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 July 14, 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)
SILVER DINER DEVELOPMENT, INC.
- -------------------------------------------------------------------------------
(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 July 31, 1996: 11,503,858
shares
<PAGE>
SILVER DINER, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of July 14, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations for
the Twelve weeks ended July 14, 1996 and July 16,
1995 and the Twenty eight weeks ended July 14, 1996
and July 16, 1995 4
Consolidated Condensed Statement of Stockholders' Equity
for the Twenty eight weeks ended July 14, 1996 5
Consolidated Condensed Statements of Cash Flows for the
Twenty eight weeks ended July 14, 1996 and July 16, 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 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 14, December 31,
1996 1995
----------------- -----------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $14,806,292 $ 1,584,716
Inventory 107,070 117,393
Prepaid and other current assets 203,239 72,152
----------------- -----------------
Total current assets 15,116,601 1,774,261
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and leasehold improvements 5,721,493 5,661,681
Furniture, fixtures and equipment 3,468,193 3,322,656
Construction in progress 370,927 -
----------------- -----------------
Total 9,560,613 8,984,337
Less accumulated depreciation and amortization (2,525,455) (2,170,350)
----------------- -----------------
Net property, equipment and improvements 7,035,158 6,813,987
OTHER ASSETS
Deposits and other 298,090 304,689
Due from affiliates - 355,023
Preopening costs, net 75,184 239,750
Goodwill, other intangibles and deferred costs, net 3,207,325 1,306,759
----------------- -----------------
TOTAL ASSETS $25,732,358 $10,794,469
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,354,191 $ 3,582,238
Current maturities of notes to related parties - 200,000
Current maturities of long-term debt 109,956 3,193,125
----------------- -----------------
Total current liabilities 2,464,147 6,975,363
OTHER LIABILITIES
Deferred rent liability 627,119 574,821
Notes to related parties, less current maturities - 1,036,811
Long-term debt, less current maturities 281,571 973,200
----------------- -----------------
Total liabilities 3,372,837 9,560,195
STOCKHOLDERS' EQUITY 22,359,521 1,234,274
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,732,358 $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 Twenty Eight Weeks Ended
July 14, July 16, July 14, July 16,
1996 1995 1996 1995
--------------- --------------- --------------- --------------
<S> <C>
Net sales $3,974,420 $3,499,534 $8,868,848 $6,679,832
Restaurant costs and expenses
Cost of sales 1,093,769 984,096 2,448,791 1,839,017
Labor 1,288,696 1,163,169 2,997,133 2,211,178
Operating 606,875 514,057 1,348,026 1,002,188
Occupancy 429,440 385,091 1,037,131 798,782
Depreciation and amortization 197,113 180,197 514,178 334,221
--------------- --------------- --------------- --------------
Total restaurant costs and expenses 3,615,893 3,226,610 8,345,259 6,185,386
--------------- --------------- --------------- --------------
Restaurant operating income 358,527 272,924 523,589 494,446
General and administrative expenses 672,912 428,828 1,348,601 849,641
Interest expense 14,851 70,783 189,560 128,497
Investment income (105,543) (18,468) (138,645) (38,847)
Depreciation and amortization 24,444 22,441 70,301 51,702
--------------- --------------- --------------- --------------
Loss before minority interest and income taxes (248,137) (230,660) (946,228) (496,547)
Minority interest in net loss of SDLP - 58,105 - 180,175
--------------- --------------- --------------- --------------
Loss before income taxes (248,137) (172,555) (946,228) (316,372)
Income taxes - - - -
--------------- --------------- --------------- --------------
NET LOSS $ (248,137) $ (172,555) $ (946,228) $ (316,372)
=============== =============== =============== ==============
Net loss per common share $ (0.02) $ (0.03) $ (0.12) $ (0.06)
=============== =============== =============== ==============
Weighted average common shares outstanding 10,075,287 5,027,659 7,853,126 5,001,805
=============== =============== =============== ==============
</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)
Twenty eight weeks ended July 14, 1996
<TABLE>
<CAPTION>
Additional Common
Common stock Paid-in Stock Options Accumulated
Shares Amount Capital Outstanding Deficit Total
------ ------ ---------- ------------- ------------ -----
<S> <C>
Balance at December 31, 1995 150,947 $15,095 $7,489,754 $665,052 $(6,935,627) $ 1,234,274
Common stock issued at Merger 9,227,911 (8,155) 11,966,120 -- -- 11,957,965
Conversion of convertible debt to equity 625,000 463 2,499,537 -- -- 2,500,000
Proceeds from issuance of stock 1,500,000 1,110 7,612,400 -- -- 7,613,510
Net loss -- -- -- -- (946,228) (946,228)
---------- ------ ----------- -------- ----------- -----------
Balance at July 14, 1996 11,503,858 $8,513 $29,567,811 $665,052 $(7,881,855) $22,359,521
========== ====== =========== ======== =========== ===========
</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>
Twenty Eight Weeks Ended
July 14, July 16,
1996 1995
-------------- ---------------
<S> <C>
Cash flows from operating activities
Net loss $ (946,228) $ (316,372)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 584,479 385,923
Compensation expense - stock options and deferred compensation 35,907 54,526
Minority interest - (180,175)
Changes in operating assets and liabilities
Inventory 10,323 (11,264)
Prepaid expenses and other assets (131,087) 52,869
Preopening, other intangibles and deferred costs (23,324) (298,407)
Accounts payable and accrued expenses (1,142,634) 14,340
Lease and other deposits 6,599 (33,895)
Deferred rent liability 52,298 (25,503)
