, Inc. (“PGI”), a global event communications company, which was subsequently acquired by TBA Global Events, LLC in 2005. Mr. Harrell managed the acquiring company’s business in the New Orleans area. He currently serves as Head of U.S. Operations of Kuoni Destination Management, Inc., a global event and travel company which specializes in event solutions, corporate meetings, incentive programs and sporting events. He also served as Vice President of Pete Fountain Entertainment, LLC, which until March 2003 operated one of the largest jazz clubs in New Orleans. Since 1975, Mr. Harrell has served as personal manager for the internationally noted jazz artist, Pete Fountain. Mr. Harrell handled all aspects of Mr. Fountain’s career, including promotion, concerts, personal appearances and commercial endorsements. From 1985 through 2003, Mr. Harrell served as President of Crescent Sound & Light, Inc, a professional sound, lighting, video and staging company for the convention and entertainment industry. Mr. Harrell served as a Director of the New Orleans Metropolitan Convention and Visitors Bureau from 1997 through 1999. On January 15, 2004, Mr. Harrell was elected to the Board of Directors of Mississippi Gaming Corporation, a wholly owned subsidiary of the Company. The Board believes Mr. Harrell is qualified to serve as a Director due to his prior experience as a Director of the Company and his extensive knowledge of, familiarity with, and active participation in all aspects of the Diamondhead Project, including site approval.

Gregory A. Harrison, Ph.D., P.E. has served as a Director of the Company since February 20, 1998. On June 16, 2015, Dr. Harrison was appointed Chairman of the Board of the Company. Dr. Harrison was appointed Vice-President of the Company on July 18, 2002. Mr. Harrison served as Secretary of the Company from July 25, 2002 until January 2012. Dr. Harrison is a consulting forensic engineer with fifty years of diversified fire protection/safety/project engineering experience with NASA, DOD, NBS, NRC, ARAMCO, and Tenera, L.P. Dr. Harrison is licensed in six states and, effective August 27, 2004, became a Professional Engineer licensed to practice in the state of Mississippi. Dr. Harrison is an expert with respect to the concept of Highly Protective Risk (HPR) and HPR insurance principles and is intimately familiar with Factory Mutual Global Insurance construction requirements. Dr. Harrison has qualified as an expert witness in various courts in fifteen states. Dr. Harrison received a B.S. degree in Fire Protection Engineering from the University of Maryland, an M.S. degree in Civil Engineering from the University of Maryland, an M.S. degree in Engineering Administration from George Washington University and a Ph.D. in Safety Engineering from Kennedy-Western University. Dr. Harrison has held a top secret security clearance with the U.S. Department of Energy, the U.S. Nuclear Regulatory Commission, and the Department of Defense. Dr. Harrison has served on the Board of Directors of Data Measurement Corporation and was an Advisory Board member of United Bank and First Patriot National Bank.  The Board believes Mr. Harrison is qualified to serve as a Director due to his prior experience as a director on other Boards, due to his prior experience as a Director and Vice-President of the Company when it was an operating casino entity, and due to his background and experience in construction management, structural engineering, environmental engineering, fire protection and life safety.

Robert S. Crow, III has served as a Director of the Company since April 20, 2015. Mr. Crow is a licensed real estate agent with extensive experience in contract negotiations involving real estate and mortgage banking, having closed on approximately five hundred homes. Mr. Crow also has experience in land development, home renovations, and real estate marketing. Since approximately 1976, Mr. Crow’s sales have placed him in the top 1% of real estate agents in the United States.  Since 1991, Mr. Crow has worked as an independent contractor for RE/MAX Realty Group located in Gaithersburg, Maryland.  Mr. Crow has been involved in various City projects and several zoning related matters and has served on the Executive Committee of his neighborhood Citizen’s Association. Mr. Crow has been a shareholder of the Company for over fifteen years, is intimately familiar with the Company, its history, its former operations, and the history of the Diamondhead Property, which he has inspected. The Board believes Mr. Crow is qualified to serve as a Director due to his extensive experience in contract negotiations and real estate.

