<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended June 30, 2000
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act; For the transition period from _________ to __________
Commission File Number 000-27487
San Diego Soccer Development Corporation
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0770630
-------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2123 Garnet Ave., Suite B, San Diego, California 92019
------------------------------------------------ --------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(858) 581-2120
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
The issuer had 6,814,969 shares outstanding as at June 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Comparative Balance Sheets for the 6 months ended June 30, 2000 (Unaudited) 3
and the year ended December 31, 1999
Comparative Unaudited Statements of Operations for the 3 months ended June 30, 2000 5
and June 30, 1999 and the 6 months ended June 30, 2000 and June 30, 1999
Statements of Stockholder's Equity (Deficit) for the 6 months ended June 30, 2000 6
Comparative Unaudited Statements of Cash Flow for the 3 months ended June 30, 2000 8
and June 30, 1999, and for the 6 months ended June 30, 2000 and June 30, 1999
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. 18
PART II - OTHER INFORMATION 20
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- --------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 51,329 $ 50,253
Employee advances 2,525 --
-------- --------
Total Current Assets 53,854 50,253
-------- --------
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 25,639 18,119
-------- --------
OTHER ASSETS
Receivable from shareholder 5,000 --
Deposits 1,350 1,350
Soccer franchises, net (Note 3) 163,200 166,800
-------- --------
Total Other Assets 169,550 168,150
-------- --------
TOTAL ASSETS $249,043 $236,522
======== ========
</TABLE>
3
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 286,191 $ 102,005
Accrued expenses 263,283 255,247
Bank overdraft -- 1,065
Loans from related parties 16,702 2,273
Deferred revenue 21,715 32,490
Credit lines payable (Note 4) 610,119 --
Convertible promissory notes (Note 6) 238,400 329,100
Notes payable (Note 5) 25,390 15,646
----------- -----------
Total Current Liabilities 1,461,800 737,826
----------- -----------
Total Liabilities 1,461,800 737,826
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 20,000,000 shares authorized of no
par value, 6,814,969 and 5,284,369 shares issued
and outstanding, respectively 3,005,898 2,000,298
Common stock subscribed 12,000 12,000
Additional paid-in capital 1,071,523 941,363
Stock subscriptions receivable (1,000) (48,000)
Accumulated deficit (5,301,178) (3,406,965)
----------- -----------
Total Stockholders' Equity (Deficit) (1,212,757) (501,304)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 249,043 $ 236,522
=========== ===========
</TABLE>
4
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUES
<S> <C> <C> <C> <C>
Ticket sales $ 40,439 $ 19,170 $ 40,439 $ 19,170
Corporate sponsorships 32,995 177,629 32,995 177,629
Other revenue 7,331 1,902 9,218 2,561
----------- ----------- ----------- -----------
Total Revenues 80,765 198,701 82,652 199,360
----------- ----------- ----------- -----------
EXPENSES
General and administrative 419,551 347,416 809,062 461,048
Game and player expenses 132,886 160,449 188,418 215,347
Advertising and promotion 71,865 205,489 179,174 335,904
Depreciation and amortization 3,998 2,686 7,150 5,372
----------- ----------- ----------- -----------
Total Expenses 628,300 716,040 1,183,804 1,017,671
----------- ----------- ----------- -----------
Loss From Operations (547,535) (517,339) (1,101,152) (818,311)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Gain (loss) on trading securities -- 1,392 -- 26,343
Interest income 280 378 555 707
Loan underwriting fee (250,000) -- (750,000) --
Interest expense (39,128) (1,947) (43,616) (3,211)
----------- ----------- ----------- -----------
Total Other Income (Expense) (288,848) (177) (793,061) 23,839
----------- ----------- ----------- -----------
NET LOSS $ (836,383) $ (517,516) $(1,894,213) $ (794,472)
=========== =========== =========== ===========
BASIC LOSS PER SHARE $ (0.13) $ (0.11) $ (0.31) $ (0.17)
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Additional Stock
Accumulated Stock Paid-In Subscriptions
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 3,801,484 $ 849,503 $ 91,660 $ (172,500) $(1,053,137)
Common stock and warrants
issued for cash 16,000 16,000 -- -- --
Common stock issued for cash 196,300 196,300 -- (48,000) --