-------------- ---------------
Net cash used in operating activities (1,553,667) (357,958)
Cash flows from investing activities
Purchases of property and equipment (920,260) (956,310)
Maturities of short-term investments - 1,045,765
Payment of advances to affiliates - (31,431)
-------------- ---------------
Net cash provided by (used in) investing activities (920,260) 58,024
Cash flows from financing activities
Net proceeds from merger 12,166,964 -
Net proceeds from sale of stock 8,202,214 202,502
Acquisition of outstanding interest in Silver Diner Limited Partnership (2,517,089) -
Proceeds from notes payable - 270,000
Proceeds from notes payable - related party - 89,627
Payments on advances - affiliates - (13,000)
Payments of principal - notes payable (1,274,798) (382,555)
Payments of principal - notes payable - related party (881,788) -
-------------- ---------------
Net cash provided by financing activities 15,695,503 166,574
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 13,221,576 (133,360)
Cash and cash equivalents at beginning of the period 1,584,716 281,463
-------------- ---------------
Cash and cash equivalents at end of the period $ 14,806,292 $ 148,103
============== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 130,711 $ 26,428
============== ===============
Noncash investing and financing activities:
Construction payables included in accounts
payable and accrued expenses $ 12,500 $ 30,990
============== ===============
Financing and acquisition costs included in accounts
payable and accrued expenses $ 845,474 $ -
============== ===============
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 $ -
============== ===============
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 TWENTY EIGHT WEEKS ENDED JULY 14, 1996 AND JULY 16, 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 twenty eight week periods ended July 14, 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 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.
7
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
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. In connection with the sale, the Company has agreed to register the
shares with the Securities and Exchange Commission.
5. Stockholders' Equity
The components of stockholders' equity as reflected in the accompanying
consolidated condensed balance sheets are as follows:
<TABLE>
<CAPTION>
July 14, 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 July 14, 1996, $.00074 par value, 20,000,000
shares authorized; 11,503,858 shares issued and outstanding $ 8,513 $ 15,095
Additional paid-in capital 29,567,811 7,489,754
Common stock options outstanding 665,052 665,052
Accumulated deficit (7,881,855) (6,935,627)
-------------- ---------------
$ 22,359,521 $ 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, which may include openings in a second major metropolitan
market. 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., 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.
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 all of the limited
partnership interests 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 the first public offering of Common Stock
or January 31, 1998. The offer was accepted by 100% of the limited partners.
Because SDLP's financial statements were previously combined with the Company's,
the acquisition of the minority interest did not result in any change in the
Company's 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. 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. In connection with
the sale, the Company has agreed to register the shares with the Securities and
Exchange Commission.
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:
9
<PAGE>
<TABLE>
<CAPTION>
12 Weeks Ended 28 Weeks Ended
----------------------- ---------------------------------
-
July 14, July 16, July 14, July 16,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Restaurant costs and expenses
Cost of sales 27.5% 28.1% 27.6% 27.5%
Labor 32.4% 33.2% 33.8% 33.1%
Operating 15.3% 14.7% 15.2% 15.0%
Occupancy 10.8% 11.0% 11.7% 12.0%
Depreciation and amortization 5.0% 5.2% 5.8% 5.0%
-------------- -------------- --------------- --------------
Restaurant operating income 9.0% 7.8% 5.9% 7.4%
General and administrative expenses 16.9% 12.3% 15.2% 12.7%
Interest expense 0.4% 2.0% 2.1% 1.9%
Investment income -2.7% -0.5% -1.5% -0.6%
Depreciation and amortization 0.6% 0.6% 0.8% 0.8%
-------------- -------------- --------------- --------------
Loss before minority interest
and income taxes -6.2% -6.6% -10.7% -7.4%
Minority interest in net loss of SDLP 0.0% 1.7% 0.0% 2.7%
-------------- -------------- --------------- --------------
Net loss -6.2% -4.9% -10.7% -4.7%
============== ============== =============== ==============
</TABLE>
Net sales for the twelve weeks ended July 14, 1996 ("1996 Second Quarter")
increased $474,886 to $3,974,420 compared to $3,499,534 for the twelve weeks
ended July 16, 1995 ("1995 Second Quarter"). Year-to-date, net sales for the
twenty-eight weeks ended July 14, 1996 ("1996 YTD Period") increased $2,189,016
to $8,868,848 compared to $6,679,832 for the twenty-eight weeks ended July 16,
1995 ("1995 YTD Period"). New restaurants opened during 1995 in Fair Oaks and
Tysons Corner, Virginia were primarily responsible for the increases, adding
$444,975 and $2,222,750 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 twelve months of operations during
which sales are typically higher than normal) increased 1.2% for the quarter and
decreased 0.6% year-to-date. Year-to-date comparable Silver Diner sales were
reduced by severe winter weather in the Washington / Baltimore area in January
1996. Excluding January, 1996 year-to-date comparable Silver Diner sales
increased 0.7%. Average net sales for Rockville and Tysons Corner, the Company's
highest volume stores, were $1,964,000 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 $1,235,000.
