<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 March 31, 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
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0770631
------------------------------------ ------------------
(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 6,559,369 shares outstanding as at March 31, 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
Item 1. Financial Statements for the Three Months Ended March 31, 2000 and 1999
Accountants' Report 3
Financial Statements:
Balance Sheets (unaudited) 4
Statements of Operations (unaudited) 6
Statements of Stockholders' Deficit (unaudited) 7
Statements of Cash Flows (unaudited) 8
Notes to Financial Statements (unaudited) 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 18
Item 2. Changes in Securities and Use of Proceeds. 18
Item 3. Defaults Upon Senior Securities. 18
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information. 18
Item 6. Exhibits and Reports of Form 8-K. 18
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
San Diego Soccer Development Corporation
San Diego, California
We have reviewed the balance sheets of San Diego Soccer Development Corporation
and subsidiary as of March 31, 2000 and 1999, and the related statements of
operations, stockholders' deficit and cash flows for the three months then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements.
Based on our review, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has sustained recurring losses and negative
cash flows since its inception in 1997 and it had a working capital deficiency
and was in default under the terms of its convertible promissory notes at March
31, 2000. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 11 to the financial statements. The financial
statements do not include any adjustments relating to the recoverability and
classification of reported asset amounts and classification of liabilities that
might result from the outcome of this uncertainty.
Logan Throop & Co., LLP
San Diego, California
May 19, 2000
3
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
DBA SAN DIEGO FLASH
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 1999
(Unaudited) (Unaudited)
- - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 71,240 $ 71,331
Employee advances 3,125 100
Receivable from shareholder 5,000 -
- - - - - - - - --------------------------------------------------------------------------------
Total current assets 79,365 71,431
- - - - - - - - --------------------------------------------------------------------------------
Other assets
Deposit 1,350 -
Property and equipment, net 26,851 20,510
Soccer franchises, net 165,000 141,500
- - - - - - - - --------------------------------------------------------------------------------
Total other assets 193,201 162,010
- - - - - - - - --------------------------------------------------------------------------------
Total assets $272,566 $233,441
- - - - - - - - --------------------------------------------------------------------------------
</TABLE>
See accompanying notes and Accountants' report
4
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
DBA SAN DIEGO FLASH
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31, 2000 1999
(Unaudited) (Unaudited)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 211,989 $ 100,949
Accrued liabilities 46,972 16,671
Accrued payroll and payroll taxes 200,831 151,514
Line of credit from affiliated company 241,760 -
Loans from affiliated company 2,273 -
Stockholder loans - 35,244
Note payable 11,146 16,386
Convertible promissory notes 193,000 -
Deferred revenue 43,429 30,151
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Total current liabilities 951,400 350,915
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Stockholders' deficit
Common stock, no par value, 20,000,000 shares authorized, 6,559,369 and
4,438,984 shares issued and outstanding at March 31, 2000
and 1999, respectively 2,750,298 1,124,159
Common stock subscribed, 12,000 shares 12,000 -
Stock subscriptions receivable (1,000) -
Additional paid in capital 1,024,663 88,460
Accumulated deficit (4,464,795) (1,330,093)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (678,834) (117,474)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' deficit $ 272,566 $ 233,441
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes and Accountants' report
5
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
DBA SAN DIEGO FLASH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
March 31, 2000 1999
(Unaudited) (Unaudited)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Other revenue $ 1,887 $ 659
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Total revenue 1,887 659
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Operating expenses
General and administrative 392,663 116,318
Game and player expenses 55,532 54,898
Advertising and promotion 107,309 130,415
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Total operating expenses 555,504 301,631
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Loss from operations (553,617) (300,972)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Other income (loss)
Gain (loss) on trading securities - 24,951
Loan underwriting fee (500,000) -
Interest expense (4,213) (935)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Total other income (loss) (504,213) 24,016
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Net loss $(1,057,830) $(276,956)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
Loss per share $ (0.18) $ (0.06)
Average number of shares outstanding 5,901,369 4,314,234
</TABLE>
