UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 21, 1996
Commission File No. 0-24982
SILVER DINER DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3234411
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11806 Rockville Pike, Rockville, Maryland, 20852
(Address of principal executive offices)
(301) 770-0333
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.00074 par value, outstanding as of June 5, 1996: 10,003,858
shares
<PAGE>
SILVER DINER DEVELOPMENT, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Combined Condensed Balance Sheets
as of April 21, 1996 and December 31, 1995 3
Combined Condensed Statements of Operations for the
Sixteen weeks ended April 21, 1996 and April 23, 1995 4
Combined Condensed Statements of Cash Flows for the
Sixteen weeks ended April 21, 1996 and April 23, 1995 5
Notes to Combined Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
2
<PAGE>
SILVER DINER DEVELOPMENT, INC. AND SUBSIDIARY,
SILVER DINER LIMITED PARTNERSHIP AND SILVER DINER POTOMAC MILLS, INC.
COMBINED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 21, December 31,
1996 1995
----------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $10,741,891 $1,584,716
Inventory 90,422 117,393
Prepaid and other current assets 167,190 72,152
----------------- -----------------
Total current assets 10,999,503 1,774,261
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and leasehold improvements 5,728,976 5,661,681
Furniture, fixtures and equipment 3,387,285 3,322,656
Construction in progress 205,223 -
----------------- -----------------
Total 9,321,484 8,984,337
Less accumulated depreciation and amortization (2,369,790) (2,170,350)
----------------- -----------------
Net property, equipment and improvements 6,951,694 6,813,987
OTHER ASSETS
Deposits and other 298,090 304,689
Due from affiliates - 355,023
Preopening costs, net 119,772 239,750
Other intangibles and deferred costs, net 334,175 1,306,759
----------------- -----------------
TOTAL ASSETS $ 18,703,234 $ 10,794,469
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $2,686,633 $3,582,238
Current maturities of notes to related parties - 200,000
Current maturities of long-term debt 169,105 3,193,125
----------------- -----------------
Total current liabilities 2,855,738 6,975,363
OTHER LIABILITIES
Deferred rent liability 607,580 574,821
Notes to related parties, less current maturities - 1,036,811
Long-term debt, less current maturities 307,265 973,200
----------------- -----------------
Total liabilities 3,770,583 9,560,195
STOCKHOLDERS' EQUITY/PARTNERS' DEFECIT 14,932,651 1,234,274
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,703,234 $ 10,794,469
================= =================
</TABLE>
Accompanying notes are an integral part of these financial statements
3
<PAGE>
SILVER DINER DEVELOPMENT, INC. AND SUBSIDIARY,
SILVER DINER LIMITED PARTNERSHIP AND SILVER DINER POTOMAC MILLS, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
April 21, April 23,
1996 1995
------------------- -----------------
<S> <C> <C>
Net sales $ 4,894,428 $ 3,180,298
Restaurant costs and expenses
Cost of sales 1,355,022 854,923
Labor 1,708,437 1,048,009
Operating 741,151 488,131
Occupancy 607,691 413,690
Depreciation and amortization 317,065 154,024
------------------- -----------------
Total restaurant costs and expenses 4,729,366 2,958,777
------------------- -----------------
Restaurant operating income 165,062 221,521
General and administrative expenses 675,689 420,813
Interest expense 174,709 57,714
Investment income (33,102) (20,378)
Depreciation and amortization 45,857 29,261
------------------- -----------------
Loss before minority interest and income taxes (698,091) (265,889)
Minority interest in net loss of SDLP - 122,070
------------------- -----------------
Loss before income taxes (698,091) (143,819)
Income taxes - -
------------------- -----------------
NET LOSS $ (698,091) $ (143,819)
================== =================
Net loss per common share $ (0.11) $ (0.03)
=================== =================
Weighted average common shares outstanding 6,186,505 4,982,414