Common stock issued through
exercise of warrants 13,000 6,500 -- -- --
Common stock issued for
services 273,600 273,600 -- -- --
Receipt of stock subscription
receivable -- -- -- 172,500 --
Common stock issued in lieu
of accrued liabilities 194,000 155,200 -- -- --
Common stock issued for
trading securities 295,000 78,345 -- -- --
Common stock issued for
syndication costs 70,135 -- -- -- --
Common stock issued for
equipment 20,000 20,000 -- -- --
Common stock issued in
conversion of promissory notes 404,850 404,850 -- -- --
Stock options issued -- -- 849,703 -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- (2,353,828)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 5,284,369 $ 2,000,298 $ 941,363 $ (48,000) $(3,405,965)
----------- ----------- ----------- ----------- -----------
</TABLE>
6
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Common Additional Stock
Accumulated Stock Paid-In Subscriptions
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 5,284,369 $ 2,000,298 $ 941,363 $ (48,000) $(3,406,965)
Common stock issued for loan
underwriting fee (unaudited) 1,250,000 750,000 -- -- --
Common stock issued in
conversion of promissory notes
(unaudited) 190,600 190,600 -- -- --
Common stock issued for cash
(unaudited) 79,000 54,000 -- -- --
Common stock issued for
services (unaudited) 11,000 11,000 -- -- --
Stock options issued (unaudited) -- -- 131,160 -- --
Receipt of stock subscription
receivable (unaudited) -- -- -- 47,000 --
Distribution to shareholder
(unaudited) -- -- (1,000) -- --
Net loss for the six months ended
June 30, 2000 (unaudited) -- -- -- -- (1,894,213)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000
(unaudited) 6,814,969 $ 3,005,898 $ 1,071,523 $ (1,000) $(5,301,178)
=========== =========== =========== =========== ===========
</TABLE>
7
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $ (836,383) $ (517,516) $(1,894,213) $ (794,472)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Depreciation and amortization 3,998 2,686 7,150 5,372
(Gain) loss on trading securities -- (1,392) -- (26,343)
Stock issued for loan underwriting fee 250,000 -- 750,000 --
Stock issued for services -- 206,908 11,000 350,108
Stock options issued for services 47,860 22,868 131,160 22,868
Changes in operating assets and liabilities:
(Increase) decrease in employee advances 600 (2,908) (2,525) (2,908)
(Increase) decrease in receivable from shareholder -- -- (5,000) --
Increase (decrease) in accounts payable 74,202 (22,389) 184,186 (16,309)
Increase (decrease) in deferred revenue (21,714) (30,151) (10,775) (18,066)
Increase (decrease) in accrued expenses 15,480 150,295 6,972 41,063
Increase (decrease) in bank overdraft -- 43 -- (7,828)
----------- ----------- ----------- -----------
Net Cash (Used) by Operating Activities (465,957) (191,556) (822,045) (446,515)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of trading securities -- -- -- 79,431
Purchase of fixed assets (986) (12,001) (11,071) (12,001)
----------- ----------- ----------- -----------
Net Cash (Used) by Investing Activities (986) (12,001) (11,071) 67,430
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash -- 48,800 101,000 305,800
Capital distributions (1,000) -- (1,000) --
Principle payments on convertible notes payable (23,000) -- (27,500) (10,440)
Cash received from notes payable 14,244 -- 14,244 --
Convertible promissory notes proceeds 74,000 151,075 122,900 151,075
Line of credit proceeds 368,359 -- 610,119 --
Due to related companies 14,429 (452) 14,429 (452)
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities 447,032 199,423 834,192 445,983
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (19,911) (4,134) 1,076 66,898
CASH AT BEGINNING OF PERIOD 71,240 71,330 50,253 298
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 51,329 $ 67,196 $ 51,329 $ 67,196
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
<S> <C> <C> <C> <C>
Interest $ 38,274 $-- $ 38,274 $--
Income taxes $-- $-- $-- $--
NON-CASH FINANCING ACTIVITIES
Common stock issued for convertible promissory
notes $ 38,274 $-- $ 190,600 $--
Common stock issued in exchange for equipment $-- $-- $-- $ 12,000
Common stock issued for trading securities $-- $-- $-- $ 31,755
</TABLE>
9
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
San Diego Soccer Development Corporation, (the "Company") was
incorporated on August 22, 1997 in the State of California. The
Company is engaged in the management and marketing of a professional
soccer team. The majority of the Company's revenues are currently
generated from corporate sponsorships and ticket sales.