See accompanying notes and Accountants' report
6
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
DBA SAN DIEGO FLASH
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Total
--------------------------- Stock Accumulated Stockholders'
Shares Amount subscriptions Deficit equity (deficit)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 3,801,484 $ 941,163 $(172,500) $(1,053,137) $ (284,474)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Issuance of stock and warrants for cash 16,000 16,000 - - 16,000
Issuance of stock for cash 148,300 148,300 - - 148,300
Warrants exercised 13,000 6,500 - - 6,500
Stock subscriptions payable - - 12,000 - 12,000
Issuance of stock for services 273,600 273,600 - - 273,600
Stock subscription receivable satisfied
by receipt of services - - 110,500 - 110,500
Issuance of stock to satisfy accrued
liabilities 194,000 155,200 - - 155,200
Issuance of stock for trading securities 295,000 78,345 - - 78,345
Payment stock subscriptions receivable - - 62,000 - 62,000
Stock subscriptions receivable 48,000 48,000 (48,000) - -
Issuance of stock for syndication cost 70,135 - - - -
Issuance of stock for equipment 20,000 20,000 - - 20,000
Issuance of stock for converted notes 404,850 404,850 - - 404,850
Stock options issued - 849,703 - - 849,703
Net loss - - - (2,353,828) (2,353,828)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 5,284,369 2,941,661 (36,000) (3,406,965) (501,304)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Issuance of restricted stock for loan
underwriting fee 1,000,000 500,000 - - 500,000
Stock subscriptions receivable - - 47,000 - 47,000
Issuance of stock for converted notes 185,000 185,000 - - 185,000
Issuance of stock for cash 79,000 54,000 - - 54,000
Stock options issued - 83,300 - - 83,300
Issuance of stock for services 11,000 11,000 - (1,057,830) (1,046,830)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 6,559,369 $3,774,961 $ 11,000 $(4,464,795) $ (678,834)
- - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes and Accountants' report
7
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
DBA SAN DIEGO FLASH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, 2000 1999
(Unaudited) (Unaudited)
- - - - - - - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,057,830) $(276,956)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 3,152 2,686
(Gain) loss on trading securities - (24,952)
Stock issued for services 11,000 143,200
Stock issued for loan underwriting fee 500,000 -
Stock options issued for services 83,300 -
(Increase) decrease in employee advances (3,125) -
(Increase) decrease receivable from shareholder (5,000) -
Proceeds from sale of trading securities - 79,431
Increase (decrease) accounts payable 109,984 6,080
Increase (decrease) bank overdraft - (7,871)
Increase (decrease) accrued liabilities (8,508) (109,232)
Increase (decrease) deferred revenue 10,939 12,085
- - - - - - - - -----------------------------------------------------------------------------------------------------------
Net cash (used) by operating activities (356,088) (175,529)
- - - - - - - - -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of soccer franchise (200) -
Purchase of property and equipment (9,885) -
- - - - - - - - -----------------------------------------------------------------------------------------------------------
Net cash provided(used) by investing activities (10,085) -
- - - - - - - - -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes and Accountants' report
8
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
DBA SAN DIEGO FLASH
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
March 31, 2000 1999
(Unaudited) (Unaudited)
- - - - - - - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock, net issuance costs 54,000 84,500
Proceeds from stock subscription receivable 47,000 172,500
Proceeds from promissory notes 48,900 -
Payment of notes payable (4,500) (10,440)
Proceeds from line of credit from affiliated company 241,760 -
- - - - - - - - ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 387,160 246,560
- - - - - - - - ----------------------------------------------------------------------------------------------------------
Net increase(decrease) in cash 20,987 71,031
Cash at beginning of period 50,253 300
- - - - - - - - ----------------------------------------------------------------------------------------------------------
Cash at end of period $71,240 $71,331
- - - - - - - - ----------------------------------------------------------------------------------------------------------
Supplemental disclosures:
Interest paid - -
Noncash financing and investing activities:
Stock issued in exchange for equipment - $12,000
Stock issued in exchange for trading securities - $31,755
Stock issued for convertible promissory notes $185,000 $-
</TABLE>
See accompanying notes and Accountants' report
9
<PAGE>
SAN DIEGO SOCCER DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the 3 Months ended March 31, 2000 and 1999)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. ORGANIZATION AND OPERATIONS
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRADING SECURITIES
Equity securities are classified as Trading Securities and are
available-for-sale to support current operations. These securities are
stated at estimated fair value based upon market quotes. Unrealized
gains and losses are recognized as income or loss during the current
period. Realized gains and losses are recognized using the weighted
average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (one to five years) using the
straight-line method.