=================== =================
</TABLE>
Accompanying notes are an integral part of these financial statements
4
<PAGE>
SILVER DINER DEVELOPMENT, INC. AND SUBSIDIARY,
SILVER DINER LIMITED PARTNERSHIP AND SILVER DINER POTOMAC MILLS, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
April 21, April 23,
1996 1995
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (698,091) $ (143,819)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 362,922 183,285
Compensation expense - stock options and deferred compensation 31,053 7,350
Minority interest - (122,070)
Changes in operating assets and liabilities
Inventory 26,971 9,145
Prepaid expenses and other assets (95,038) 81,175
Preopening, other intangibles and deferred costs (1,179) (142,599)
Accounts payable and accrued expenses (117,203) (289,422)
Lease and other deposits 6,599 (131,397)
Deferred rent liability 32,759 (25,165)
-------------- ---------------
Net cash used in operating activities (451,207) (573,517)
Cash flows from investing activities
Purchases of property and equipment (596,036) (655,563)
Maturities of short-term investments - 1,076,923
Repayment of advances to affiliates - 1,582
-------------- ---------------
Net cash provided by (used in) investing activities (596,036) 422,942
Cash flows from financing activities
Net proceeds from merger 12,276,161 -
Payments on advances - affiliates - (13,000)
Payments of principal - notes payable (1,189,955) (65,764)
Payments of principal - notes payable - related party (881,788) -
Repayments of notes payable - related party - 41,848
-------------- ---------------
Net cash provided by (used in) financing activities 10,204,418 (36,916)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 9,157,175 (187,491)
Cash and cash equivalents at beginning of the period 1,584,716 281,463
-------------- ---------------
Cash and cash equivalents at end of the period $ 10,741,891 $ 93,972
============== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 115,860 $ 55,645
============== ===============
Noncash investing and financing activities:
Construction payables included in accounts payable
and accrued expenses $ - $ 873,132
============== ===============
Recapitalization costs included in accounts payable
and accrued expenses $ 418,021 $ -
============== ===============
Repayment of notes payable - related party by
offset of amounts due from affiliates $ 355,023 $ -
============== ===============
Conversion of senior subordinated convertible promissory
notes to 625,000 shares of common stock $ 2,500,000 $ -
============== ===============
</TABLE>
Accompanying notes are an integral part of these financial statements
5
<PAGE>
SILVER DINER DEVELOPMENT, INC. AND SUBSIDIARY,
SILVER DINER LIMITED PARTNERSHIP AND SILVER DINER POTOMAC MILLS, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
FOR THE SIXTEEN WEEKS ENDED APRIL 21, 1996 AND APRIL 23, 1995
(UNAUDITED)
1. Organization and Basis of Presentation
The accompanying unaudited combined condensed financial statements of Silver
Diner Development, Inc. - a Delaware Corporation - and subsidiary (the
"Corporation"), Silver Diner Limited Partnership ("SDLP") and Silver Diner
Potomac Mills, Inc. ("SDPMI") (collectively the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the sixteen week period ended April 21, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 29, 1996. For further information, refer to the audited combined
financial statements of Silver Diner Development, Inc. - a Virginia Corporation
- - ("SDDI"), SDLP and SDPMI as of December 31, 1995 and for each of the three
years then ended and footnotes thereto included in the Corporation's Form 8-K
filing dated March 27, 1996.
Principles of Combination and Consolidation
These financial statements reflect the combination of Silver Diner Development,
Inc. and its subsidiary Silver Diner Operating, Inc., SDLP and SDPMI, all of
which are under common management control. All significant intercompany balances
and transactions have been eliminated in consolidation and combination.
