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 10, 1999
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 October 27, 1999:
11,776,107 shares
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of October 10, 1999
and January 3, 1999 3
Consolidated Statements of Operations for the Twelve
and Forty Weeks Ended October 10, 1999 and October 4,
1998 4
Consolidated Statements of Cash Flows for the
Forty Weeks Ended October 10, 1999 and October 4, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Repots 12
Signature 13
2
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 10, January 3,
1999 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,287,241 $ 1,611,757
Marketable securities available for sale 802,705 746,597
Inventory 129,615 139,039
Prepaid rent - 182,796
Incentive rebates 70,635 61,410
Prepaid expenses and other current assets 164,126 110,666
----------------- -----------------
Total current assets 2,454,322 2,852,265
Property, equipment and improvements, net 15,536,384 16,117,417
Due from related parties 157,382 126,516
Goodwill, net 2,157,163 2,299,082
Deposits and other 340,132 243,217
-------------- ---------------
Total assets $20,645,383 $ 21,638,497
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,586,325 $ 1,960,222
Note payable 267,000 267,000
----------------- -----------------
Total current liabilities 1,853,325 2,227,222
Deferred rent liability 1,133,454 1,173,280
----------------- -----------------
Total liabilities 2,986,779 3,400,502
Stockholders' equity:
Preferred stock, at October 10, 1999 and January 3, 1999, $.001 par
value, 1,000,000 shares authorized, none issued - -
Common stock, $.00074 par value, 20,000,000 shares authorized; at
October 10, 1999, 11,776,107 shares issued and outstanding; at
January 3, 1999, 11,585,510 shares issued and outstanding 8,632 8,558
Additional paid-in capital 30,670,863 30,688,714
Treasury Stock (50,000 shares of common stock at cost) (51,051) -
Unearned compensation (178,804) (252,453)
Accumulated deficit (12,791,036) (12,206,824)
------------------ ---------------
Total stockholders' equity 17,658,604 18,237,995
------------------ -----------------
Total liabilities and stockholders' equity $ 20,645,383 $ 21,638,497
================== =================
</TABLE>
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended Forty Weeks Ended
October October October October
10, 1999 4, 1998 10, 1999 4, 1998
----------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 6,982,979 $ 6,742,567 $ 22,522,170 $ 21,584,985
----------------- ---------------- ----------------- ---------------
Restaurant costs and expenses
Cost of sales 1,868,853 1,883,213 5,919,432 6,012,755
Labor 2,301,259 2,238,560 7,575,267 7,314,246
Operating 1,186,016 1,157,495 3,942,778 3,858,627
Occupancy 661,355 652,824 2,215,568 2,172,277
Depreciation and amortization 262,256 291,664 892,544 988,207
----------------- ---------------- ----------------- ---------------
Total restaurant costs and expenses 6,279,739 6,223,756 20,545,589 20,346,112
----------------- ---------------- ----------------- ---------------
Restaurant operating income 703,240 518,811 1,976,581 1,238,873
General and administrative expenses 561,797 481,649 2,369,111 1,933,422
Depreciation and amortization 73,430 66,991 245,344 211,737
----------------- ---------------- ----------------- ---------------
Operating income/(loss) 68,013 (29,829) (637,874) (906,286)
Interest expense 5,084 5,765 18,531 21,270
Investment income (5,021) (19,826) (72,189) (114,704)
----------------- ---------------- ----------------- ---------------
Income/(loss) before cumulative effect of a
change in accounting principle 67,950 (15,768) (584,216) (812,852)
Cumulative effect of a change in accounting
principle - - - (326,868)
----------------- ---------------- ----------------- ---------------
NET INCOME/(LOSS) $ 67,950 $ (15,768) $ (584,216) $ (1,139,720)
================= ================ ================= =============
Basic net income (loss) per common share
Income (loss) per common share before cumulative
effect of a change in accounting principle
$ 0.01 $ (0.00) $ (0.05) $ (0.07)
Cumulative effect of a change in accounting
principle - - (0.03)
----------------- ---------------- ----------------- ---------------
Net income (loss) per common share $ 0.01 $ (0.00) $ (0.05) $ (0.10)
================= ================ ================= ===============
Weighted average shares outstanding 11,719,585 11,581,634 11,775,494 11,589,396
================= ================ ================= ===============
Diluted net income (loss) per common share
Income (loss) per common share before cumulative
effect of a change in accounting principle
$ 0.01 $ (0.00) $ (0.05) $ (0.07)
Cumulative effect of a change in accounting
principle - - (0.03)
----------------- ---------------- ----------------- ---------------
Net income (loss) per common share $ 0.01 $ (0.00) $ (0.05) $ (0.10)
