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 October 6, 1996
Commission File No. 0-24982
SILVER DINER, 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)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since the last report)
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
November 18, 1996: 11,520,527shares
<PAGE>
SILVER DINER, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of October 6, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations for the
Twelve Weeks Ended October 6, 1996 and October 8, 1995 and the
Forty Weeks Ended October 6, 1996 and October 8, 1995 4
Consolidated Condensed Statement of Stockholders' Equity
for the Forty Weeks Ended October 6, 1996 5
Consolidated Condensed Statements of Cash Flows for the
Forty Weeks Ended October 6, 1996 and October 8, 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 14
Signature 15
2
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 6, December 31,
1996 1995
------------- ------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $12,822,956 $ 1,584,716
Inventory 105,984 117,393
Prepaid and other current assets 298,503 72,152
------------- ------------
Total current assets 13,227,443 1,774,261
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and leasehold improvements 5,758,149 5,661,681
Furniture, fixtures and equipment 3,502,335 3,322,656
Construction in progress 1,061,943 -
------------- ------------
Total 10,322,427 8,984,337
Less accumulated depreciation and amortization (2,670,095) (2,170,350)
------------- ------------
Net property, equipment and improvements 7,652,332 6,813,987
OTHER ASSETS
Deposits and other 414,497 304,689
Due from affiliates - 355,023
Preopening costs, net 31,078 239,750
Goodwill, other intangibles and deferred costs, net 3,197,345 1,306,759
------------- ------------
TOTAL ASSETS $24,522,695 $10,794,469
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,668,156 $ 3,582,238
Current maturities of notes to related parties - 200,000
Current maturities of long-term debt - 3,193,125
------------- ------------
Total current liabilities 1,668,156 6,975,363
OTHER LIABILITIES
Deferred rent liability 638,423 574,821
Notes to related parties, less current maturities - 1,036,811
Long-term debt, less current maturities - 973,200
------------- ------------
Total liabilities 2,306,579 9,560,195
STOCKHOLDERS' EQUITY 22,216,116 1,234,274
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,522,695 $10,794,469
============= ============
</TABLE>
Accompanying notes are an integral part of these financial statements
3
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended Forty Weeks Ended
October 6, October 8, October 6, October 8,
1996 1995 1996 1995
----------------- ---------------- --------------- ---------------
<S> <C>
Net sales $ 3,892,818 $ 3,297,137 $12,761,666 $ 9,976,969
Restaurant costs and expenses
Cost of sales 1,063,498 906,485 3,512,289 2,745,503
Labor 1,242,751 1,075,739 4,239,884 3,286,917
Operating 601,194 519,593 1,949,220 1,521,781
Occupancy 442,638 388,921 1,479,769 1,187,702
Depreciation and amortization 189,665 181,361 703,843 515,582
----------------- ---------------- --------------- ---------------
Total restaurant costs and expenses 3,539,746 3,072,099 11,885,005 9,257,485
----------------- ---------------- --------------- ---------------
Restaurant operating income 353,072 225,038 876,661 719,484
General and administrative expenses 647,845 553,855 1,996,446 1,403,496
Interest expense 6,589 90,648 196,149 219,145
Investment income (162,835) (20,398) (301,480) (59,244)
Depreciation and amortization 61,057 22,815 131,358 74,517
----------------- ---------------- --------------- ---------------
Loss before minority interest and income taxes (199,584) (421,882) (1,145,812) (918,430)
Minority interest in net loss of SDLP - - - 180,175
----------------- ---------------- --------------- ---------------
Loss before income taxes (199,584) (421,882) (1,145,812) (738,255)
Income taxes - - - -
----------------- ---------------- --------------- ---------------
NET LOSS $ (199,584) $ (421,882) $(1,145,812) $ (738,255)
================= ================ =============== ===============
Net loss per common share $ (0.02) $ (0.08) $ (0.13) $ (0.15)
================= ================ =============== ===============
Weighted average common shares outstanding 11,520,130 5,032,422 8,953,227 5,010,990
================= ================ =============== ===============
</TABLE>
Accompanying notes are an integral part of these financial statements
4
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Forty Weeks Ended October 6, 1996
<TABLE>
<CAPTION>
Additional
Common stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C>
Balance at December 31, 1995 150,947 $15,095 $ 8,154,806 $(6,935,627) $ 1,234,274
Common stock issued at Merger 9,227,911 (8,155) 11,723,165 - 11,715,010
Conversion of convertible debt and