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Committees of the Board of Directors

The Securities and Exchange Commission has adopted rules to implement certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public company audit committees. One of the rules requires a company to disclose whether it has an “audit committee financial expert” serving on its audit committee. Based on its review of the criteria of an audit committee financial expert under the rule adopted by the SEC, the Board of Directors does not believe that any member of the Board of Directors would be described as an audit committee financial expert. At this time, the Board of Directors acts collectively as the Audit Committee and such efforts are coordinated by Director Martin Blount, who, by virtue of the fact that he is not an officer or employee of the Company, is considered an independent Director.

The Compensation Committee is composed of two Directors: Robert S. Crow II and Martin C. Blount. The Board of Directors has determined that all members of the Committee are independent Directors based on the general independence standards adopted by the Board.

The Compensation Committee has no written charter and convenes at regularly scheduled meetings of the Board of Directors. The Compensation Committee advises and makes recommendations to the Board of Directors as to the compensation to be paid to Executive Officers of the Company. In addition, the Compensation Committee advises and makes recommendations to the Board of Directors as to options to purchase common stock, if any, to be awarded.

The Nominating Committee is composed of two Directors: Martin C. Blount and Benjamin J. Harrell. The Board of Directors has determined that Mr. Blount is an independent Director based on the general independence standards adopted by the Board. Mr. Harrell does not meet the general independence standards as adopted by the Board of Directors and, therefore, serves in an ex-officio capacity.

The Committee considers and reviews, from time to time, the appropriate size and composition of the Board and anticipates future vacancies and needs of the Board. In evaluating possible nominees, the Board considers, among other things, the background, experience, education and knowledge of a candidate, his familiarity with the gaming industry and related industries, his experience with publicly-traded entities, and his integrity and judgment. The Board considers the potential contribution a candidate will bring to the backgrounds, experience, and skills of the existing Board of Directors. The Board also considers a candidate’s ability to devote sufficient time and effort to his duties as a Director. After evaluation and review of candidates who meet the Board’s criteria, the Committee considers its then-current needs and selects the nominees that best suit those needs.

The Board will consider candidates recommended by stockholders, provided the names of such nominees, accompanied by relevant biographical information, are properly submitted, in writing, to the Secretary of the Company. The nominees will be submitted to the Board of Directors and receive the same consideration as those nominees identified by members of the Board of Directors.

Code of Ethics

The Company adopted a Code of Ethics in 2004 that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Code was attached as an exhibit in a prior year’s annual report. A copy of the Code of Ethics will be made available to any shareholder, free of charge, upon written request to the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of the Company's outstanding Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock. These persons are required by SEC regulations to furnish the Company with copies of all such reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations that no other reports were required, all Section 16(a) filing requirements applicable to its officers and directors and beneficial owners of more than 10% of the Company's stock, have been complied with for the period to which this Form 10-K relates.

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ITEM 11.   EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Company only compensated one executive in 2017, the President and CEO, who also serves as a Director, and Chief Financial Officer, Treasurer and Secretary of the Registrant and held various positions in the Registrant’s subsidiaries. The Board of Directors monitors and approves compensation paid to executives of the Company.

Executive Compensation

The Board of Directors determined Ms. Vitale’s base salary to be $300,000 per annum. Ms. Vitale’s base salary reflects her contribution to the Company in a myriad of corporate roles and responsibilities. The Board recognized that Ms. Vitale manages the Company’s business without the benefit of any administrative staff normally associated with the management of a publicly-traded company at significant savings to the Company. Since mid-November of 2009, the Company has, from time to time, been unable to pay Ms. Vitale the salary due her because of a lack of funds. At December 31, 2017, Ms. Vitale was entitled to cash compensation of $1,866,996 for services rendered from 2010 through 2017, which has accrued and is unpaid at December 31, 2017. In addition, on October 12, 2012, the Board of Directors approved a motion to pay interest at 9% per annum on the unpaid compensation due Ms. Vitale retroactive to the outstanding amounts due beginning in 2010 through the date of actual payment. The following table sets forth the amounts due Ms. Vitale for unpaid salary for each of the years 2010 through 2017 and the interest due thereon. None of the accrued salary or interest has been paid to Ms. Vitale to date.