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 a decline in value is
identified.
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.
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 three months ended March 31, 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.
10
<PAGE>
INCOME TAXES
Deferred income taxes are provided for the estimated tax effects of
timing differences between income for tax and financial reporting. A
valuation allowance is provided against deferred tax assets, where
realization is uncertain. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
Temporary differences are differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years. The
Company's temporary differences consist primarily of net operating
losses and depreciation.
NET EARNINGS PER COMMON SHARE
Net earnings (loss) per common share are based on the weighted average
number of common shares outstanding during each period. The calculation
of diluted earnings (loss) per common share is similar to that of basic
earnings (loss) per common share, except that the numerator and
denominator are adjusted to reflect the decrease in earnings per share
or the increase in loss per share that could occur if securities or
other contracts to issue common stock, such as stock options and
convertible notes, were exercised or converted into common stock that
then shared in the Company's earnings or loss
The Company was required to compute primary and diluted loss per share
amounts for 1999 and 1998 pursuant to SFAS 128. Since the Company had
losses applicable to common stock in 1999 and 1998, the assumed effects
of the exercise of outstanding stock options and conversion of notes
were anti-dilutive and, accordingly, dilutive per share amounts have
not been presented in the accompanying statements of operations.
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.
USE OF 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.
3. PROPERTY AND EQUIPMENT
Depreciation expense for the three months ended March 31, 2000 and 1999
were $952 and $1,186, respectively. Property and equipment consist of
the following:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
<S> <C> <C>
Soccer equipment $ 15,685 $ 6,000
Computers and software 17,716 17,716
---------------------------------------------------------------------------------------
33,401 23,716
Less accumulated depreciation (6,550) (3,206)
---------------------------------------------------------------------------------------
$ 26,851 $ 20,510
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
4. 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>
March 31, 2000 March 31, 1999
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<S> <C> <C>
Soccer Franchise $ 180,000 $ 150,000
ACCUMULATED AMORTIZATION (15,000) (8,500)
------------------------------------------------------------------------
$ 165,000 $ 141,500
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
5. RELATED PARTY TRANSACTIONS
LINE OF CREDIT FROM AFFILIATED COMPANY
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
will 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 1,000,000 restricted shares of the Company's common stock.
Those shares were valued at $.50 per share and the entire fee was
charged to operations during the quarter ended March 31, 2000.
In connection with the agreement, the Company also agreed to
reconstitute it Board of Directors by allowing the Lender to nominate
three 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.
LOANS FROM AFFILIATED COMPANY
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.
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. (See note 9)
12
<PAGE>
6. NOTE PAYABLE
The Company has a note payable to an individual bearing interest at
10%. The note is due on demand.
7. 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 $48,900 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 $185,000. Of the remaining balance,
$157,100 was in default as of January 1, 2000, and the remaining
$35,900 mature July 1, 2000.
8. 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. Operating lease expense for the three
months ended March 31, 2000 and 1999 was $10,475 and $10,215
respectively.