related accrued interest to equity 625,000 463 2,673,328 - 2,673,791
Proceeds from issuance of stock 1,500,000 1,111 7,551,949 - 7,553,060
Exercise of Stock Options 16,669 12 38 - 50
Repurchase of Outstanding Options - - (30,348) - (30,348)
Stock Options Compensation Expense - - 74,131 - 74,131
Common Stock Warrants Issued - - 141,960 - 141,960
Net loss - - - (1,145,812) (1,145,812)
---------- --------- ----------- ------------ ------------
Balance at October 6, 1996 11,520,527 $ 8,526 $30,289,029 $(8,081,439) $22,216,116
========== ========= =========== ============ ============
</TABLE>
Accompanying notes are an integral part of these financial statements
5
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Forty Weeks Ended
October 6, October 8,
1996 1995
-------------- --------------
<S> <C>
Cash flows from operating activities
Net loss $ (1,145,812) $ (738,255)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 835,201 590,099
Compensation expense - stock options and deferred compensation 74,131 250,755
Minority interest - (180,175)
Changes in operating assets and liabilities
Inventory 11,409 (3,967)
Prepaid expenses and other assets (226,350) 57,208
Preopening, other intangibles and deferred costs (67,633) (282,799)
Accounts payable and accrued expenses (1,311,706) 653,568
Lease and other deposits (109,807) (31,179)
Deferred rent liability 63,602 (20,710)
-------------- --------------
Net cash used in operating activities (1,876,965) 294,545
Cash flows from investing activities
Purchases of property and equipment (1,588,349) (2,397,539)
Maturities of short-term investments - 1,529,543
Purchase of short-term investment - (120,000)
Payment of advances to affiliates - (52,245)
-------------- --------------
Net cash provided by (used in) investing activities (1,588,349) (1,040,241)
Cash flows from financing activities
Net proceeds from merger 12,071,149 (76,394)
Net proceeds from sale of stock 7,727,904 202,502
Acquisition of outstanding interest in Silver Diner Limited Partnership (2,517,088) -
Proceeds from notes payable - 2,870,000
Payments on advances - affiliates - (13,000)
Payments of principal - notes payable (1,666,325) (530,538)
Payments of principal - notes payable - related party (881,788) -
Proceeds from exercise of stock options 50
Repurchase of employee stock options (30,348) -
-------------- --------------
Net cash provided by financing activities 14,703,554 2,452,570
-------------- --------------
Net increase (decrease) in cash and cash equivalents 11,238,240 1,706,874
Cash and cash equivalents at beginning of the period 1,584,716 281,463
-------------- --------------
Cash and cash equivalents at end of the period $ 12,822,956 $ 1,988,337
============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ 137,300 $ 127,043
============== ==============
Noncash investing and financing activities:
Construction payables included in accounts payable and accrued
expenses $ 44,247 $ 290,779
============== ==============
Financing and acquisition costs included in accounts payable
and accrued expenses $ 77,054 $ 315,266
============== ==============
Repayment of notes payable - related party by offset of
amounts due from affiliates $ 355,023 $ -
============== ==============
Conversion of senior subordinated convertible promissory notes &
accrued interest to 625,000 shares of common stock $ 2,673,791 $ -
============== ==============
Issuance of 84,000 warrants in conjunction with SDLP purchase $ 141,960 $ -
============== ==============
</TABLE>
Accompanying notes are an integral part of these financial statements
6
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE TWELVE AND FORTY WEEKS ENDED OCTOBER 6, 1996 AND OCTOBER 8, 1995
(UNAUDITED)
1. Organization and Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of Silver
Diner, Inc., a Delaware Corporation, and its wholly owned subsidiaries, Silver
Diner Development, Inc. and Silver Diner Limited Partnership ("SDLP"),
(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
twelve and forty week periods ended October 6, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 29,
1996. All significant intercompany balances and transactions have been
eliminated in consolidation. As a result of the Company's acquisition of the
minority interest in SDLP (See Note 3), the Company owns 100% of SDLP and as
such is presenting results on a consolidated basis. As SDLP's financial
statements were previously combined with the Company's, the change to a
consolidated basis does not have a substantive impact on the Company's financial
statements. For further information, refer to the audited combined financial
statements of Silver Diner Development, Inc., a Virginia Corporation, ("SDDI"),
SDLP and Silver Diner Potomac Mills, Inc. as of December 31, 1995 and January 1,
1995 and for each of the three years in the period ended December 31, 1995 and
footnotes thereto included in the Company's Form 8-K filing dated March 27,
1996.