================= ================ ================= ===============
Weighted average shares outstanding 12,025,467 11,581,634 11,775,494 11,589,396
================= ================ ================= ===============
</TABLE>
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Forty Weeks Ended
October 10, 1999 October 4, 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (584,216) $ (1,139,720)
Adjustments to reconcile net loss to net cash provided by (used in)
operations
Cumulative effect of a change in accounting principle - 326,868
Depreciation and amortization 1,137,888 1,199,944
Compensation expense - stock options and deferred compensation 54,946 94,400
Changes in operating assets and liabilities
Inventory 9,424 45,681
Prepaid rent 182,796 -
Incentive rebates (9,225) -
Prepaid expenses and other current assets (53,460) (132,485)
Deposits and other (75,877) 9,704
Accounts payable and accrued expenses (373,897) 22,017
Deferred rent liability (39,826) 42,917
Due from related parties (30,866)
---------------- ---------------
Net cash provided by operating activities 217,687 469,326
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (435,970) (739,932)
Purchases of marketable securities available for sale (802,705) (2,335,718)
Maturities of available for sale marketable securities 746,597 2,000,000
---------------- ---------------
Net cash (used in) investing activities (492,078) (1,075,650)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 926 12,500
Purchase of treasury stock (51,051) (47,500)
---------------- ---------------
Net cash (used in) financing activities (50,125) (35,000)
---------------- ---------------
Net increase/(decrease) in cash and cash equivalents (324,516) (641,324)
Cash and cash equivalents at beginning of the period 1,611,757 1,597,430
---------------- ---------------
Cash and cash equivalents at end of the period $ 1,287,241 $ 956,106
================ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 18,531 $ 21,270
================ ===============
NONCASH INVESTING AND FINANCING:
Construction payables included in accounts payable and accrued
expenses $ - $ 21,411
================ ===============
</TABLE>
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE>
SILVER DINER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWELVE AND FORTY WEEKS ENDED
OCTOBER 10, 1999 AND OCTOBER 4, 1998
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Silver Diner,
Inc., a Delaware Corporation, and its wholly owned subsidiary, Silver Diner
Development, Inc. ("SDDI"), (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
10, 1999 are not necessarily indicative of the results that may be expected for
the year ending January 2, 2000. All significant intercompany balances and
transactions have been eliminated in consolidation. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended January 3, 1999.
2. CHANGE IN ACCOUNTING PRINCIPLE
On April 3, 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Cost of Start-Up
Activities". SOP No. 98-5 requires that costs associated with start-up
activities, such as opening a new facility, be expensed as incurred. This SOP is
effective for financial statements with fiscal years beginning after December
15, 1998, however, early application is encouraged.
Prior to the sixteen weeks ended April 19, 1998, the Company capitalized
preopening costs, including payroll, employee recruitment and advertising,
incurred in the restaurant start-up and training period prior to the opening of
each restaurant, and amortized these costs over twelve months from the date of
opening. For the sixteen weeks ended April 19, 1998 the Company elected early
application of SOP 98-5. As a result of the early application, all preopening
costs capitalized as of December 28, 1997 were expensed and recorded as a
cumulative effect of a change in accounting principle for the sixteen weeks
ended April 19, 1998.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING DISCLOSURE
Certain information included herein contains statements that are
forward-looking, such as statements relating to plans for future expansion and
other business development activities as well as operating costs, capital
spending, financial sources and the effects of competition. Such forward-looking
information is subject to changes and variations which are not reasonably
predictable and which could significantly affect future results. Accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These changes and variations which could
significantly affect future results include, but are not limited to, those
relating to development and construction activities, including delays in opening
new Diners, acceptance of the Silver Diner concept, the quality of the Company's
restaurant operations, the adequacy of operating and management controls,
dependence on discretionary consumer spending, dependence on existing
management, inflation and general economic conditions, and changes in federal or
state laws or regulations.
