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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 23, 2000
Commission File No. 0-24982
SILVER DINER, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-3234411
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
11806 Rockville Pike, Rockville, Maryland, 20852
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(Address of principal executive offices)
(301) 770-0333
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(Registrant's telephone number)
SILVER DINER DEVELOPMENT, INC.
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(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 June 5, 2000:
11,592,691 shares
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SILVER DINER, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 23, 2000
and January 2, 2000 3
Consolidated Statements of Operations
for the Sixteen weeks ended April 23, 2000 and
April 25, 1999 4
Consolidated Statements of Cash Flows for the
Sixteen weeks ended April 23, 2000 and April 25, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Signature 11
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Item 2. Financial Statements
SILVER DINER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 23, January 2,
2000 2000
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,761,022 $ 1,122,755
Marketable securities available for sale -- 813,452
Inventory 147,322 134,698
Prepaid rent -- 158,447
Incentive rebates 21,629 108,928
Prepaid expenses and other current assets 282,352 146,570
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Total current assets 2,212,325 2,484,850
Property, equipment and improvements, net 15,530,232 15,583,903
Due from related parties 126,291 142,293
Goodwill, net 2,057,820 2,114,587
Deposits and other 349,369 268,900
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Total assets $ 20,276,037 20,594,533
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,247,194 1,757,801
Note payable 267,000 267,000
Deferred rent liability 1,256,912 1,295,338
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Total liabilities 3,771,106 3,320,139
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.00074 par value, 20,000,000 shares authorized,
11,592,691 shares issued and outstanding 8,563 8,563
Additional paid-in capital 30,804,387 30,773,262
Unearned compensation (218,771) (227,489)
Treasury stock (161,583) (101,239)
Accumulated deficit (13,927,665) (13,178,703)
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Total stockholders' equity 16,504,931 17,274,394
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Total liabilities and stockholders' equity $ 20,276,037 $ 20,594,533
============ ============
</TABLE>
Accompanying notes are an integral part of these financial statements
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SILVER DINER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
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April 23, April 25,
2000 1999
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<S> <C> <C>
Net sales $ 8,840,179 $ 8,719,730
Restaurant costs and expenses
Cost of sales 2,325,994 2,266,815
Labor 3,083,615 2,980,644
Operating 1,712,641 1,435,595
Occupancy 888,500 885,594
Depreciation and amortization 363,195 366,423
Preopening 25,663 --
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Total restaurant costs and expenses 8,399,608 7,935,071
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Restaurant operating income 440,571 784,659
General and administrative expenses 1,099,840 1,026,967
Depreciation and amortization 110,968 99,299
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Operating loss (770,237) (341,607)
Interest expense 7,061 7,684
Investment income (28,336) (36,794)
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NET LOSS $ (748,962) $ (312,497)
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Basic and diluted loss per common share $ (0.06) $ (0.03)
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Weighted average shares outstanding 11,592,691 11,797,024
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</TABLE>
Accompanying notes are an integral part of these financial statements
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SILVER DINER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
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April 23, April 25,
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net loss $ (748,962) $ (312,497)
Adjustments to reconcile net loss to net cash provided by (used in)
operations
Depreciation and amortization 474,161 465,722
Compensation expense - stock options and deferred compensation 39,843 15,044
Changes in operating assets and liabilities
Inventory (12,624) 18,305
Prepaid rent 158,447 182,796
Incentive rebates 87,299 17,298
Prepaid expenses and current assets (135,782) (20,328)
Deposits and other (59,154) (2,019)
Accounts payable and accrued expenses 489,393 (117,674)
Deferred rent liability (38,426) (4,368)
Advances to officer and employees 16,002 (2,140)
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Net cash provided by operating activities 270,197 240,139
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Cash flows from investing activities
Purchases of property and equipment (385,038) (172,624)
Maturities of marketable securities available for sale 813,452 746,597
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Net cash provided by investing activities 428,414 573,973
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Cash flows from financing activities
Repurchase of common stock from employees -- (10,000)
Purchase of treasury stock (60,344) --
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Net cash used in financing activities (60,344) (10,000)
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Net increase in cash and cash equivalents 638,267 804,112
Cash and cash equivalents at beginning of the period 1,122,755 1,611,757
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Cash and cash equivalents at end of the period $1,761,022 $2,415,869
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Supplemental disclosure of cash flow information:
Interest paid $ 7,061 $ 7,684
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</TABLE>
Accompanying notes are an integral part of these financial statements
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SILVER DINER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXTEEN WEEKS ENDED APRIL 23, 2000 AND APRIL 23, 1999
(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 sixteen-week period ended April 23, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 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 2, 2000.
