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 AND EXCHANGE ACT OF 1934
For the quarterly period ended October 8, 2000
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
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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 November 7, 2000:
11,622,220 shares
SILVER DINER, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of October 8, 2000 (unaudited)
and January 2, 2000 3
Consolidated Statements of Operations for the
Twelve and Forty Weeks Ended October 8, 2000 (unaudited)
and October 10, 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the
Forty Weeks Ended October 8, 2000 (unaudited) and
October 10, 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 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 on Form 8-K 12
Signature 13
2
Item1. Financial Statements
SILVER DINER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 8, January 2,
2000 2000
------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 581,201 $ 1,122,755
Marketable securities available for sale - 813,452
Inventory 152,720 134,698
Prepaid rent - 158,447
Incentive rebates 57,988 108,928
Prepaid expenses and other current assets 242,689 146,570
------------------- -----------------
Total current assets 1,034,598 2,484,850
Property, equipment and improvements, net 16,745,202 15,583,903
Due from related parties 109,116 142,293
Goodwill, net 1,972,669 2,114,587
Deposits and other 450,610 268,900
------------------- -------------------
Total assets $ 20,312,195 $ 20,594,533
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,307,854 $ 1,757,801
Note payable - current portion 17,800 267,000
------------------- -------------------
Total current liabilities 2,325,654 2,024,801
Deferred rent liability 1,169,296 1,295,338
Long-term note payable 1,246,233 -
------------------- -------------------
Total liabilities 4,741,183 3,320,139
Stockholders' equity:
Preferred stock, at October 8, 2000 and January 2, 2000, $.001 - -
par value, 1,000,000 shares authorized; none issued
Common stock, $.00074 par value, 20,000,000 shares authorized; 8,585 8,563
at October 8, 2000, 11,622,220 shares issued and outstanding;
at January 2, 2000, 11,592,691 shares issued and outstanding
Additional paid-in capital 30,816,345 30,773,262
Unearned Compensation (158,149) (227,489)
Treasury stock (183,702 shares of common stock at cost) (121,820) (101,239)
Accumulated deficit (14,973,949) (13,178,703)
------------------- -------------------
Total stockholders' equity 15,571,012 17,274,394
------------------- -------------------
Total liabilities and stockholders' equity $ 20,312,195 $ 20,594,533
=================== ===================
The accompanying notes are an integral part of these financial statements
3
SILVER DINER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Twelve Weeks Ended Forty Weeks Ended
October 8, October 10, October 8, October 10,
2000 1999 2000 1999
---------------- ----------------- --------------- -----------------
Net sales $ 7,681,668 $ 6,982,979 $ 24,044,141 $ 22,522,170
---------------- ----------------- --------------- -----------------
Restaurant costs and expenses
Cost of sales 2,022,860 1,868,853 6,411,339 5,919,432
Labor 2,674,933 2,301,259 8,351,595 7,575,267
Operating 1,467,205 1,186,016 4,609,153 3,942,778
Occupancy 729,165 661,355 2,311,014 2,215,568
Depreciation and amortization 319,001 262,256 967,875 892,544
Preopening expenses 132,298 - 316,652 -
---------------- ----------------- --------------- ------------------
Total restaurant costs and expenses 7,345,462 6,279,739 22,967,628 20,545,589
---------------- ----------------- --------------- ------------------
Restaurant operating income 336,206 703,240 1,076,513 1,976,581
General and administrative expenses 714,778 561,797 2,617,073 2,369,111
Depreciation and amortization 83,245 73,430 278,895 245,344
---------------- ----------------- --------------- ------------------
Operating income/(loss) (461,817) 68,013 (1,819,455) (637,874)
Interest expense 29,203 5,084 56,837 18,531
Investment income, net (26,442) (5,021) (81,046) (72,189)
---------------- ----------------- --------------- ------------------
NET INCOME/(LOSS) (464,578) 67,950 (1,795,246) (584,216)
Basic and diluted net income (loss) per $ (0.04) $ 0.01 $ (0.15) $ (.05)
common share
Weighted average common shares outstanding 11,622,220 11,719,585 11,607,760 11,775,494
================ ================= =============== ==================
The accompanying notes are an integral part of these financial statements
4
SILVER DINER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Forty Weeks Ended
October 8, October 10,
2000 1999
----------------- ----------------
Cash flows from operating activities
Net loss $ (1,795,246) $ (584,216)