GENERAL
The Company currently operates ten Silver Diners in the
Washington/Baltimore metropolitan area and one in Cherry Hill, New Jersey. The
Company's twelfth restaurant is currently under construction in Virginia Beach,
Virginia. Additionally, the Company has recently signed a lease, subject to
certain contingencies, to open its thirteenth Silver Diner in Lake Forest Mall
in Gaithersburg, Maryland. The Company is engaged in active negotiations for
additional locations throughout the Mid-Atlantic region. Longer term, the
Company's vision is 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.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of items
included in the consolidated statements of operations for the periods indicated:
<TABLE>
<CAPTION>
Twelve Weeks Ended Forty Weeks Ended
October October October 10, October 4,
10, 1999 4, 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Restaurant costs and expenses:
Cost of sales 26.8% 27.9% 26.3% 27.9%
Labor 33.0% 33.2% 33.6% 33.9%
Operating 17.0% 17.2% 17.5% 17.8%
-------------- ------------- ------------- -------------
Restaurant operating margin 23.2% 21.7% 22.6% 20.4%
Occupancy 9.5% 9.7% 9.8% 10.1%
Depreciation and amortization 3.8% 4.3% 4.0% 4.6%
-------------- ------------- ------------- -------------
Restaurant operating income 9.9% 7.7% 8.8% 5.7%
General and administrative expenses 8.0% 7.1% 10.5% 8.9%
Depreciation and amortization 1.1% 1.0% 1.1% 1.0%
-------------- ------------- ------------- -------------
Operating income/(loss) 0.8% (0.4%) (2.8%) (4.2%)
Interest expense 0.1% 0.1% 0.1% 0.1%
Investment income (0.1%) (0.3%) (0.3%) (0.5%)
-------------- ------------- ------------- -------------
Income/(loss) before cumulative effect of a
change in accounting principle 0.8% (.2%) (2.6%) (3.8%)
Cumulative effect of a change in accounting
principle - - - (1.5%)
-------------- ------------- ------------- -------------
Net Income/(Loss ) 0.8% (.2%) (2.6%) (5.3%)
============== ============= ============= =============
</TABLE>
Net sales for the twelve weeks ended October 10, 1999 ("Third Quarter 1999")
increased $240,412, or 3.6%, to $6,982,979, compared to $6,742,567 for the 12
weeks ended October 4, 1998 ("Third Quarter 1998"). Year-to-date, net sales for
the forty weeks ended October 10, 1999 ("1999 YTD Period") increased $937,185,
or 4.3%, to $22,522,170, compared to $21,584,985 for the forty weeks ended
October 4, 1998 ("1998 YTD Period"). The increase for Third Quarter 1999 was
primarily attributable to net sales generated by a 0.7% increase in customer
traffic coupled with a 2.9% increase in average guest check. The increase for
the 1999 YTD Period was attributable to similar increases in customer counts and
average guest check.
8
<PAGE>
Comparable Silver Diner net sales (net sales for Silver Diners open
throughout both periods being compared, excluding the initial six months of
operations during which net sales are typically higher than normal) for the 1999
Third Quarter increased 3.5% compared to the third quarter of 1998 and for the
1999 YTD Period increased 6.2% compared to the 1998 YTD Period. The increases in
comparable net sales for the quarter were the continuing result of the Company's
110% guarantee initiative and direct coupon mailing. The 110% guarantee
initiative calls for a 10% discount for a patron's current meal and a coupon for
a free entree if not completely satisfied with the meal, while the direct
mailing involved distributing discount entree coupons. These two initiatives
continued the trend of increased customer traffic over the first three quarters
of 1998 and, combined with the increases in average net sales per customer
discussed above, resulted in the increased net sales.
Cost of sales, primarily food and beverage costs decreased to 26.8% of net
sales for Third Quarter 1999, compared to 27.9% of net sales for Third Quarter
1998. Cost of sales for the 1999 YTD Period were 26.3% of net sales, compared to
27.9% of net sales for the 1998 YTD Period. The decrease from the Third Quarter
1998 was attributable to the Company's ongoing focus on the cost of its menu
offerings combined with less extensive seasonal menu updates.
Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, decreased to 33.0% of net sales in Third Quarter 1999
compared to 33.2% of net sales for Third Quarter 1998. For the 1999 YTD Period,
labor expense as a percentage of sales decreased from 33.9% in the 1998 YTD
Period to 33.6%. During 1999 labor expenses, as a percentage of net sales, have
remained reasonably stable as a result of increased unit volumes partially
offset by a highly competitive labor market.