b. Accounting Methods
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
d. Basic Loss Per Share
The computations of basic loss per share of common stock are based on
the weighted average number of common shares outstanding during the
period of the financial statements. Common stock equivalents,
consisting of stock options, warrants and conversion of notes have not
been included in the calculation as their effect is antidilutive for
the periods presented.
e. Property and Equipment
Property and equipment is recorded at cost. Major additions and
improvement are capitalized. The cost and related accumulated
depreciation of equipment retired or sold are removed from the
accounts and any differences between the undepreciated amount and the
proceeds from the sale are recorded as gain or loss on sale of
equipment. Depreciation is computed using the straight-line method
over the estimated useful life of the assets.
f. Provision for Taxes
At June 30, 2000, the Company has net operating loss carryforwards of
approximately $5,000,000 that may be offset against future taxable
income through 2019. No tax benefit has been reported in the financial
statements because the Company believes there is a 50% or greater
chance the net operating loss carryforwards will expire unused.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
10
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and 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.
h. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
i. Soccer Franchise
The membership in the United Systems of Independent Soccer Leagues
(USISL) represents the original purchase price of the franchise
recorded at cost and is amortized using the straight-line method over
a 25 year period. Each franchise is continuously evaluated by
management to determine if its carrying value will be realized based
upon the estimated discounted cash flow expected from the franchise.
Additional amortization will be recognized in a period if a decline in
value is identified.
j. Revenue and Expense Recognition
Revenue from ticket sales is recognized at the time the home game, to
which such proceeds relate, is played. Accordingly, advance ticket
sales for the next season are recorded as deferred revenues and
recognized ratably during the applicable season. Revenue from
advertising and promotions is recognized ratably during the season the
promotion relates to is played. Professional league team expenses,
principally player compensation, are recorded as expense over the
entire Professional Soccer League regular season. Administrative,
general, advertising and promotional expenses are charged to
operations as incurred.
k. Seasonal Fluctuations
The Company's primary business is the operations of the soccer team
from April to September each year. The Company derives all its ticket
and corporate sponsorship revenues during this period. The current
financial statements for the six months and three months ended June
30, 2000 and 1999, therefore, reflects results of operations during
part of the Company's off-season, during which it incurs expenses in
preparation for its operating season.
11
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Stock Options
The Company has granted options to purchase common stock to various
individuals and officers of the Company in return for various services
rendered to the Company. Under the Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), the Company is recognizing the compensation cost using the
estimated fair value method. Under the fair value method, total
compensation cost is the estimated fair value of the stock options at
the grant date, less any amount paid by the employee for the stock
options.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Soccer equipment $ 6,000 $ 6,000
Promotional equipment 9,684 -
Computers and software 17,716 17,716
------------------ ------------------
33,400 23,716
Accumulated depreciation (7,761) (5,597)
------------------ ------------------
Net property and equipment $ 25,639 $ 18,119
================== ==================
</TABLE>
NOTE 3 - SOCCER FRANCHISES
During 1997, the Company purchased a soccer franchise to operate the
San Diego Flash in San Diego, California. The Company paid cash and
common stock for the franchise and the value of the stock portion was
determined based on the cash price of a 1998 A-League franchise, which
was the first season the Company could participate in the league.