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 11 diners, 10 in the Washington/Baltimore
metropolitan area and one in Cherry Hill, New Jersey. Currently, there are two
additional Silver Diners under construction, one in the Washington/Baltimore
metropolitan area and one in the Southern Virginia region. The Company is
pursuing additional locations throughout the Mid-Atlantic region for restaurant
openings. 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.
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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:
Sixteen Weeks Ended
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April 23, April 25,
2000 1999
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Net sales 100.0% 100.0%
Restaurant costs and expenses:
Cost of sales 26.3% 26.0%
Labor 34.9% 34.2%
Operating 19.4% 16.5%
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Restaurant operating margin 19.4% 23.3%
Occupancy 10.1% 10.2%
Depreciation and amortization 4.1% 4.2%
Preopening 0.3% 0.0%
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Restaurant operating income 4.9% 8.9%
General and administrative expenses 12.4% 11.8%
Depreciation and amortization 1.3% 1.1%
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Operating loss (8.8)% (4.0)%
Interest expense 0.1% 0.1%
Investment income (0.3)% (0.4)%
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Net Loss (8.6)% (3.7)%
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Net sales for the 16 weeks ended April 23, 2000 ("First Quarter 2000") increased
by $120,449, or 1.4%, to $8,840,179, compared to $8,719,730 for the 16 weeks
ended April 25, 1999 ("First Quarter 1999"). Comparable store 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) in
First Quarter 2000 increased 1.4% compared to the first quarter of 1999.
Contributing to the increase in First Quarter net sales was a 3.5% increase in
average guest check partially offset by the impact of severe weather during the
quarter.
Cost of sales (primarily food and beverage cost) increased by $59,179, or 2.6%,
to $2,325,994 in First Quarter 2000 from $2,266,815 in First Quarter 1999. Cost
of sales as a percentage of net sales increased to 26.3% in First Quarter 2000,
compared to 26.0% in First Quarter 1999.
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Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, increased by $102,971, or 3.5%, to $3,083,615 in the First
Quarter 2000 from $2,980,644 in the First Quarter 1999. Labor as a percentage of
net sales increased to 34.9% in First Quarter 2000 from 34.2% in First Quarter
1999. The increased labor costs were the result of i) higher management
salaries, ii) increasing costs of taxes and benefits and iii) increasing cost of
hourly staff, driven by the tight labor market.
Operating expenses, which consist of all restaurant operating costs other than
labor and occupancy, including supplies, utilities, repairs and maintenance and
advertising, increased by $277,046, or 19.3%, to $1,712,641 in the First Quarter
2000 from $1,435,595 in the First Quarter 1999. Operating expenses as a
percentage of net sales increased to 19.4% in First Quarter 2000 from 16.5% in
First Quarter 1999. The increase in operating expenses was largely due to a
significantly higher advertising expenditure in the First Quarter 2000 compared
to First Quarter 1999 coupled with increases in repairs and maintenance, new
uniforms, higher utility costs, escalating credit card fees and recruitment and
retention efforts focused on hourly staff.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased by $2,906, or .3%, to $888,500 in the First Quarter 2000
from $885,594 in the First Quarter 1999. Occupancy as a percentage of net sales
decreased to 10.1% in First Quarter 2000 from 10.2% in First Quarter 1999.
Restaurant depreciation and amortization decreased $3,228 to $363,195 in First
Quarter 2000 compared to $366,423 in First Quarter 1999. The Company had
preopening costs of $25,663, relating to the start-up activities of the Virginia
Beach and Lakeforest locations. All preopening costs have been expensed as
incurred.
General and administrative expenses include the cost of corporate administrative
personnel and functions, multi-unit management as well as restaurant management
recruitment and initial training, increased by $72,873 to $1,099,840 in First
Quarter 2000 from $1,026,967 in First Quarter 1999. As a percentage of net
sales, general and administrative expenses increased to 12.4% in First Quarter
2000 from 11.8% in First Quarter 1999. This increase was largely related to
timing differences in recording the cost of printing and distributing the
Company's annual report, 10-K and annual proxy statement, as well as the
recruiting, placement and training of restaurant management and executive staff.
The Company's administrative overhead, as a percentage of net sales, remains
above the industry average primarily due to the cost of the corporate management
team required to support the Company's intermediate and long-term growth plans.