2. Merger
On March 27, 1996, FTAC Transition Corporation, 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 in
June 1996, to Silver Diner, 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 consolidated financial
statements the assets, liabilities and equity of the Company at their historical
book values. Accordingly, the consolidated results of operations and financial
position of the Company for periods and dates prior to the Merger are the
consolidated historical results of operations and financial position of the
Company 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. Acquisition of Minority Interest in Silver Diner Limited Partnership
On June 13, 1996 the Company completed its purchase of all of the limited
partnership interests in SDLP from the original investors for $2,472,000 in cash
and 84,000 warrants ("New Warrants") to purchase common stock exercisable at
$8.00 per share. The New Warrants are exercisable until the earlier of 30 days
following a public offering of common stock or January 31, 1998. The offer was
unanimously
7
<PAGE>
accepted by all of the limited partners. The acquisition was accounted for under
the purchase method and the entire cost of the transaction, totaling $2.8
million, has been recorded as goodwill and is being amortized on a straight-line
basis over 15 years.
4. Sale of Stock
On July 11, 1996, the Company completed a $8,250,000 private placement of common
stock through the sale of 1.5 million shares at $5.50 per share ("Private
Placement"). Approximately $2.5 million of the approximately $7.6 million net
proceeds of the sale will be used to replace the funds used for the acquisition
of the minority interests in SDLP, and the remainder will be available to fund
expansion. On August 7, 1996, the Company registered the shares with the
Securities and Exchange Commission on Form S-3.
5. Stockholders' Equity
The components of stockholders' equity as reflected in the accompanying
consolidated condensed balance sheets are as follows:
<TABLE>
<CAPTION>
October 6, December 31,
1996 1995
----------- ------------
<S> <C>
Silver Diner, Inc.
Common stock, at December 31, 1995, $.10 par value,
1,000,000 shares authorized, 150,947 pre-merger shares issued and
outstanding; at October 6, 1996, $.00074 par value, 20,000,000
shares authorized; 11,520,527 shares issued and outstanding $ 8,526 $ 15,095
Additional paid-in capital 30,289,029 8,154,806
Accumulated deficit (8,081,439) (6,935,627)
------------ -------------
$22,216,116 $ 1,234,274
============ =============
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company currently operates six Silver Diners in the Washington/Baltimore
metropolitan area, and plans to open six to eight additional Silver Diners by
the end of 1997, including one each in the Philadelphia-Southern New Jersey area
and South Florida. Longer term, the Company plans to expand the Silver Diner
chain nationwide through additional openings of Company-owned restaurants and
possibly through the development of franchise or joint venture relationships.
On March 27, 1996, FTAC Transition Corporation, a wholly owned subsidiary of
FTAC, merged with and into SDDI, a Virginia Corporation, with SDDI surviving as
a wholly owned subsidiary of FTAC. In connection with the Merger, FTAC changed
its name to Silver Diner Development, Inc., then subsequently to Silver Diner,
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 consolidated financial
statements the assets, liabilities and equity of SDDI, SDLP and SDPMI at their
historical book values. Accordingly, the consolidated results of operations and
financial position of the Company for periods and dates prior to the Merger are
the consolidated 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.