During 1999, the Company purchased a D-3 Pro League franchise for
$30,000. The new franchise is playing in Riverside and will serve as a
farm team for the San Diego Flash. The franchises have been amortized
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Soccer franchises $ 180,000 $ 180,000
Accumulated amortization (16,800) (13,200)
------------------ ------------------
Net Soccer Franchises $ 163,200 $ 166,800
================== ==================
</TABLE>
12
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 4 - RELATED PARTY TRANSACTIONS
a. Credit Lines Payable
The Company entered into a Credit Line Loan Agreement with one of it's
shareholders effective March 6, 2000. The Agreement provides for a
line of credit of up to $500,000 for approved expenditures. The
advances bear interest at 10% per annum and the unpaid principal and
interest is due on December 31, 2000. An underwriting fee was paid in
the form of 1,250,000 restricted shares of the Company's common stock.
The balance on this Credit Line at June 30, 2000 and December 31, 1999
was $509,577 and $-0-, respectively.
In connection with the agreement, the Company also agreed to
reconstitute its Board of Directors by allowing the Lender to nominate
3 of the 5 directors, and to allow the Lender to approve budgets and
significant expenditures, and to receive monthly financial statements.
In addition, the agreement provides that the Lender will provide
certain accounting and senior management overview services and public
company reporting oversight in exchange for one percent (1%) of gross
revenues.
In the event of default, the Lender may terminate the agreement,
declare the outstanding balance to be due and payable, and convert
that balance into common restricted shares of the Company. The new
shares to be issued would be the number necessary for the Lender to
have a cumulative ownership position of 53% of the then issued and
outstanding shares plus all unexecuted options and warrants.
The Company entered into a separate Credit Line Loan Agreement with an
individual effective June 1, 2000. The agreement provides for a line
of credit of up to $125,000 for approved expenditures. The advances
bear interest at 10% per annum and the unpaid principal and interest
is due on December 31, 2000. The balance outstanding at June 30, 2000
and December 31, 1999 was $100,542 and $-0-, respectively.
b. Loans from Related Parties
During 1999, certain officers of the Company formed another company to
acquire and operate a Las Vegas soccer franchise. The Company received
loans from that company and have accrued interest at 10%. The loan is
due on demand. Additional advances have been received from other
related parties through June 30, 2000. These amounts are non-interest
bearing and due on demand.
c. Stock for Trading Securities
During 1999, the Company traded shares of its stock for stock of a
publicly trading company's stock at a highly discounted rate in order
to get cash for operations. The President of the publicly traded
company is also a major shareholder of the Company. During 1999, this
shareholder also became a director of the Company.
13
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Note payable to an individual, interest at 10%
per annum, principal and interest due December
31, 2000, unsecured. $ 12,600 $ -
Note payable to an individual, interest at 10%
per annum, principal and interest due on
demand, unsecured. 12,790 15,646
------------------ ------------------
Total Notes Payable 25,390 15,646
Less: Current Portion (25,390) (15,646)
------------------ ------------------
Long-Term Notes Payable $ $
================== ==================
</TABLE>
The aggregate principle maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
------------ ------------------
<S> <C>
2000 $ 25,390
2001 -
2002 -
2003 -
2004 -
2005 and thereafter -
------------------
Total $ 25,390
==================
</TABLE>
NOTE 6 - CONVERTIBLE PROMISSORY NOTES
In order to obtain "bridge" funds while a public offering is being
prepared, the Company issued convertible notes with a face amount
totaling $733,950 during 1999 and $122,900 during 2000. The notes bear
interest at 8% per annum and are convertible into common stock at
$1.00 per share at the option of the holder. The 1999 notes matured on
December 31, 1999. During 1999, the noteholders converted $404,850 of
convertible notes into 404,850 shares of common stock. During 2000,
the noteholders converted an additional $190,600 and paid $23,000 in
cash. Of the remaining balance, $196,500 was in default as of January
1, 2000, and the remaining $41,900 matures July 1, 2000.