Adjustments to reconcile net loss to net cash provided by (used in)
operations
Depreciation and amortization 1,246,769 1,137,888
Compensation expense - stock options and deferred compensation 123,643 54,946
Changes in operating assets and liabilities
Inventory (18,022) 9,424
Prepaid rent 158,447 182,796
Incentive rebates 50,940 (9,225)
Prepaid expenses and other current assets (96,119) (53,460)
Deposits and other (58,820) (75,877)
Accounts payable and accrued expenses 482,772 (373,897)
Deferred rent liability (126,042) (39,826)
Due from related parties 33,172 (30,866)
----------------- ----------------
Net cash provided by operating activities 1,494 217,687
----------------- ----------------
Cash flows from investing activities
Purchases of property and equipment (2,321,754) (435,970)
Purchases of marketable securities available for sale - (802,705)
Maturities of available for sale marketable securities 813,452 746,597
----------------- ----------------
Net cash (used in) investing activities (1,508,302) (492,078)
----------------- ----------------
Cash flows from financing activities
Net proceeds from sale of common stock 17,303 926
Purchase of treasury stock (76,582) (51,051)
Sale of treasury stock 27,500 -
Proceeds of long-term debt 1,000,000 -
Payment of long-term debt (2,967) -
----------------- ----------------
Net cash provided by (used in) financing activities 965,254 (50,125)
----------------- ----------------
Net (decrease) in cash and cash equivalents (541,554) (324,516)
Cash and cash equivalents at beginning of the period 1,122,755 1,611,757
----------------- ----------------
Cash and cash equivalents at end of the period $ 581,201 $ 1,287,241
================= ================
Supplemental disclosure of cash flow information:
Interest paid $ 48,558 $ 18,531
================= ================
Noncash investing and financing:
Construction payables included in accounts payable and
accrued expenses $ 67,286 $ -
================= =================
The accompanying notes are an integral part of these financial statements
5
SILVER DINER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWELVE AND FORTY WEEKS ENDED
OCTOBER 8, 2000 AND OCTOBER 10, 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 twelve and forty week periods ended October
8, 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.
6
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 eleven Silver Diners in the
Washington/Baltimore metropolitan area, one in Cherry Hill, New Jersey, and one
in Virginia Beach, Virginia. Additionally, the Company has recently signed a
lease, subject to certain contingencies, to open its fourteenth diner in the
Pentagon Row Shopping Center in Arlington, Virginia. The Company is engaged in
active negotiations for additional locations throughout the Mid-Atlantic region.
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.
7
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:
Twelve Weeks Ended Forty Weeks Ended
October 8, October 10, October 8, October 10,
2000 1999 2000 1999
-------------- ------------- -------------- --------------
Net sales 100.0% 100.0% 100.0% 100.0%
Restaurant costs and expenses:
Cost of sales 26.3% 26.8% 26.7% 26.3%
Labor 34.8% 33.0% 34.7% 33.6%
Operating 19.1% 17.0% 19.2% 17.5%
-------------- ------------- -------------- --------------
Restaurant operating margin 19.8% 23.2% 19.4% 22.6%
Occupancy 9.5% 9.5% 9.6% 9.8%
Depreciation and amortization 4.2% 3.8% 4.0% 4.0%
Preopening expenses 1.7% - 1.3% -
-------------- ------------- -------------- --------------
Restaurant operating income 4.4% 9.9% 4.5% 8.8%
General and administrative expenses 9.3% 8.0% 10.9% 10.5%
Depreciation and amortization 1.1% 1.1% 1.2% 1.1%
-------------- ------------- -------------- --------------
Operating income/(loss) (6.0%) 0.8% (7.6%) (2.8%)
Interest expense 0.4% 0.1% 0.2% 0.1%
Investment income, net (0.3%) (0.1%) (0.3%) (0.5%)
-------------- ------------- -------------- --------------
Net Income/(Loss) (6.1%) 0.8% (7.5%) (2.6%)
============== ============= ============== ==============
Net sales for the twelve weeks ended October 8, 2000 ("Third Quarter 2000")
increased $698,689, or 10.0%, to $7,681,668, compared to $6,982,979 for the 12
weeks ended October 10, 1999 ("Third Quarter 1999"). Year-to-date, net sales for
the forty weeks ended October 8, 2000 ("2000 YTD Period") increased $1,521,971,
or 6.8%, to $24,044,141, compared to $22,522,170 for the forty weeks ended
October 10, 1999 ("1999 YTD Period"). The increase for Third Quarter 2000 was
attributable to sales generated by new stores offset by a 9.1% decrease in
customer traffic coupled with a 7.4% increase in average guest check. The
increase for the 2000 YTD Period was attributable to similar changes in customer
counts and average guest check.