The following table provides information concerning the compensation of the former Chairman of the Board of Directors and the President and Chief Executive Officer. No cash compensation was paid to any other officer during 2017 and 2016.

SUMMARY COMPENSATION TABLE

(1)In 2017 and 2016, none of Ms. Vitale’s salary compensation was paid to her and, therefore, the $300,000 of salary compensation owing to her for 2017 and 2016 will be paid to her when Company finances permit.  

(2)In 2017, Ms. Vitale earned an annual Director's fee of $15,000. In addition, in 2017, Ms. Vitale earned interest in the amount of $153,463 on the portion of her unpaid salary for the years 2010 through 2017. In 2016, Ms. Vitale earned an annual Director's fee of $15,000. In addition, in 2016, Ms. Vitale earned interest in the amount of $126,463 on the portion of her  unpaid salary for the years 2010 through 2016. 

The following tables provide a summary of the outstanding equity awards of the President at December 31, 2017.

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SUMMARY OF OUTSANDING EQUITY AWARDS AT FISCAL YEAR END

Option Awards

Stock Awards

The Company sponsors an employee stock ownership plan which is a tax deferred defined contribution pension plan formed in 1994. Ms. Vitale has been a plan participant since 1998. No contributions were made to Ms. Vitale’s participant account for the years ending December 31, 2017 or 2016.

At December 31, 2017, Ms. Vitale was 100% vested in 447,272 shares of common stock which were contributed to the plan on her behalf in past years.

Directors’ Compensation

Effective January 1, 2013, the directors of the Company are entitled to be compensated at a rate of $15,000 per annum. No director received directors' fees in the years  2016 or 2017.  Each Director is eligible for an annual payment in the amount of $15,000 as long as they remain a Director through December 31 of the applicable year, absent death or incapacitation. The annual payment to new directors will be prorated based upon months served in their initial year as a Director. Directors are reimbursed for certain approved expenses incurred in connection with Company business and for certain approved expenses incurred in connection with attendance at non-telephonic Board, committee, or other meetings.  Directors are from time to time, awarded non-qualified options to purchase common stock of the Company.

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The table below summarizes Director Compensation for the year ended December 31, 2017.

DIRECTOR COMPENSATION

(1)Mr. Harrison earned $10,903 of interest in 2017 which accrued to his benefit for unpaid salary for the years 2010 and 2011. None of the above interest due was paid to Mr. Harrison in 2017. 

Other Compensation Arrangements

Gregory A. Harrison, the current Chairman of the Board of Directors and a Vice President of the Company was previously a compensated employee of the Company until December 31, 2011. Mr. Harrison is still due compensation for unpaid salary of $51,140 for the year 2010 and $70,000 for the year 2011. On October 12, 2012, the Board of Directors approved a motion to pay interest at 9% per annum on the unpaid compensation due Mr. Harrison retroactive to the outstanding amounts due beginning in 2010 through the date of actual payment.  Interest on the unpaid salary due to Mr. Harrison was $2,122 in 2010, $7,648 in 2011, $10,903 in 2012, $10,903 in 2013, and $10,903 per year for each of the years 2014 through 2017. The total accrued interest through December 31, 2017 was $75,196. None of the interest due to Mr. Harrison has been paid to date.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 31, 2017, to the Company’s knowledge, based on filings with the Securities & Exchange Commission by certain beneficial owners and/or information received by the Company, the beneficial ownership of the outstanding Voting Stock held by (i) each person or entity beneficially owning more than 5% of the shares of any class of Voting Stock, (ii) each director, nominee, and certain executive officers, individually, and (iii) all directors and executive officers as a group. The Common Stock and the Voting Preferred Stock vote as a single class and each share thereof is entitled to one vote per share.