14
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 7 - LEASING ACTIVITIES
The Company leases its office facilities under an operating lease that
expires on January 16, 2002. The base rent under the lease is $1,350
per month. The Company also leased a soccer field from a local
community college on an annual lease that expired at the end of 1999.
The base rent was $1,450 per home game. The Company has one other
operating lease for equipment.
The future annual minimum lease payments under operating leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
------------ ------------------
<S> <C>
2000 $ 17,628
2001 16,914
2002 -
2003 -
2004 -
2005 and thereafter -
------------------
Total $ 34,542
==================
</TABLE>
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT)
a. Common Stock
During 1997, the Company prepared a private placement memorandum
offering 1,000,000 common shares (the Offering). The 1,000,000 common
shares were offered at a price of $5.00 per unit. Each unit included 5
common shares and entitled the investor to 2 warrants to purchase
additional shares of common stock for $0.50 per share. The price per
unit was allocated $4.00 to the shares and $1.00 to the warrants.
Under the Offering, the Company sold 458,300 common shares and raised
$425,050 net of syndication costs.
A second private placement memorandum dated February 3, 1999 (Second
Offering) offered 1,000,000 common shares at a price of $1.00 per
share. Under the Second Offering, the Company raised $148,300.
During the last quarter of 1998, the Company traded 650,000 shares of
its stock for stock of a publicly trading company's stock at a highly
discounted rate in order to get cash for operations. Most of the stock
received in the trade was liquidated, however, stock valued at $22,725
was still held in trading securities at December 31, 1998. The
President of the publicly traded company is also a major shareholder
of the Company. During 1999, this shareholder also became a director
of the Company.
During 1999, the Company traded an additional 200,000 shares with the
same publicly traded company, again at a highly discounted rate, in
order to get cash for operations. The Company further traded 95,000
shares with another publicly traded company for shares valued at
$38,792 on the date of trade. All of the trading securities were
liquidated by the end of 1999.
15
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT)
b. Warrants
Warrants for 183,320 shares were issued along with the first private
placement. Warrants for 85,400 were exercised in total during 1999 and
1998, leaving 97,920 outstanding at December 31, 1999. The warrants
expire in 2001.
c. Convertible Promissory Notes
At June 30, 2000, the Company had convertible promissory notes
outstanding which were convertible into 238,400 shares of common stock
(see Note 6).
d. Stock Options
The Company had the following common stock option transactions during
the quarter ended June 30, 2000:
<TABLE>
<CAPTION>
Weighted Contractual
Average Life of
Exercise Options
Shares Price Outstanding
------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at
January 1, 2000 1,085,300 $0.16 3.67 years
Options granted 190,000 $0.18 3.42 years
Options exercised -- -- --
Options forfeited or expired -- -- --
Options outstanding at
June 30, 2000 1,275,300 $0.17 3.42
========= ===== ====
Options price range at end of year: $0.05 through $1.25
Exercisable at end of year 1,275,300
=========
</TABLE>
The fair value of the stock options are estimated on the date of
grant using the Black-Scholes option-pricing model. The estimated
fair value has been calculated ignoring the volatility factor. The
following assumptions were used to estimate the fair values of
options:
Risk free interest rate 5.5%
Expected life 4 years
Expected dividend yield 0%
16
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
(DBA SAN DIEGO FLASH)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 9 - GOING CONCERN
As reported in the financial statements, the Company has an
accumulated deficit of approximately $5,301,000 at June 30, 2000 and
has incurred a loss from operations for the six months then ended. In
addition, the Company was not able to pay their promissory notes when
the notes matured on December 31, 1999. The Company's shareholders'
deficit was $1,212,757 and its current liabilities exceeded its
current assets by $1,408,000.
These factors create uncertainty about the Company's ability to
continue as a going concern. The ability of the Company to continue as
a going concern is dependent on the Company obtaining adequate capital
to fund operating losses until it becomes profitable. If the Company
is unable to obtain adequate capital it could be forced to cease
operations.