As revenues increase with the addition of new Silver Diners, general and
administrative expenses are expected to decrease as a percentage of net sales.
Investment income of $28,336 decreased by $8,458 in the First Quarter 2000,
compared to $36,794 in First Quarter 1999. The decrease is a result of slightly
lower levels of invested cash combined with lower yields. Interest expense
decreased by $623 to $7,061 in First Quarter 2000 from $7,684 in First Quarter
1999.
Depreciation and amortization increased by $11,669, or 11.8%, to $110,968 in
First Quarter 2000 compared to $99,299 in First Quarter 1999. Depreciation and
amortization included goodwill amortization expense of approximately $57,000 in
both First Quarter 2000 and First Quarter 1999.
Net loss for the First Quarter 2000 increased by $436,465 to $748,962 ($0.06 per
share on a basic and diluted basis) in First Quarter 2000 compared to a net loss
of $312,497 ($0.03 per share on a basic and diluted basis) in First Quarter
1999. Management expects that the Company will continue incurring quarterly
losses until sufficient revenue is generated from new units to absorb start-up
expenses and the general and administrative costs associated with developing and
running the Company.
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Liquidity and Capital Resources
The Silver Diner's operations are subject to significant external influences
beyond its control. Any one, or any combination of such factors, could
materially impact the actual results of the Diner's operations. Those factors
include, but are not limited to: (I) changes in general economic conditions,
(II) changes in consumer spending habits, (III) changes in the availability and
cost of raw materials, (IV) changes in the availability of capital resources,
(V) changes in the prevailing interest rates, (VI) changes in the competitive
environment and (VII) changes in the Federal or State laws governing the
business.
At April 23, 2000, cash and cash equivalents were approximately $1.76 million,
the Company had no short-term investments, $267,000 of short-term debt and
stockholders' equity was approximately $16.5 million. Cash and cash equivalents
increased $625,000 during First Quarter 2000, due primarily to the sale of all
of the Company's short-term securities and cash generated from first quarter
operations.
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 approximately $1.3 to $1.5 million as compared to an average
cost of $1.8 million for the last five units constructed, including the
building, equipment and site costs. There is no assurance that the Company's
prototype redesign plans will produce significant savings in the prototype
costs. Land generally will be leased. When land is purchased, management may
pursue a sale-leaseback or debt financing strategy following the restaurant's
opening.
At April 23, 2000, the Company entered into lease agreements for two new
restaurants, Virginia Beach, Virginia and Lakeforest Mall in Gaithersburg, MD,
both of which are currently under construction and are expected to open in the
second and third quarters of 2000, respectively. The Company has been pursuing
additional locations in the Mid-Atlantic area from North Carolina to Southern
New Jersey. To that end, management is presently involved in active negotiations
with prospective landlords at several locations for additional Silver Diner
sites.
Management believes that the Company's current capital resources and expected
2000 cash flow will be adequate to construct two units. In October 1999, the
Company entered into a loan agreement with its lead bank to extend a $3 million
line of credit, of which the proceeds would be used to finance site acquisition,
development and construction of the new Silver Diner restaurants. The original
loan agreement was amended and a replacement agreement was executed in May 2000.
The Company has drawn $1,000,000 under the credit facility to fund construction
related costs. Additional financing will be required to finance growth in 2000
beyond the two diners. Financial covenants contained in the credit facility may
limit the Company's ability to incur new debt or draw all funds under the
credit facility which may restrict the Company's ability to expand.
Year 2000 Issue and Compliance
In connection with the Company's efforts to ensure that its information
technology systems and non-information technology systems were Year 2000
compliant, the Company incurred costs of approximately $17,000 during Fiscal
1999. Additionally, the Company was concurrently upgrading its point-of-sale
systems with a vendor that had been assessed as Year 2000 compliant. These
efforts and the related costs were necessary to ensure the Company did not
experience any significant system failures or other adverse effects on the
routine operation of the Diners. As a result, the Company has not suffered any
system failures to date. Management continues to monitor its technology-based
systems for any undiscovered issues.
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Part II. Other Information
Item 1. Legal Proceedings
No reportable events or material developments in reported events
occurred during the period ended April 23, 2000.
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) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the period ended April
23, 2000.
Item 3 is not applicable and has been omitted.
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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.
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(Registrant)
June 7, 2000 /s/ Craig A. Kendall
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Date Craig A. Kendall
Vice President, Finance
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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