2. Merger
On March 27, 1996, FTAC Transition Corporation ("Transition"), a wholly owned
subsidiary of Food Trends Acquisition Corporation ("FTAC") merged (the "Merger")
with and into SDDI with SDDI surviving as a wholly owned subsidiary of FTAC. In
connection with the merger, FTAC changed its name to Silver Diner Development,
Inc. and SDDI changed its name to Silver Diner Operating, Inc. Pursuant to the
merger agreement, each outstanding share of SDDI common stock converted into
33.339 shares of the common stock of FTAC. Upon consummation of the Merger, the
stockholders of SDDI became the owners in the aggregate of approximately 57% of
the outstanding common stock of FTAC and the directors and officers of SDDI
became directors and officers of FTAC.
For accounting and financial reporting purposes, the Merger was treated as a
recapitalization of SDDI and as an issuance of SDDI common shares for monetary
assets and liabilities. The Company has reflected in its combined financial
statements the assets, liabilities and equity of SDDI, SDLP and SDPMI at their
historical book values. Accordingly, the combined results of operations and
financial position of the Company for periods and dates prior to the Merger are
the combined historical results of operations and financial position of SDDI,
SDLP and SDPMI for such periods and dates.
All historical shares of common stock and per share amounts for periods prior to
the Merger have been retroactively adjusted to reflect the FTAC shares issued to
the SDDI shareholders at the time of the merger.
3. Subsequent Event
On May 6, 1996 the Corporation announced that it has offered to purchase the
minority interest in SDLP from the original investors for $2,472,000 in cash and
84,000 warrants to purchase common stock exercisable at $8.00 per share until
the earlier of 30 days following a public offering or January 31, 1998. The
offer, which expires
6
<PAGE>
June 13, 1996 but may be extended at the discretion of the Corporation, is
contingent upon unanimous acceptance by all of the limited partners. The
acquisition will be accounted for under the purchase method and the entire cost
of the transaction, estimated to be $2.7 million, is anticipated to be recorded
as goodwill and amortized on a straight-line basis over 15 years.
4. Stockholders' Equity/Partners' Deficit
The components of stockholders' equity and partners' deficit as reflected in the
accompanying combined condensed balance sheets are as follows:
<TABLE>
<CAPTION>
April 21, 1996 December 31,
1996
-------------- --------------
<S> <C> <C>
Silver Diner Development, Inc.
Common stock, at December 31, 1995, $.10 par value,
1,000,000 shares authorized, 150,947 shares issued and
outstanding; at April 21, 1996, $.00074 par value, 20,000,000
shares authorized; 10,003,858 shares issued and outstanding $ 7,403 $ 15,095
Additional paid-in capital 21,893,914 7,489,754
Common stock options outstanding 665,052 665,052
Accumulated deficit (5,108,531) (4,583,453)
-------------- ---------------
17,457,838 3,586,448
-------------- ---------------
Silver Diner Limited Partnership
General Partner, 1% interest (46,836) (45,106)
Class A Limited Partners, 50% interest collectively - -
Class B Limited Partners, 49% interest collectively (2,478,351) (2,307,068)
-------------- ---------------
(2,525,187) (2,352,174)
-------------- ---------------
Silver Diner Potomac Mills, Inc.
Common stock, $1 par value, 1,000 shares authorized, 100
shares issued and outstanding, net of $100 subscription receivable - -
-------------- ---------------
$ 14,932,651 $ 1,234,274
============== ===============
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Silver Diner Development, Inc. - a Delaware Corporation - and subsidiary (the
"Corporation"), Silver Diner Limited Partnership ("SDLP") and Silver Diner
Potomac Mills, Inc. ("SDPMI") (collectively the "Company") currently operate six
Silver Diners in the Washington/Baltimore metropolitan area. Of the six Silver
Diners in operation, three are owned by the Corporation and the remainder are
owned by SDLP and SDPMI, which are affiliates of the Corporation. The
Corporation plans to open six to eight additional Silver Diners by the end of
1997, which may include openings in a second major metropolitan market. Longer
term, the Corporation plans to expand the Silver Diner chain nationwide through
additional openings of Corporation-owned restaurants and possibly through the
development of franchise or joint venture relationships.