Operating expenses, which consist of all restaurant operating costs other
than cost of goods, labor and occupancy, including supplies, utilities, repairs
and maintenance and advertising, decreased to 17.0% of net sales for Third
Quarter 1999, compared to 17.2% for Third Quarter 1998. For the 1998 YTD Period,
operating expenses decreased from 17.8% in 1998 to 17.5%. Operating expenses in
both the quarterly and year-to-date periods were favorably affected by continued
operational cost control efforts.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $8,531 for Third Quarter 1999 compared to Third Quarter
1998. The increase of $43,291 for the 1999 YTD Period over the 1998 YTD Period
was due primarily to normal annual rent increases. As a percentage of net sales,
occupancy has decreased from 9.7% for Third Quarter 1998 to 9.5% for Third
Quarter 1999, and from 10.1% for the 1998 YTD Period to 9.8% for the 1999 YTD
period.
Restaurant depreciation and amortization decreased $29,408 for Third Quarter
1999 compared to Third Quarter 1998 and decreased $95,663 for 1999 YTD Period
compared to 1998 YTD Period. Both the decrease for the Third quarter and for the
year-to-date period were due to the Fourth Quarter 1998 reduction in the
Company's asset base. Prior to the First Quarter 1998, the Company had
capitalized all preopening costs and amortized these costs over a twelve-month
period. As a result of the application of SOP No. 98-5, all preopening cost as
of December 28, 1997 were expensed and recorded as a cumulative effect of a
change in accounting principle for the First Quarter of 1998.
9
<PAGE>
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 $561,797 for
Third Quarter 1999, an increase of $80,148, or 16.6%, compared to Third Quarter
1998. As a percentage of net sales, general and administrative expenses
increased to 8.0% for Third Quarter 1999 from 7.1% for Third Quarter 1998. The
increase was attributable to a 1998 reversal of an accrual relating to the
executive bonus plan and the 1998 reorganizing and streamlining of the Company's
stock option plans. All other changes were mitigated by the capitalization of
approximately $13,500 of previously expensed legal costs associated with the
Company's growth strategy and the recapture of approximately $46,600 of use
taxes paid in prior periods. General and administrative expenses for the 1999
YTD Period increased $435,689, or 22.5% from $1,933,422 in 1998 YTD Period.
Despite the increase in general and administrative expenses in the 1999
reporting periods, the Company remains committed to controlling overhead
expenses, and expects general and administrative expenditures to decrease as a
percentage of sales as a result of overall operating leverage.
Depreciation and amortization increased $6,439 to $73,430 for Third Quarter
1999 as compared to $66,991 in the Third Quarter 1998 and increased $33,607 to
$245,344 for the 1999 YTD Period compared to $211,737 in the 1998 YTD Period.
The increased expense for both reporting periods is a function of purchases of
equipment. Depreciation and amortization included goodwill amortization expense
of approximately $43,000 for both the Third Quarter 1998 and 1999 and
approximately $142,000 for both year-to-date periods.
The Company earned $5,021 in investment income for Third Quarter 1999,
compared to investment income of $19,826 for Third Quarter 1998. Investment
income for 1999 YTD Period was $72,189 compared to $114,704 in 1998 YTD period.
The decrease for both the quarterly and year-to-date periods is the result of
reduced levels of invested funds and the under-performance of the specific
investment vehicles. Interest expense of $5,084 in Third Quarter 1999 decreased
slightly from the Third Quarter 1998. For the 1999 YTD Period interest expense
of $18,531 decreased by $2,739 as compared to the 1998 YTD Period.
Net Income for Third Quarter 1999 was $67,950, or $0.01 per share, compared
to a net loss of $15,768, or $0.00 per share, for Third Quarter 1998. Net loss
before cumulative effect of a change in accounting principle for 1998 YTD Period
was $812,852, or $0.07 per share, compared to $584,216, or $0.05 per share, for
1999 YTD Period. Net loss for the forty weeks ended October 10, 1999 was
$584,216, or $0.05 per share, compared to $1,139,720, or $0.10 per share for the
forty weeks ended October 4, 1998. During the Third Quarter 1999 the Silver
Diner was able to demonstrate that it can generate modest profits with only
eleven mature restaurants in a period without the incremental costs associated
with opening new units. Next quarter, in preparation for our first 2000 new unit
opening, we will again begin to incur pre-opening expenses. However, our
experience this quarter bodes well for the Company going forward after it
absorbs the various pre-opening and start-up costs associated with the new unit
openings of 2000.
LIQUIDITY AND CAPITAL RESOURCES
At October 10, 1999, cash and cash equivalents were approximately $2.09
million, working capital was approximately $0.60 million, the Company had $0.27
million of debt and stockholders' equity was approximately $17.66 million. Cash
and cash equivalents decreased $0.27 million during the 1999 YTD Period, due
primarily to expenditures for property and equipment coupled with a reduction of
the Company's trade payables.