Comparable Silver Diner sales (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 2000 Third Quarter
decreased 2.7% compared to the third quarter of 1999 and for the 2000 YTD Period
increased 1.3% compared to the 1999 YTD Period. The decrease in comparable sales
for the quarter was the result of reduced customer traffic during the summer
period.
8
Cost of sales, primarily food and beverage costs decreased to 26.3% of net
sales for Third Quarter 2000, compared to 26.8% of net sales for Third Quarter
1999. Cost of sales for the 2000 YTD Period were 26.7% of net sales, compared to
26.3% of net sales for the 1999 YTD Period. The decrease from the Third Quarter
1999 was primarily attributable to higher than expected volume rebates from food
purveyors. The impact of the new stores opening was approximately 0.6% for the
Third Quarter 2000 and 0.3% for the 2000 YTD Period.
Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, increased to 34.8% of net sales in Third Quarter 2000
compared to 33.0% of net sales for Third Quarter 1999. For the 2000 YTD Period,
labor expense as a percentage of sales increased from 33.6% in the 1999 YTD
Period to 34.7%. Excluding the impact of new store openings, labor expenses as a
percentage of net sales were 33.4% and 34.0% for the Third Quarter 2000 and 2000
YTD Period, respectively. The increase was due primarily to higher average
hourly wages.
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, increased to 19.1% of net sales for Third Quarter
2000, compared to 17.0% for Third Quarter 1999. For the 2000 YTD Period,
operating expenses increased from 17.5% in 1999 to 19.2%. The increase in
operating expenses in the Third Quarter 2000 was the result of higher
advertising and marketing expenses and increases in supply items. The increase
for the 2000 YTD Period was principally due to higher advertising and marketing
expenses in the first quarter combined with higher repairs and maintenance,
utility and unit staffing expenses throughout the forty-week period.
Additionally, the impact of new stores unfavorably affected the operating
expense performance of the Company for the Third Quarter 2000 and the 2000 YTD
Period by 0.5% and 0.3%, respectively.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $67,810 for Third Quarter 2000 compared to Third Quarter
1999. The increase of $95,446 for the 2000 YTD Period over the 1999 YTD Period
was due primarily to new store facility costs. As a percentage of net sales,
occupancy for the Third Quarter 2000 and the Third Quarter 1999 was 9.5%, and
decreased from 9.8% for the 1999 YTD Period to 9.6% for the 2000 YTD period.
Restaurant depreciation and amortization increased $56,745 for Third Quarter
2000 compared to Third Quarter 1999 and increased $75,331 for 2000 YTD Period
compared to 1999 YTD Period. The company incurred preopening expenses of
$132,298 and $316,652 for the Third Quarter 2000 and 2000 YTD Period,
respectively, relating to the Virginia Beach, Virginia and Lakeforest Mall,
Gaithersburg, Maryland locations.
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 $714,778 for
Third Quarter 2000, an increase of $152,981, or 27.2%, compared to Third Quarter
1999. As a percentage of net sales, general and administrative expenses
increased to 9.3% for Third Quarter 2000 from 8.0% for Third Quarter 1999.