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 Company. On
April 1, 1996, the Company 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 Company repaid
certain bank notes of SDDI in the approximate amount of $904,000 on April 4,
1996.
On June 13, 1996, the Company completed its purchase of 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 was accepted by
100% of the limited partners. Because SDLP's financial statements are included
in the consolidated 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 has been accounted for under the purchase method and the entire cost
of the transaction, totaling $2.8 million, has been recorded as goodwill and is
being amortized on a straight-line basis over 15 years.
On July 11, 1996, the Company completed a $8,250,000 Private Placement of common
stock through the sale of 1.5 million shares at $5.50 per share. Of the $7.6
million net proceeds of the sale, $2.5 million was used to replace the funds
used for the acquisition of the minority interests in SDLP, approximately
$400,000 was used to repay the bank debt of SDLP and the remainder will be
available to fund expansion. On August 7, 1996, the Company registered the
shares with the Securities and Exchange Commission on Form S-3.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of items included in
the consolidated condensed statements of operations for the periods indicated:
<TABLE>
<CAPTION>
12 Weeks Ended 40 Weeks Ended
----------------------- -----------------------
October 6, October 8, October 6, October 8,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Restaurant costs and expenses
Cost of sales 27.3% 27.5% 27.5% 27.5%
Labor 31.9% 32.6% 33.2% 32.9%
Operating 15.5% 15.8% 15.3% 15.3%
---------- ---------- ---------- ----------
Restaurant operating margin 25.3% 24.1% 24.0% 24.3%
Occupancy 11.3% 11.8% 11.6% 11.9%
Depreciation and amortization 4.9% 5.5% 5.5% 5.2%
---------- ---------- ---------- ----------
Restaurant operating income 9.1% 6.8% 6.9% 7.2%
General and administrative expenses 16.6% 16.8% 15.7% 14.1%
Interest expense 0.2% 2.7% 1.5% 2.2%
Investment income -4.2% -0.6% -2.3% -0.6%
Depreciation and amortization 1.6% 0.7% 1.0% 0.7%
---------- ---------- ---------- ----------
Loss before minority interest
and income taxes -5.1% -12.8% -9.0% -9.2%
Minority interest in net loss of SDLP 0.0% 0.0% 0.0% 1.8%
---------- ---------- ---------- ----------
Net loss -5.1% -12.8% -9.0% -7.4%
========== ========== ========== ==========
</TABLE>
Net sales for the twelve weeks ended October 6, 1996 ("1996 Third Quarter")
increased $595,681 to $3,892,818 compared to $3,297,137 for the twelve weeks
ended October 8, 1995 ("1995 Third Quarter"). Year-to-date, net sales for the
forty weeks ended October 6, 1996 ("1996 YTD Period") increased $2,784,697 to
$12,761,666 compared to $9,976,969 for the forty weeks ended October 8, 1995
("1995 YTD Period"). New restaurants opened during 1995 in Fair Oaks and Tysons
Corner, Virginia were primarily responsible for the increases, adding $649,553
and $2,872,303 to net sales for the current quarter and year-to-date periods,
respectively.
Comparable Silver Diner sales (sales for Silver Diners open throughout both
periods being compared, excluding the initial six months of operations during
which sales are typically higher than normal) decreased 2.1% for the quarter and
1.0% year-to-date. Average net sales for Rockville and Tysons Corner, the
Company's highest volume stores, were $2,812,000 for the 1996 YTD period, with
the two stores aggregating approximately 44% of net sales. Average net sales for
the other four restaurants for the same period were approximately $1,784,000.
Cost of sales, primarily food and beverage cost, decreased 0.2% of net sales to
27.3% in the 1996 Third Quarter, compared to 27.5% for the 1995 Third Quarter.
Year-to-date, cost of sales was unchanged compared to the prior year at 27.5% of
net sales. The lower cost in the 1996 Third Quarter was primarily attributable
to lower food cost at Fair Oaks compared to the higher cost in 1995 typically
associated with a new store opening. Management was also able to offset higher
wholesale food costs during the quarter through improved purchasing as a result
of the Company's stronger financial condition.