The Company's principal future capital requirement is expected to be the
development of restaurants. Currently, the typical building, equipment
(including smallwares) and site development cost of a new Silver Diner prototype
is expected to be $1.3 to $1.5 million. However, due to above average site costs
and architectural and design costs, the five Silver Diner locations opened since
December 1995 have averaged approximately $1.8 million for building, equipment
and site costs. The Company is currently in the early
10
<PAGE>
stages of executing the new prototype design to decrease the cost of the Silver
Diner prototype at the Virginia Beach, Virginia restaurant. There is no
assurance that the Company's prototype redesign plans will produce significant
savings in the prototype costs. Land will generally be leased. When land is not
leased, management may pursue a purchase, sale-leaseback, build-to-suit or debt
financing strategy.
The Company currently has one restaurant under construction, and as
previously announced has recently signed a lease, subject to certain
contingencies, for a mall unit in Gaithersburg, Maryland, both of which are
scheduled to open in 2000. The Company has been pursuing locations in new
geographical markets, specifically in the Mid-Atlantic area from North Carolina
to Southern New Jersey. To that end, the Company is presently involved in active
negotiations with prospective landlords at several locations for additional new
stores.
Management believes that the Company's current capital resources and expected
1999 cash flow will be adequate to construct up to two units. Additional
financing will be required to finance growth in 2000 beyond the next two diners.
The Company has entered into a loan agreement with its lead bank to extend a
$3.0 million credit facility that is sufficient to fund at least two additional
diners. Management may be forced to limit unit growth, if it is unable to meet
certain criteria defined in the formal loan documents.
YEAR 2000 ISSUE AND COMPLIANCE
The Year2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and other devices with embedded technology that are
date-sensitive may incorrectly recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities both at the restaurant and corporate level. The Company is
continually evaluating its risk and the related costs of updating its computer
hardware and software to properly process Year2000 and later dates. Its major
supplier and lead bank have provided assurance of Year2000 preparedness and the
Company has upgraded its point of sale systems, which has been assessed by the
vendor as being Year2000 compliant. Further outside consultants have assured the
Company, that the presence of embedded technology throughout its restaurants and
corporate offices do not have any significant Year2000 issues. The Company
expects the cost related to the Year2000 issue to be between $10,000 and $50,000
and has incurred costs of approximately $17,000 to date. In the event that the
Company's systems fail as a result of the Year2000 issue, management believes
that the Company's restaurants will remain operating on a manual basis. The
risks associated with this contingency plan involve the decreased level of
operational controls and the inability to process credit card transactions.
The forward-looking nature, lack of precedent and general uncertainty
surrounding the Year2000 issue present a difficult set of disclosure
circumstances, the only certainty is in fact uncertainty as to what might occur
after December 31, 1999. Management believes they have taken the necessary,
prudent steps relating to the Year2000 issue and its business enterprise.
However, management cannot guarantee that their actions are accurate or complete
and actual results could vary significantly from expectations. Notwithstanding
our preparation, unforeseen failures by third parties, public utilities and
infrastructure or our own failure to identify and remedy Year2000 issues could
have a material adverse impact on our restaurant operations, cash flows and
overall financial condition.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable events or material developments in reported events
occurred during the twelve-week period ended October 10, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27. Financial Data Schedule (Submitted electronically for SEC
information only)
(B) REPORT ON FORM 8-K
September 29, 1999 - Form 8-K filed in regard to a change of the
Registrant's auditors.
Item 3 is not applicable and has been omitted.
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, INC.
-----------------------------
(Registrant)
November 24, 1999 /s/ Craig A. Kendall
- ------------------------------- ------------------------------
Date Craig A. Kendall
Vice President, Finance
(Duly Authorized Officer and
Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Silver Diner, Inc. and Subsidiaries, for the twelve
weeks ended October 10, 1999, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000923134
<NAME> Silver Diner, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> OCT-10-1999
<CASH> 1,287,241
<SECURITIES> 802,705
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 129,615
<CURRENT-ASSETS> 2,454,322
<PP&E> 21,275,722
<DEPRECIATION> 5,739,338
<TOTAL-ASSETS> 20,645,383
<CURRENT-LIABILITIES> 1,853,325
<BONDS> 0
<COMMON> 8,632
0
0
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<INTEREST-EXPENSE> 18,531
<INCOME-PRETAX> (584,216)
<INCOME-TAX> 0
<INCOME-CONTINUING> (584,216)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (584,216)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