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(1)Common Stock, Series S-NR Preferred Stock and Series S Preferred Stock have been combined for the purpose of calculating voting percentages. 

(2)The Europa Cruises Corporation Employee Stock Ownership Plan (“ESOP”) was established on August 18, 1994. The Trustee of the ESOP is Deborah A. Vitale. As of December 31, 2017, a total of 2,295,450 ESOP shares had been released for allocation to participants in the ESOP and an additional 556,815 shares had been forfeited by the Trust. The participants in the ESOP are entitled to direct the Trustee as to the manner in which the Company’s allocated shares are voted. The remaining 2,147,735 unallocated shares are voted by the Trustee. The Trustee is required to vote the unallocated ESOP shares in the best interests of the ESOP beneficiaries. 

(3)Includes 2,147,735 unallocated common shares of the ESOP Trust; 767,000 shares of Common Stock owned directly by Ms. Vitale; options to purchase 2,825,000 shares of Common Stock; and 447,272 shares of Common Stock, which represent shares of Common Stock held in Ms. Vitale’s fully vested ESOP participant account. 

(4)Includes 1,247,279 shares of Common Stock owned directly by Mr. Harrison; options to purchase 150,000 shares of Common Stock; a convertible Promissory Note which is convertible or exercisable into a total of 50,000 shares of common stock and 15,275 shares of Common Stock held in Mr. Harrison’s fully vested ESOP participation account. Pursuant to a Private Placement dated February 14, 2014, on March 31, 2014, Mr. Harrison purchased a Collateralized Convertible Senior Debenture convertible into 166,667 shares of Common Stock. The conditions required for conversion of this Debenture into Common Stock of the Company have not yet been met. Assuming the conditions required for conversion are met in the future, Mr. Harrison’s Debenture would be converted into a total of 166,667 shares of Common Stock without any action on the part of Mr. Harrison, at which time his holdings, assuming no other changes occurred, would total 1,629,221. 

(5)Includes 400,000 shares of Common Stock owned directly by Mr. Harrell and an option to purchase 75,000 shares of Common Stock. 

(6)Includes 979,869 shares of Common Stock owned directly by Mr. Crow and a convertible Promissory Note which is convertible or exercisable into a total of 100,000 shares of Common Stock. 

(7)Serco International Financial Advisory and Management Services Ltd., Austroinvest International Limited, and Serco International Limited (f/k/a Serco International Financial Advisory and Management Services, Ltd.), are affiliated entities. The Company is informed that Dr. Ernst Walter is the sole Director and President of each company. The total beneficial ownership of securities of the Company held by the foregoing includes: 901,831 shares of Common Stock owned by Serco International Financial Advisory and Management Services, Ltd.; 926,000 shares of Series S Preferred Stock owned by Austroinvest International Limited; and 900,000 shares of Series S-NR Preferred Stock owned by Serco International Limited.  

(8)Includes 1,659,868 shares of Common Stock owned by College Health & Investment LP, 506,164 shares of Common Stock owned by College Health & Investment Ltd, 200,000 shares of Common Stock owned by Alana Burstyn, 199,950 shares of Common Stock owned by Sean Burstyn, c/o Burstyn.  College Health & Investment Ltd. holds a Promissory Note, issued March 25, 2010, convertible into 300,000 shares of Common Stock and Warrants to purchase 350,000 shares of Common Stock at $0.25 per share. The foregoing persons and entities appear to share a common address, 701 Brickell Avenue, Miami, FL 33131. Samuel I. Burstyn is the General Partner of College Health & Investment LP, which the General Partner maintains, is also known as College Health & Investment, Ltd. Does not include 200,000 shares of Common Stock held by Shari Jakobowitz, Custodian FBO Ava Burstyn, under the Florida Uniform Transfer Minor Act. College Health & Investment L.P. claims it assigned the Promissory Note dated March 25, 2010 to DDM Holdings, LLC. The Company does not recognize the alleged assignment. 