On March 27, 1996, FTAC Transition Corporation ("Transition"), a wholly owned
subsidiary of Food Trends Acquisition Corporation ("FTAC") merged (the "Merger")
with and into Silver Diner Development, Inc. - a Virginia Corporation -
("SDDI"), with SDDI surviving as a wholly owned subsidiary of FTAC. In
connection with the merger, FTAC changed its name to Silver Diner Development,
Inc. and SDDI changed its name to Silver Diner Operating, Inc. Pursuant to the
merger agreement, each outstanding share of SDDI common stock converted into
33.339 shares of the common stock of FTAC. Upon consummation of the Merger, the
stockholders of SDDI became the owners in the aggregate of approximately 57% of
the outstanding common stock of FTAC and the directors and officers of SDDI
became directors and officers of FTAC.
For accounting and financial reporting purposes, the Merger was treated as a
recapitalization of SDDI and as an issuance of SDDI common shares for monetary
assets and liabilities. The Company has reflected in its combined financial
statements the assets, liabilities and equity of SDDI, SDLP and SDPMI at their
historical book values. Accordingly, the combined results of operations and
financial position of the Company for periods and dates prior to the Merger are
the combined historical results of operations and financial position of SDDI,
SDLP and SDPMI for such periods and dates.
In connection with the Merger, on April 2, 1996, notes payable - related party
totaling $1,236,811 were repaid by the offset of amounts due from affiliates of
$355,023 and the net outstanding balance was paid in full by the Corporation. On
April 1, 1996, the Corporation terminated its capital lease obligation with a
related party by purchasing the leased equipment at the remaining lease
obligation balance of approximately $148,000. In addition, the Corporation
repaid certain bank notes of SDDI in the approximate amount of $904,000 on April
4, 1996.
On May 6, 1996, the Corporation announced that it has offered to purchase the
minority interest in SDLP from the original investors for $2,472,000 in cash and
84,000 warrants to purchase common stock exercisable at $8.00 per share until
the earlier of 30 days following a public offering or January 31, 1998. The
offer, which expires June 13, 1996 but may be extended at the discretion of the
Corporation, is contingent on unanimous acceptance by all of the limited
partners. SDLP operates three Silver Diners, including the first Silver Diner in
Rockville, Maryland. Although the offer is not contingent on financing, the
Corporation is considering various financing alternatives, which it plans to
pursue soon after the completion of the purchase transaction.
Because SDLP's financial statements are included in the combined financial
statements of the Company, acquisition of the minority interest will not result
in any change in the Company's future reported net sales, restaurant costs and
expenses or restaurant operating income. The acquisition will be accounted for
under the purchase method and the entire cost of the transaction, estimated to
be $2.7 million, is anticipated to be recorded as goodwill and amortized on a
straight-line basis over 15 years.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of items included in
the combined condensed statements of operations for the periods indicated:
<TABLE>
<CAPTION>
Sixteen Weeks Ended
April 21, April 23,
1996 1995
------------------- -----------------
<S> <C> <C>
Net sales 100% 100%
Restaurant costs and expenses
Cost of sales 27.7% 26.9%
Labor 34.9% 33.0%
Operating 15.1% 15.3%
Occupancy 12.4% 13.0%
Depreciation and amortization 6.5% 4.8%
------------------- -----------------
Restaurant operating income 3.4% 7.0%
------------------- -----------------
General and administrative expenses 13.8% 13.2%
Interest expense 3.6% 1.8%
Investment income -0.6% -0.6%
Depreciation and amortization 0.9% 0.9%
------------------- -----------------
Loss before minority interest and income taxes -14.3% -8.3%
Minority interest in net loss of SDLP - 3.8%
------------------- -----------------
Net Loss -14.3% -4.5%
=================== =================
</TABLE>
Sixteen weeks ended April 21, 1996 compared with the sixteen weeks ended April
21, 1995.