The future annual minimum lease payments under operating leases at
March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<S> <C>
2001 $ 17,628
2002 12,507
--------------------------------------------------------------------
Total Minimum Lease Payments$ 30,135
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
9. STOCKHOLDERS' DEFICIT
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 $.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.
13
<PAGE>
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.
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.
CONVERTIBLE PROMISSORY NOTES
At March 31, 2000 the Company had convertible promissory notes
outstanding which were convertible into 193,000 shares of common stock.
(See note 7)
STOCK OPTIONS
The Company had the following common stock option transactions during
the quarter ended March 31, 2000:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Contractual life
Shares or price Weighted average of Options
per share exercise price Outstanding
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at
January 1, 2000 1,085,300 $.16 3.67 years
Options granted 102,500 $.18 3.42 years
Options exercised 0 0 0
Options forfeited or expired 0 0 0
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Options outstanding at
March 31, 2000 1,187,800 $.17 3.42
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Options price range at end of year $ .05 through $1.25
Exercisable at end of year 1,187,800
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</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 which is allowed for
a non-public company. 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%
The weighted average fair value at the grant date of the options
awarded during the three months was $0.81.
14
<PAGE>
10. INCOME TAXES
At March 31, 2000, the Company had federal and state tax net operating
loss carry forwards of approximately $4,200,000. The federal and state
tax loss carry forwards will expire at various dates through year 2020
unless previously utilized and may be significantly limited in use as a
result of changes in ownership of the Company.
Significant components of the Company's deferred tax assets are shown
below. A valuation allowance of $1,433,000 has been recognized to
offset the deferred tax assets as realization of such assets is
uncertain.
<TABLE>
<CAPTION>
March 31, 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets computed at 34%:
Net operating loss carry forwards $ 1,394,000 $ 328,000
Accrued bonus compensation 39,000 39,000
----------------------------------------------------------------------------------------
Net deferred tax assets 1,433,000 367,000
Valuation allowance for deferred tax asset (1,433,000) (367,000)
----------------------------------------------------------------------------------------
Total deferred tax assets $ 0 $ 0
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
11. CONTINGENCIES - GOING CONCERN
As reported in the financial statements, the Company has an accumulated
deficit of approximately $4,465,000 at March 31, 2000 and has incurred
a loss from operations for the three 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
$678,834 and its current liabilities exceeded its current assets by
$861,000.
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.
12. SUBSEQUENT EVENTS
RECAPITALIZATION
During 1999 the Company entered into negotiations to recapitalize the
Company via a reverse merger into 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 is awaiting approval by the Company's shareholders.
15
<PAGE>
According to the 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 pubic shell's shares. The
recapitalization will result in approximately 7,784,000 shares
outstanding (2,500,000 shares pertaining to the former Roller Coaster,
Inc.). Shares authorized will be 100,000,000 common stock at $.001 par
value and 50,000,000 preferred shares at $.001 par value. In connection
with the recapitalization, the Company incurred $200,000 in consulting
fees.
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
operations. Detailed information is contained in the financial
statements included in this documents. 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.
Management Discussion and Analysis of Financial Conditions and Results
of Operations for first quarter 2000.
As noted, the Company operates a professional franchise in United
Soccer League's - A-League (Division II). The Company derives revenue
and income from its ticket sales, merchandise, concessions, corporate
sponsorship, soccer camps, and player transfer fees. The operating
costs of the Company increased 84 percent from the first quarter 1999
to 2000. The increase can be attributed primarily to an increase in
player salaries, administration, personnel and consulting. The revenue
generated in 1999 was insufficient to satisfy the operating costs of
the Company and the same is true for 2000. Though the rate of increase
in operating costs has diminished, the Company has been operating at a
loss in 2000.