In order to continue as a going concern, develop and grow its game
attendance, revenues and achieve a profitable level of operations, the
Company will need, among other things, additional capital resources.
Management's plans to obtain such resources for the Company include
(1) raising additional capital through sales of common stock, the
proceeds of which would be used to build soccer stadiums in both San
Diego and Riverside County, hiring of administrative, sales and
marketing personnel; (2) continuing to use stock options to pay for
employee compensation and marketing services; (3) converting
promissory notes into common stock; (4) expanding the revenue sources
from corporate sponsors, television and radio advertising,
concessions, merchandise sales, soccer camps, concerts and other
stadium events. In addition, management is continually seeking to
improve the operations and grow the business through a variety of
venues. However, management cannot provide any assurances that the
Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish the plans described in the
preceding paragraph and eventually secure other sources of financing
and attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
NOTE 10 - PROPOSED MERGER
During December 1999, the Company entered into negotiations to merge
with Roller Coaster, Inc. (a Nevada Corporation). Roller Coaster, Inc.
is a public shell with no activity other than inception in December
1995 and a 1:10 stock split in October 1999. The agreement was signed
in the month of March 2000.
According to the merger agreement, the surviving corporation will be
named San Diego Soccer Development Corporation and will be a Nevada
Corporation. Shares will be exchanged 1:1 for the public shell's
shares. The merger will result in approximately 9,314,000 shares
outstanding (2,500,000 shares pertaining to the former Roller Coaster,
Inc.) Shares authorized will be 100,000,000 common stock at $0.001 par
value and 50,000,000 preferred shares at $0.001 par value. In
connection with the merger, the Company incurred $200,000 in
consulting fees on the merger. The merger had not been approved by the
stockholders at June 30, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of San Diego Soccer
Development Corporation's financial condition and results of operation. Detailed
information is contained in the financial statements included in this document.
This section contains forward-looking statements that involve risks and
uncertainties, such as statements of the company's plans, objectives,
expectations and intentions. The cautionary statements made in this document
should be read as being applicable to all related forward-looking statements
wherever they appear in this document.
The following is the Management Discussion and Analysis of the Financial
Conditions and Results of Operations for San Diego Soccer Development
Corporation for second quarter 2000.
the Company owns and operates a professional soccer franchise in the United
Soccer League's - A-League (Division II). The Company derives revenue and income
from its ticket sales, merchandise, concessions, soccer camps and corporate
sponsorship. The total operating expenses of the Company decreased 24.3% from
second quarter 1999 to second quarter 2000. The decrease can be attributed to
several operating expenses that were curtailed by less demand or other factors.
A few of the substantial reductions involved decreases involved printing
expenses, advertising and promotion and accrued payroll.
The Company has experienced a 78.4% reduction of printing expenses, down from
$86,126.71 for the second quarter 1999 to $18,632.32 for the Company's second
quarter 2000. the Company's general decrease in advertising and promotion is
directly related to a modification of the Company's newly implemented
grass-roots marketing efforts. The Company has previously expended capital on
print advertising. This marketing strategy has been diminished because of new
alliances with local media sponsors, both in television and radio. The alliances
provide for television and radio ad campaigns that were procured through trade
sponsorship and ticket giveaways. further, several local soccer clubs and the
Company created new working relationships to provide a basis for grass-roots
level marketing of the franchise. The Company's modified marketing efforts to
promote its franchise contributed to the 65% reduction in advertising and
promotional expenses, where the Company had expended $205,489.20 on advertising
and promotional expenses for second quarter 1999 to $71,864.67 for second
quarter 2000. The Company also saw a steep reduction of 46.6% in paid expenses
for accrued payroll from 1999 to 2000.