10
<PAGE>
Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, was 31.9% of net sales for the 1996 Third Quarter, a
decrease of 0.7% of net sales compared to the 1995 Third Quarter. Year-to-date,
labor increased 0.3% of net sales to 33.2% for the 1996 YTD Period, compared to
32.9% for the 1995 YTD Period. The 1996 Third Quarter labor cost was positively
impacted by lower labor costs in Fair Oaks compared to the higher cost in 1995
typically associated with a new store opening. The 1996 YTD Period increase
resulted primarily from higher labor costs in the initial periods of operation
at Tysons Corner, increased management compensation and particularly severe
winter weather in January 1996, which reduced sales and increased labor as a
percentage of net sales.
Congress recently passed legislation which increased the minimum wage effective
October 1, 1996. Many of the Company's employees are paid hourly wages, and any
increase in the minimum wage increases the Company's cost. Management estimates
that the minimum wage increase will increase the Company's overall labor cost by
approximately 0.2% to 0.3% of net sales. The Company expects to recover this
increased cost through increased operating efficiencies, and to a lesser degree,
price increases to customers.
Operating expenses, which consist of all restaurant operating costs other than
labor and occupancy, including supplies, utilities, repairs and maintenance and
advertising, decreased to 15.5% of net sales for the 1996 Third Quarter,
compared to 15.8% for the 1995 Third Quarter. Year-to-date, operating expenses
were unchanged at 15.3% of net sales. Timing of marketing expenditures were
primarily responsible for the 1996 Third Quarter decrease.
Restaurant operating margin, which consists of net sales minus cost of sales,
labor and operating expenses exclusive of occupancy, improved to 25.3% of net
sales for the 1996 Third Quarter from 24.1% for the 1995 Third Quarter.
Year-to-date, restaurant operating margin decreased 0.3% of net sales to 24.0%
for the 1996 YTD Period, compared to 24.3% for the 1995 YTD Period. Management
believes restaurant operating margin is the most consistent measure of store
level operating results because it focuses on unit level performance. The third
quarter improvement was due to better control of costs overall, and the maturing
of the Company's new stores at Fair Oaks and Tysons Corner. Year-to-date,
restaurant operating margin was reduced by the higher costs at Tysons Corner
typically associated with new store openings.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $53,717 for the 1996 Third Quarter compared to the 1995
Third Quarter, and $292,067 for the 1996 YTD Period compared to the 1995 YTD
Period. Occupancy costs for the new restaurants in Fair Oaks and Tysons Corner
accounted for most of the increase.
Restaurant depreciation and amortization increased $8,304 for the 1996 Third
Quarter compared to the 1995 Third Quarter, and $188,261 for the 1996 YTD Period
compared to the 1995 YTD period. These increases were primarily associated with
the new restaurant openings at Fair Oaks and Tysons Corner. 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
estimated useful life of smallwares, which increased expense in 1995. The 1996
Third Quarter and 1996 YTD Period include approximately $45,000 and $210,000,
respectively, of preopening amortization, compared to $46,000 and $91,000,
respectively, for the 1995 Third Quarter and 1995 YTD Period. Preopening costs
are amortized on a straight-line basis over twelve months from the date of each
new restaurant opening.
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 $647,845 in the 1996 Third
Quarter, an increase of $93,990 compared to the 1995 Third Quarter.
Year-to-date, general and administrative expenses were $1,996,446, an increase
of $592,950 compared to the 1995 YTD Period. As a percentage of net sales,
general and administrative expenses increased from 16.6% in the 1995 Third
Quarter to 16.8% in the 1996 Third Quarter, and from 14.1% in the 1995 YTD
Period to 15.6% in the 1996 YTD Period. Increased corporate salary costs, higher
restaurant management
11
<PAGE>
and recruitment costs, new menu costs and additional expenses related to being a
public company were the primary factors contributing to the increases. 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 YTD Period, the Company began to incur expenses related to the
recruitment and training of restaurant management to support new Silver Diner
openings in late 1996 and early 1997. During the remainder of 1996, management
anticipates that general and administrative expenses will continue to exceed
1995 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 as a percentage of net sales.