The standard revenue streams as mentioned above, in particular the sale
of tickets have been modified significantly. The general practice of
providing complimentary tickets and providing large blocks of free
tickets to organizations has diminished and the Company has out-sourced
the sales of its tickets. In addition, the general practice of fielding
outside calls has been diverted to the out-source company. The
in-house staff has worked on developing direct relationships between
directors of youth soccer clubs. The clubs have to be dealt with in a
delicate manner so as to prevent the alienation of other competitive
clubs. The modified ticket program and the substantial reduction in the
distribution of comp tickets have initially resulted in lower
attendance rates. However, the name recognition of the team has
improved and the forthcoming summer promotions and local youth club
promotions are expected to increase the gate revenue. Further, a new
Jr. Flash program has been instituted to divert the potential for
comp ticket giveaway and increase walk-up attendance at matches.
The anticipated increase in gate sales, though not apparent in the
current quarter due to the off-season of the Team should increase
merchandise and concession sales proportionately with the increase in
gate traffic. Management believes the complimentary tickets and the
purchased tickets will both promote a larger scale of profit from
concession and merchandise sales. The merchandise sales at the venue
has changed in 2000. The operation has become controlled in-house,
where in 1999 the initial sales were outsourced. The current
merchandise program creates a larger profit margin and should gain
higher revenue for the Company if the projected gate traffic increases.
The 2000 concessions are again outsourced and a percentage is collected
from gross sales. The current agreement, with the new vendor call for a
25% payment of gross revenues generated from sales. Again, it must be
noted that any viable increase in the later months in the 2000 season
will be based on the increase of ticket sales and traffic. The
out-sourcing of this function is currently the only alternative to
staffing the operation in house. The staffing, inventory storage and
control as well as employment and expertise in operating the
concessions during the matches cannot be currently provided by in-house
employment. Future changes may be conceivable to increase the profit
margin. The projected changes at this stage based on the average number
of fans in attendance makes the difference negligible and increases
potential legal and financial liability to the Company.
16
<PAGE>
The corporate sponsorship aspects of the business are the foundation
for generating large cash revenue. The current staff has not provided
the viable cash flow and therefore required the recruitment and hiring
of a professional Sales and Marketing Director. The Company has
retained the services of Gabriel De La Fuente to head the sales
department as Vice-President of Sales and Marketing. Mr. De La Fuente
has had considerable years of sales experience for large national
corporation and is strictly been positioned to deliver a large cash
infusion via corporate sponsorship. The incumbent director of sales,
Scott Crane will remain on staff to deliver the completed hard trade
sponsors that have been developed the past two season. Mr. De La
Fuente, though not hired until April 8, 2000 will carry the burden of
developing a sponsorship program designed to deliver cash sponsors for
the Company.
The financial statements of the Company provide evidence of the
seasonal nature of the business. The operational expenses have
increased for the duration of the season, of which only two months
of the increases have been noted in this quarter. In particular, the
months of March and April increase in payroll due to player salaries.
The general payroll of the Team has increased approximately 20% from
1999, though the financial data will show this in subsequent quarters
due to many of the performance based contracts with the players. Some
increase will be evident in the months of March and April of 2000.
17
<PAGE>
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 March 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 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 received comments to its proxy statement from the
Securities Exchange Commission. As such, the meeting was not held and a final
proxy has not been submitted to shareholders for a vote.
There was no other matter considered at the Special Meeting.
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
None.
18
<PAGE>
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 May 19, 2000 /s/ Yan K. Skwara
-------------------------------------------
Yan K. Skwara
Chief Executive Officer
19
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
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<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 79,365 71,431
<PP&E> 33,401 23,716
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<CURRENT-LIABILITIES> 951,400 350,915
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0 0
0 0
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<OTHER-SE> 1,035,663 88,460
<TOTAL-LIABILITY-AND-EQUITY> (678,834) (117,474)
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<OTHER-EXPENSES> (500,000) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,231) (935)
<INCOME-PRETAX> (1,057,830) (276,956)
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<INCOME-CONTINUING> (1,057,830) (278,956)
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<NET-INCOME> (1,057,830) (276,958)
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