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

On August 18, 1994, the Company (f/k/a Europa Cruises Corporation), established the Europa Cruises Corporation Employee Stock Ownership Plan (the “ESOP”). The ESOP, which is a qualified retirement plan under the provisions of Section 401(a) of the Internal Revenue Code and an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Internal Revenue Code, was established primarily to invest in stock of the Company. All employees as of December 31, 1994, and subsequent new employees having completed 1,000 hours of service, are eligible to participate in the ESOP. The Company also established a trust called the

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Europa Cruises Corporation Employee Stock Ownership Plan Trust Agreement, to serve as the funding vehicle for the ESOP. Deborah A. Vitale is the sole Trustee of the Trust.

As of December 31, 2017 a total of 2,295,450 shares of Common Stock had been released for allocation to participants in the ESOP.  An additional 556,815 shares had been forfeited by the Trust. The Company made no contributions to the ESOP Plan for the years ended December 31, 2011 through December 31, 2017. The participants in the ESOP are entitled to direct the Trustee as to the manner in which the Company’s allocated shares are voted. The remaining 2,147,735 unallocated shares are voted by the Trustee. The Trustee is required to vote the unallocated ESOP shares in the best interests of the ESOP beneficiaries.

On August 21, 1994, the Company loaned $4,275,000 to the ESOP in exchange for a ten-year promissory note bearing interest at eight percent per annum. On August 24, 1994, the ESOP purchased 2,880,000 shares of the Company’s Common Stock with the proceeds of the loan. On August 25, 1994, the Company loaned an additional $3,180,000 to the ESOP in exchange for a ten year promissory note bearing interest at eight percent per annum. On August 26, 1994, the ESOP purchased an additional 2,120,000 shares of the Company’s Common Stock with the proceeds of the loan. The shares of Common Stock were pledged to the Company as security for the loans. The promissory notes will be repaid with the proceeds of annual contributions made by the Company to the ESOP. In April of 1995, the Company agreed to extend the maturity of the loans to twenty years. Effective for the Plan year beginning January 1, 2001, the Company amended the plan and related loans for the purpose of limiting excise tax liability for plan contributions in excess of IRS Code Section 415 limitations. To accomplish this, the Company agreed to extend the maturity of the loans to fifty years.

The Company leases a furnished and equipped townhouse office from its President at 1013 Princess Street, in Alexandria, Virginia 22314, pursuant to a Landlord/Tenant Month to Month Lease. The terms of the lease, as adjusted for square footage and certain other applicable differences, were based on the terms of the last lease signed by the Company with an unrelated third party for unfurnished office space leased in Largo, Florida. The lease calls for payment by the Company of a base rent in the amount of $4,534 per month, or $54,408 per year, for approximately 2,473 square feet of commercial space, in addition to any and all expenses relating to the property, including property taxes, property insurance, telephone, electric, water and cable. The Company’s office and all of its active files are located in this office.

In 2017, the President received no payments for base rent and the entire base rent due for that year in the amount of $54,408 was accrued. In 2016, the President received payment for six months' base rent in the amount of $27,204. The remaining base rent due, in the amount of $27,204, was accrued.

For the year ended December 31, 2016, rent expense associated with this lease amounted to base rent in the amount of $54,408 and associated rental costs of $15,140, for a total of $69,948. For the year ended December 31, 2016, rent expense associated with this lease amounted to base rent in the amount of $54,408 and associated rental costs of $12,743, for a total of $67,151.

At December 31, 2017, The President is owed a total of $173,965 under the lease agreement.

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 2017, at the request of the Company, the current Chairman of the Board of Directors who is also a Vice President of the Company ("the Chairman"), paid all property taxes due, together with all interest due thereon, to Hancock County, Mississippi on an approximate 400-acre tract of land ("the Diamondhead Property"), owned by Mississippi Gaming Corporation, a wholly-owned subsidiary of the Company. The taxes had to be paid by July 31, 2017 to avoid a tax sale.

The taxes paid, together with interest due thereon, totaled $66,133. The credit card fees incurred in paying these taxes totaled $1,495. Thus, the total amount advanced was $67,628. The Chairman sold common stock in another publicly-held company, the name of which has been disclosed to the Board of Directors, to cover the amounts billed to his credit cards.  