The Company's increase in expenses for second quarter 2000 have been
significantly related to the bridge loan financing. The standard revenue streams
as mentioned above, have been continually modified and refined to achieve
revenue targets. Most notably the ticket sales functions of the Company were
modified by contracting with an out source ticket selling agency and developing
new grass-roots programs that have been implemented by Company Staff. The Junior
Flash club was created to promote the continued attendance of youth soccer
players in San Diego and Junior Flash agreements were entered with two large
youth soccer clubs to achieve this goal. The program allowed the Company to
diminish its complimentary ticket giveaways, and create concrete working
relationships with local club directors to cross promote each club. Ticket sales
increased 111%, where in the second quarter 1999 the Company realized gross
sales of $19,169.76, the Company grossed $40,438.91. The increase however can be
attributed largely to a joint sales effort between Company staff and the out
sourced ticket agency in selling season ticket packages.
Sales in merchandise have increased 100%, where in the second quarter of 1999,
merchandise was out sourced and sales did not produce income. The Company has
expanded its merchandise inventory selection by providing consumers a larger
choice of apparel. Different designs in T-shirts, polo shirts and shirts
adorning the names of the players have modestly produced additional income for
the Company. In management's opinion, the anticipated consignment and wholesale
sales agreements for the off season will provide the Company with an expanded
base to sell its products and provide new avenues to branding its franchise's
mark. Further, to prevent or diminish shrinkage in sales and income, the Company
has staffed the merchandising booths with in-house staff and has created an
inventory control system to track sales.
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The concessions sales of the Company is currently out sourced to a professional
catering company. The percentage collected from this contract has produced a
38.6% increase from second quarter 1999. The professionalism of the out sourced
company has not only provided quality foods and beverages for Company consumers
but has also provided the needed personnel to provide relatively quick and
efficient service to waiting consumers. The projected increase of ticket sales
and attendance should have a direct impact on increasing the sales of the
concessions as the 2000 season progresses. Out sourcing this function of
operation is currently the only alternative to staffing the concession in-house.
The number of personnel required in addition to the experience and expertise in
food handling and sales cannot be currently produced by in-house personnel.
Future changes may be conceivable to increase the profit margin, however
projected changes at this stage in relation to the venue occupied and the
average fan attendance figures would make the difference in profit margins
negligible and expose the Company to potential legal and financial liabilities.
As such, the Company does not foresee an in-house catering operation in the near
future.
The Corporate Sponsorship sales and marketing relationships have been developing
over the past three months. Some of the immediate results have been the expanded
television and radio promotional events. Time Warner has become a major
sponsorship partner in promoting individual matches through its own game
promotion and cable television exposure through an expanded ad campaign. Local
radio stations have also come forward in providing on air drive-time ticket
giveaways, thereby reaching different demographic groups throughout San Diego
County. The current relationships are being expanded to provide future contracts
for television and radio broadcast of franchise matches.
The Financial statements of the Company provide evidence of the seasonal nature
of the business. The operational expenses have decreased overall during the
second quarter 2000, apart from the financing expenses of the Company, and there
has been a significant increase in several revenue streams.
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PART II OTHER INFORMATION.
ITEM 1 LEGAL PROCEEDINGS
In management's opinion, there are no material litigation matters
pending or threatened against the company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3 DEFAULT UPON SENIOR SECURITIES.
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 29, 2000, the Company filed a preliminary proxy statement
pursuant to Regulation 14A under the Exchange Act in connection with a Notice of
a Special Meeting of Shareholders. The meeting was to be held on April 17, 2000.
The meeting was held for the purpose of: electing directors of the Company,
reaffirming the proposed merger between the Company and Roller Coaster, Inc., a
Nevada corporation; and, to consider and act upon such other business as may
properly come before the special meeting. The Company did not file a final proxy
statement. Accordingly, the meeting did not occur and the matter was not
submitted to the shareholders. The Company intends to file an amended proxy
statement in August, 2000 which more completely discloses the terms of the
merger.
ITEM 5 OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed an 8-K on August 10, 2000 reporting the change
in its independent auditor from Logan Throop & Co., Certified Public
Accountants to HJ & Associates, Certified Public Accountants
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
Dated August 11, 2000 /s/ Yan K. Skwara
----------------------------------------
Yan K. Skwara
Chief Executive Officer
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