In September 1995, the Company 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 YTD
Period compared to the 1995 YTD Period 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 bank debt of SDLP was subsequently
repaid in late July 1996 following acquisition of the SDLP minority interest.
Interest expense and amortization of deferred loan costs will decrease
significantly for the remainder of 1996 due to the repayment of debt. Interest
income increased significantly in the 1996 Third Quarter due to investment of
the Merger and Private Placement proceeds.
Depreciation and amortization for the 1996 Third Quarter and 1996 YTD Period
includes approximately $43,000 and $57,000, respectively, for amortization of
goodwill related to the acquisition of the SDLP minority interest.
The net loss for the 1996 Third Quarter was $199,584, or $0.02 per share,
compared to the net loss of $421,882, or $0.08 per share, for the 1995 Third
Quarter. Net loss for the 1996 YTD Period was $1,145,812, or $0.13 per share,
compared to the net loss of $738,255, or $0.15 per share, for the 1995 YTD
Period. Average shares outstanding increased from 5,032,422 for the 1995 Third
Quarter to 11,520,130 for the 1996 Third Quarter, and from 5,010,990 for the
1995 YTD Period to 8,953,227 for the 1996 YTD Period. The increase in shares
resulted from the Merger and the Private Placement. Managment expects that the
Company will continue incurring relatively modest losses until sufficient
revenue is generated from new units to absorb start-up expenses and the
increased overhead put in place to support the Company's growth plans.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current financial position is strong as a result of the
consummation of the Merger and the Private Placement. At October 6, 1996, cash
and cash equivalents were $12.8 million, working capital was $11.6 million, the
Company had no long-term debt and stockholders' equity was $22.2 million. Cash
and cash equivalents increased $11.2 million during the 1996 YTD Period, due
primarily to net Merger proceeds of $12.1 million and net Private Placement
proceeds of approximately $7.7 million, less cash used to repay debt, finance
the 1996 YTD Period 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. When
land is purchased, management intends to pursue a sale leaseback or debt
financing strategy following the restaurant's opening. The Company is currently
under construction in the Washington/Baltimore market on locations in
12
<PAGE>
Clarendon, Merrifield, Springfield and Reston, Virginia. Due to above average
site costs, these four locations are expected to average approximately $1.7
million for building, equipment and site costs. The Reston land is being
purchased for approximately $1.1 million. The Clarendon diner is expected to
open near the end of 1996. The Merrifield store, originally scheduled to open
near the end of 1996, will open early in the first quarter of 1997. Management
is continuing to negotiate to obtain other sites in the Washington/Baltimore
market.
The Company has been aggressively pursuing locations in new geographical
markets, specifically the Philadelphia-Southern New Jersey area and South
Florida. To that end, the Company has entered into a lease agreement and a land
purchase agreement that, pending successful completion of site plan
contingencies, will allow the Company to open a new store in each of those
markets in the second half of 1997.
Management believes that the Company's current capital resources will be
adequate to meet its planned capital requirements through 1997.
13
<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's insurance carrier is currently defending the claim with
reservation of rights. The Company does not believe that it is liable
to the Plaintiff and intends to vigorously defend itself.
14
<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, INC.
----------------------------------------------------
(Registrant)
November 18, 1996 /s/ David Oden
- ------------------ ----------------------------------------------------
Date David Oden
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> OCT-06-1996
<CASH> 12,822,956
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 105,984
<CURRENT-ASSETS> 13,227,443
<PP&E> 10,322,427
<DEPRECIATION> 2,670,095
<TOTAL-ASSETS> 24,522,695
<CURRENT-LIABILITIES> 1,668,156
<BONDS> 0
0
0
<COMMON> 8,526
<OTHER-SE> 22,207,590
<TOTAL-LIABILITY-AND-EQUITY> 24,522,695
<SALES> 12,761,666
<TOTAL-REVENUES> 12,761,666
<CGS> 3,512,289
<TOTAL-COSTS> 3,512,289
<OTHER-EXPENSES> 8,372,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,149
<INCOME-PRETAX> (1,145,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,145,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,145,812)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