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

The Chairman advanced the $67,628 on condition that: (i) the advance constitute a lien with interest at 4% per annum under that Land Deed of Trust recorded September 26, 2014; (ii) he be paid additional interest of 11% per annum on the amount advanced and owing and that the full 11% interest per annum is payable during any calendar year in which all or part of the amount advanced and owing or interest due thereon remains unpaid; (iii) this additional interest obligation be treated as a separate and secured debt of the Company,

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to be evidenced by a separate note and to be secured with a separate and third lien to be placed on the Diamondhead Property (hereafter "the Third Lien"); (iv) the entire obligation will be treated as an advance to be paid out of any subsequent incoming financing obtained by the Company or any amounts recovered by the Company from a defendant in that collection action brought by the Company in the Circuit Court of Montgomery County, Maryland (Case No. 426962-V); and (v) he be indemnified for any losses sustained on the sale of that common stock sold to cover the credit card payments. The Chairman has identified the common stock to be sold and will provide the Company with the documentation required to document the sale of said stock and to calculate the future loss, if any, on said stock.

Also in the second quarter of 2017, the President of the Company, who is a Director of the Company, agreed to advance the Company up to $20,000 for the payment of expenses. As of December 31, 2017, the President had advanced the $20,000 specified under this agreement to pay certain accounting, legal and other operating expenses. The President previously agreed to secure a $25,000 loan and interest due thereon and to secure and guarantee a $15,000 loan and interest due thereon. The President is also personally liable for certain bank-issued credit cards used by the Company to pay expenses incurred by the Company.

The President is advancing the foregoing funds on condition that: (i) interest of 15% per annum be paid on the amount advanced and owing and that the full 15% interest per annum is payable during any calendar year in which all or part of the amount advanced and owing or interest due thereon remains unpaid; (ii) the obligation in the principal amount of $20,000 with interest due thereon be treated as a secured debt of the Company, to be evidenced by a separate note and to be secured with a separate lien to be placed on the Diamondhead Property ("the Third Lien") together with the Chairman's Third Lien, as well as a first lien to be placed on the residential lot owned by the Company; (iii) the Third Lien on the Diamondhead Property also include the two loans ($25,000 and $15,000) and interest due thereon and credit facilities in the maximum amount of $15,000; and (iv) the foregoing will be treated as advances to be paid out of any subsequent incoming financing obtained by the Company or any amounts recovered by the Company from a defendant in that collection action brought by the Company in the Circuit Court of Montgomery County, Maryland (Case No. 426962-V).  

In the first four months of 2016, the Company received cash advances totaling $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. Accrued interest on the above totaled $2,000 at December 31, 2016.

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. Accrued interest on the above totaled $5,282 at December 31, 2016.

The above described indebtedness incurred in 2016 was secured with a second lien on the Company’s Diamondhead, Mississippi property.

The Company’s policies and procedures require Board of Director approval of any related party transaction that involves an Officer or Director of the Company or any of its subsidiaries.

Director Independence

The Company has no written independence standards it follows in making a determination as to Director independence. However, in evaluating the independence of its members, the Company’s management determined that Mr. Blount and Mr. Crow are independent directors by virtue of the fact that they are not officers or employees of the Company.

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ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

The table below depicts the fees paid to Friedman LLP in each of the last two years:

The Board of Directors, acting collectively as the audit committee, assures that the Company complies with SEC rules to maintain auditor independence as set forth in Rule 2-01(c)(7)(i) of Regulation S-X.  The services above were approved, in advance, by the Board of Directors.

Audit-related fees are fees incurred for professional services rendered in connection with the audit of the Company’s Employee Stock Ownership Plan.

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Subsidiaries of the Registrant:

             Mississippi Gaming Corporation (Delaware) 

Casino World, Inc. (Delaware) 

            Europasky Corporation (Delaware) 

(f)Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated by reference. 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.