Net sales for the sixteen weeks ended April 21, 1996 ("1996 First Quarter")
increased $1,714,130 to $4,894,428 compared to $3,180,298 for the sixteen weeks
ended April 23, 1995 ("1995 First Quarter"). New restaurants opened during 1995
in Fair Oaks and Tysons Corner, Virginia were primarily responsible for the
increase, contributing $1,777,775 to net sales. Comparable Silver Diner sales
(sales for Silver Diners open throughout both periods being compared) decreased
2.0% due to severe winter weather in the Washington/Baltimore area in January,
1996. Comparable Silver Diner sales increased 0.2% for the last 12 weeks of the
quarter. For the 1996 First Quarter and 1995 First Quarter aggregate sales for
Rockville & Tysons Corner, the Company's highest volume stores, were $2,190,049
and $1,203,474, respectively, or approximately 40% to 45% of net sales. Average
sales for the other four restaurants for the same periods were approximately
$676,000 and $659,000, respectively.
In June, 1996, the Company will introduce on a limited basis in certain existing
restaurants the Silver Diner Market & Bakery, which features a range of
carry-out options targeting the growing "home meal replacement" market, as well
as specialty coffee drinks and an expanded bakery selection. The Company plans
to incorporate an enlarged version of the Silver Diner Market & Bakery in its
new prototype for future restaurant locations. Also, as part of the Company's
ongoing process of menu innovation and development, a summer menu is currently
being implemented, which includes an updated product line designed to enhance
customer frequency and gross profit.
Cost of sales, primarily food and beverage cost, increased 0.8% of net sales to
27.7% in the 1996 First Quarter, compared to 26.9% for the 1995 First Quarter.
Part of this increase was caused by higher food cost at Tysons Corner typically
associated with new store openings and severe winter weather, which increased
waste.
9
<PAGE>
Increased sales in the dinner meal period, which traditionally has more gross
profit but slightly higher food cost as a percentage of net sales, were also a
factor. Management expects cost of sales to decrease as a percentage of net
sales in the second half of 1996 due to implementation of the Summer menu and
the Company's ability to negotiate more favorable pricing from suppliers as a
result of its stronger post-Merger financial condition.
Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, was 34.9% of net sales for the 1996 First Quarter, an
increase of 1.9% of net sales compared to the 1995 First Quarter. This increase
resulted primarily from higher labor costs in the initial periods of operation
at Tysons Corner, increased management compensation designed to reduce turnover
and severe winter weather, which reduced sales and increased labor as a
percentage of net sales.
Legislation is currently pending in Congress which would increase the minimum
wage. Many of the Company's employees are paid hourly wages, and any increase in
the minimum wage would increase the Company's cost. However, management believes
that any such minimum wage increase would be likely to result in industry-wide
restaurant price increases and would not, therefore, have an adverse effect on
the Company relative to its competitors. To the extent that the foodservice
industry is not able to pass along the higher labor costs to its customers, the
Company's operations could be affected.
Operating expenses, which consist of all restaurant operating costs other than
labor and occupancy, including supplies, utilities, repairs and maintenance and
advertising, did not fluctuate significantly as a percentage of net sales,
decreasing slightly from 15.3% in the 1995 First Quarter to 15.1% in the 1996
First Quarter. Although operating expenses are likely to increase during the
summer months due to cable television and direct mail advertising campaigns
supporting the introduction of the Silver Diner Market & Bakery and summer menu,
management believes that sufficient additional gross profit will be generated
from these campaigns to exceed the additional costs.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $194,001 for the 1996 First Quarter compared to the 1995
First Quarter. The new restaurants in Fair Oaks and Tysons Corner had total
occupancy cost of approximately $165,291. The remainder of the increase was
primarily due to consumer price index related rent increases and expansion of
the Rockville diner.
Restaurant depreciation and amortization increased $163,041 for the 1996 First
Quarter compared to the 1995 First Quarter. Of this increase, $180,305 is
associated with Fair Oaks and Tysons Corner, including $120,852 of preopening
cost amortization. Depreciation and amortization also increased due to expansion
of the Rockville diner, but decreased overall in the first four diners due to a
prospective reduction in the estimate useful life of smallwares, which increased
expense in 1995.