General and administrative expenses for the 2000 YTD Period increased $247,962,
or 10.5% from $2,369,111 in the 1999 YTD Period. Despite the increase in general
and administrative expenses in the 2000 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 $9,815 to $83,245 for Third Quarter
2000 as compared to $73,430 in the Third Quarter 1999 and increased $33,551 to
$278,895 for the 2000 YTD Period compared to $245,344 in the 1999 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 1999 and 2000 and
approximately $142,000 for both year-to-date periods.
The Company earned $26,442 in investment income for Third Quarter 2000,
compared to investment income of $5,021 for Third Quarter 1999. Investment
income for 2000 YTD Period was $81,046 compared to $72,189 in 1999 YTD period.
The increase for both the quarterly and year-to-date periods is the result of
temporarily increased levels of invested funds. Interest expense of $29,203 in
Third Quarter 2000 increased from the Third Quarter 1999 as a result of the
$1,000,000 drawdown on the $3,000,000 credit facility. For the 2000 YTD Period
interest expense of $56,837 increased by $38,306 as compared to the 1999 YTD
Period.
9
Net loss for Third Quarter 2000 was ($464,578), or ($0.04) per share on a
basic and diluted basis, compared to net income of $67,950, or $0.01 per share
on a basic and diluted basis, for Third Quarter 1999. Net loss for the forty
weeks ended October 8, 2000 was ($1,795,246), or ($0.15) per share on a basic
and diluted basis, compared to ($584,216), or ($0.05) per share on a basic and
diluted basis for the forty weeks ended October 10, 1999. Exclusive of the
impact of new stores (Virginia Beach, VA and Lake Forest, Gaithersburg, MD), the
net loss would have been reduced by approximately $235,000 for the Third Quarter
2000 and $486,000 for the 2000 YTD Period, and net loss per share amounts would
have been reduced by $ 0.02 for the Third Quarter 2000 and $ 0.04 for the 2000
YTD Period. Management expects that the Company will continue incurring losses
until sufficient revenue is generated from new units to absorb start-up expenses
and the general administrative costs associated with developing and running the
Company.
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
costs 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 October 8, 2000, cash and cash equivalents were approximately $580,000, the
Company had $1.27 million of debt, and stockholders' equity was approximately
$15.57 million. Cash, cash equivalents, and marketable securities available for
sale decreased $1.36 million during the 2000 YTD Period, due primarily to
expenditures for property and equipment.
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 as compared to an average cost of $1.8
million for the last five units constructed prior to 1999, 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 a debt financing strategy following the restaurant's
opening.
The Lakeforest Mall restaurant, located in Gaithersburg, MD, opened for
business on September 12, 2000. The Company, as previously announced, has
recently signed a lease, subject to certain contingencies, for a mall type unit
in the Pentagon Row Shopping Center in Arlington, Virginia, which is scheduled
to open in the second half of 2001. 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 Silver Diner sites.
Management believes that the Company's current capital resources, existing
credit facility and expected future cash flow will be adequate to construct the
Pentagon Row Shopping Center location. In October 1999, the Company entered into
a loan agreement with its lead bank to extend a $3.0 million credit facility, 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 the construction of the
Pentagon Row Shopping Center location and future locations. Financial and other
covenants and conditions 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. Under the credit facility,
the Company may only draw additional funds to the extent that its cash flow (as
defined in the formal credit facility documents) is equal to or greater than 1.3
times the debt service coverage requirements (as defined in the formal credit
facility documents). Currently, the Company meets or exceeds the debt service
coverage requirements of the credit facility. Future draws under the credit
facility are dependent on the Company's ability to meet or exceed the debt
service coverage requirements at the time of the draw request.
10
Year 2000 Issue and Compliance
We successfully completed our program to ensure year 2000 readiness. As a
result, we had no year 2000 problems that affected our business result of
operations or financial condition.
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
11
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 8, 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
28. The company filed no reports on Form 8-K during the period
ended October 8, 2000
Item 3 is not applicable and has been omitted.
12
SIGNATURE
Pursuant to the requirements of the Securities and 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 22, 2000 /s/ Craig A. Kendall
- ----------------------------- ----------------------------------------
Date Craig A. Kendall
Vice President, Finance
(Duly Authorized Officer and Principal
Financial Officer)
13