In June 1996, the Company introduced on a test basis in certain existing
restaurants the Silver Diner Market & Bakery, which features a wide 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.
Cost of sales, primarily food and beverage cost, decreased 0.6% of net sales to
27.5% in the 1996 Second Quarter, compared to 28.1% for the 1995 Second Quarter.
Year-to-date, cost of sales increased 0.1% of net sales. The lower cost in the
1996 Second 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.
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 32.4% of net sales for the 1996 Second Quarter, a
decrease of 0.8% of net sales compared to the 1995 Second Quarter. Year-to-date,
labor increased 0.7% of net sales to 33.8% for the 1996 YTD Period, compared to
33.1% for the 1995 YTD Period. The 1996 Second 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.
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, increased to 15.3% of net sales for the 1996 Second Quarter,
compared to 14.7% for the 1995 Second Quarter. Year-to-date, operating expenses
increased 0.2% of net sales to 15.2% of net sales for the 1996 YTD period.
Higher marketing costs were primarily responsible for the increases. Although
operating expenses are likely to continue to exceed historical levels during the
summer months due to cable television and direct mail advertising campaigns
supporting the introduction of the Silver Diner Market & Bakery, management
believes that sufficient additional gross profit will be generated from these
campaigns to offset the additional costs.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $44,349 for the 1996 Second Quarter compared to the 1995
Second Quarter, and $238,349 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 $16,916 for the 1996 Second
Quarter compared to the 1995 Second Quarter, and $179,957 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 Quarter and 1996 YTD Period include approximately $45,000 and
$165,000, respectively, of preopening amortization, compared to $45,000 for both
the 1995 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 $672,912 in the 1996 Second
Quarter, an increase of $244,084 compared to the 1995 Second Quarter.
Year-to-date, general and administrative expenses were $1,348,601, an increase
of $498,960 compared to the 1995 YTD Period. As a percentage of net sales,
general and administrative expenses increased from 12.3% in the 1995 Second
Quarter to 16.9% in the 1996 Second Quarter, and from 12.7% in the 1995 YTD
Period to 15.2% in the 1996 YTD Period. Increased corporate salary costs,
higher restaurant management 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. During
the remainder of 1996, management anticipates that
11
<PAGE>
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 Second Quarter due to investment of
the Merger proceeds, and will be further increased through investment of the
Private Placement proceeds.
Depreciation and amortization for the 1996 Second Quarter includes $14,200 for
amortization of goodwill related to the acquisition of the SDLP minority
interest.
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 July 14, 1996, cash and
cash equivalents were $14.8 million, working capital was $12.7 million,
long-term debt (including current maturities) was $391,527 and stockholders'
equity was $22.4 million. Cash and cash equivalents increased $13.2 million
during the 1996 YTD Period, due primarily to net Merger proceeds of $12.2
million and net Private Placement proceeds of approximately $7.6 million, less
cash used to repay debt, finance the 1996 YTD Period operating cash flow
deficit, pay for purchases of property and equipment, including construction
payables associated with the Tysons Corner Silver Diner, which opened in
December 1995, and to acquire all of the limited partnership interests in SDLP.
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
July 31, 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 executed. 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. Construction has begun on the
Clarendon location.
Management believes that the Company's current capital resources will be
adequate to meet its planned capital requirements through 1997.
12
<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.
Item 6. Exhibits and Reports on Form 8-K
June 13, 1996 - Form 8-K filed on June 26, 1996 regarding the
Company's acquisition of all of the Class A and Class
B limited partner interests in Silver Diner Limited
Partnership.
13
<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)
August 7, 1996 /s/ David Oden
- ------------------------------------ --------------------------------------
Date David Oden
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
14
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<PERIOD-START> APR-22-1996
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