General and administrative expenses include the cost of corporate administrative
personnel and functions, multi-unit management and restaurant management
recruitment and initial training. Such expenses were $675,689 in the 1996 First
Quarter, an increase of $254,876 compared to the 1995 First Quarter. As a
percentage of net sales, general and administrative expenses increased from
13.2% in the 1995 First Quarter to 13.8% in the 1996 First Quarter. The
Company's administrative overhead as a percentage of net sales remains above the
industry average primarily due to the cost of building a corporate management
team to support the Company's intermediate and long-term growth plans. Also,
during the 1996 First Quarter, the Company began to incur expenses related to
the recruitment and training of restaurant management to support new Silver
Diner openings in late 1996. During the remainder of 1996, management
anticipates that general and administrative expenses will increase from 1996
First Quarter levels as a percentage of net sales due to higher restaurant
management recruitment and initial training costs in preparation for new store
growth. As revenues increase in 1997 with the addition of new Silver Diners,
general and administrative expenses are expected to decrease significantly as a
percentage of net sales.
In September, 1995, the Corporation raised $2.5 million in a private placement
of subordinated notes and common stock warrants, and in October, 1995 borrowed
$750,000 from a bank. Investment income, interest expense and amortization
expense (related to deferred loan costs) all increased during the 1996 First
Quarter
10
<PAGE>
compared to the 1995 First Quarter as a result of these borrowings. Following
consummation of the merger with FTAC, the subordinated notes were converted
into common stock, the common stock warrants were canceled and SDDI's bank and
affiliate debt was repaid. The debt of SDLP is still outstanding, but will be
repaid if the remaining SDLP minority interest is acquired. Interest expense
and amortization of deferred loan costs will decrease significantly for the
remainder of 1996 due to the repayment of debt. Investment income is expected
to increase substantially in 1996 due to investment of the Merger proceeds.
The limited partners' interest in the net loss of SDLP of $180,175 for the year
ended December 31, 1995 depleted the remaining equity of the limited partners.
Accordingly, minority interest was no longer available to absorb SDLP losses in
the 1996 First Quarter.
Liquidity and Capital Resources
The Company's current financial position is strong as a result of the
consummation of the Merger. At April 21, 1996, cash and cash equivalents were
$10.7 million, working capital was $8.1 million, long-term debt was $307,265 and
stockholders equity was $14.9 million. Cash and cash equivalents increased $9.2
million during the 1996 First Quarter, due primarily to net Merger proceeds of
$12.3 million, less cash used to repay debt, finance the 1996 First Quarter
operating cash flow deficit and pay for purchases of property and equipment,
including construction payables associated with the Tysons Corner Silver Diner,
which opened in December, 1995.
The Company's principal future capital requirement is expected to be the
development of restaurants. The Company plans to open six to eight Company-owned
Silver Diners by the end of 1997. The typical building, equipment (including
smallwares) and site development cost of a new Silver Diner prototype is
expected to be approximately $1,625,000. Land generally will be leased. As of
June 5, 1996, ground leases have been signed for locations in Merrifield,
Clarendon and Springfield, Virginia, and a land purchase contract for a location
in Reston, Virginia has been signed. Due to above average site costs, these four
locations are expected to average approximately $1,690,000 for building,
equipment and site costs. The Reston land is expected to cost approximately
$1,425,000. Management intends to pursue a sale leaseback strategy on the Reston
property following the restaurant's opening.
As discussed under "General" above, the Corporation has offered to purchase the
minority interest in SDLP from the original investors for $2,472,000 in cash and
84,000 warrants to purchase common stock exercisable at $8.00 per share until
the earlier of 30 days following a public offering or January 31, 1998. Although
the offer is not contingent on financing, the Corporation is considering various
financing alternatives, which it plans to pursue soon after the completion of
the purchase transaction.
In light of the Company's stronger post-Merger financial position, the Company
is now, as anticipated, in position to negotiate more favorable pricing with its
suppliers in return for shorter payment terms. Management is currently
negotiating such a change with the Company's primary supplier, and expects to
reduce accounts payable to the supplier by approximately $700,000 during the
Company's fiscal second quarter.
Management believes that the Company's current capital resources, supplemented
by additional capital to be raised following the purchase of the SDLP minority
interest, will be adequate to meet its planned capital requirements through
1997.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
On May 20, 1996, the Company was named as a defendant in a proceeding
instituted in the Circuit Court for Prince George's County, Maryland
captioned Laura Reese v. Roger Richardson and Silver Diner Development,
Inc. The Plaintiff alleges that she was sexually assaulted by Roger
Richardson, who was the general manager of the Laurel Silver Diner. Mr.
Richardson was terminated promptly following occurrence of the event in
November 1994. Plaintiff continues to be an employee of the Company.
The Complaint contains four counts against the Company: failure to
provide a reasonably safe and harassment free working environment,
negligently and unreasonably allowing alcoholic beverages to be
consumed at a Company sponsored event, negligently hiring and retaining
Richardson after knowing of his drinking problem and respondeat
superior. Plaintiff seeks recovery of $500,000 for each Count. It is
not clear if the Counts are in the alternative or cumulative. The
Company has notified its insurance carrier of the filing of the
complaint, but coverage has not yet been extended. The Company does not
believe that it is liable to the Plaintiff and intends to vigorously
defend itself.
Item 4. Submission of Matters to a Vote of Security Holders
As described in the Company's proxy statement dated February 14, 1996,
a special meeting of the stockholders of the Company was held on March
27, 1996 at 10:00 a.m. at the offices of Stroock & Stroock & Lavan
located at Seven Hanover Square, New York, New York 10004. A brief
description of each matter voted upon and the results of the vote are
summarized below:
(1) Adoption of the agreement and plan of reorganization dated August
29, 1995, as amended on January 25, 1996:
For 2,754,745
Against 1,500
Abstain -
(2) Approval of an amendment to the Company's certificate of
incorporation by changing its name to "Silver Diner Development,
Inc." and deleting article six thereto:
For 2,739,745
Against 1,500
Abstain 15,000
Item 6. Exhibits and Reports on Form 8-K
March 27, 1996 - Form 8-K filed on April 11, 1996 regarding the
merger of Silver Diner Development, Inc., a
Virginia corporation, with and into FTAC Transition
Corporation, a wholly owned subsidiary of the
registrant, pursuant to an agreement and plan of
reorganization dated August 29, 1995, as amended on
January 25, 1996. Also, included in this filing were
the audited combined financial statements of SDDI,
SDLP and SDPMI as of December 31, 1995 and for each
of the three years then ended and pro forma
information for the merged entities as of and for
the year ended December 31, 1995.
March 27, 1996 - Form 8-K filed on May 3, 1996 regarding the
assumption of certain material contracts of SDDI
by the registrant, the execution of certain material
contracts by the registrant and the amendment of the
registrant's certificate of incorporation. All of
these documents were filed herewith.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILVER DINER DEVELOPMENT, INC.
------------------------------
(Registrant)
June 5, 1996 / David Oden /
- ------------------ ------------------------------
Date David Oden
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
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<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> APR-21-1996
<CASH> 10,741,891
<SECURITIES> 0
<RECEIVABLES> 0
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<INVENTORY> 90,422
<CURRENT-ASSETS> 10,999,503
<PP&E> 9,321,484
<DEPRECIATION> 2,369,790
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<CURRENT-LIABILITIES> 2,855,738
<BONDS> 307,265
0
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<SALES> 4,894,428
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<CGS> 1,355,022
<TOTAL-COSTS> 1,355,022
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<INCOME-PRETAX> (698,091)
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