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 20, 1997
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)
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 May 30, 1997:
11,635,973 shares
1
SILVER DINER, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of April 20, 1997 and December 29, 1996 3
Consolidated Condensed Statements of Operations for the
Sixteen Weeks ended April 20, 1997 and April 21, 1996 4
Consolidated Condensed Statement of Stockholders'
Equity for the Sixteen Weeks Ended April 20, 1997 5
Consolidated Condensed Statements of Cash Flows for the
Sixteen Weeks ended April 20, 1997 and April 21, 1996 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 12
Signature 13
2
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
April 20, December 29,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,604,451 $ 8,285,533
Marketable securities available for sale 4,094,964 1,081,015
Inventory 179,787 147,981
Prepaid expenses and other current assets 225,060 202,081
----------- -----------
Total current assets 6,104,262 9,716,610
Property, equipment and improvements, net 14,507,964 12,956,119
Due from affiliates 74,609 55,957
Preopening costs, net 399,127 127,413
Goodwill, net 2,610,894 2,667,810
Deposits and other 288,985 340,466
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Total assets $23,985,841 $25,864,375
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,838,221 $ 3,174,262
Deferred rent liability 823,624 749,396
---------- ----------
Total liabilities 2,661,845 3,923,658
Stockholders' equity:
Preferred stock, at December 29,
1996, $.001 par value, 1,000,000
shares authorized; none issued -- --
Common stock, at April 20, 1997,
$.00074 par value, 20,000,000
shares authorized; 11,626,982
shares issued and outstanding;
at December 29, 1996, $.00074
par value, 20,000,000 shares
authorized; 11,520,473 shares
issued and outstanding 8,604 8,526
Additional paid-in capital 30,428,553 30,297,290
Accumulated deficit (9,113,161) (8,365,099)
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Total stockholders' equity 21,323,996 21,940,717
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Total liabilities and stockholders' equity $23,985,841 $25,864,375
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Accompanying notes are an integral part of these financial statements
3
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Sixteen Weeks Ended
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April 20, April 21,
1997 1996
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Net sales $ 6,132,204 $ 4,894,428
Restaurant costs and expenses
Cost of sales 1,763,672 1,355,022
Labor 2,120,665 1,708,437
Operating 1,047,719 741,151
Occupancy 697,206 607,691
Depreciation and amortization 315,552 317,065
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Total restaurant costs and expenses 5,944,814 4,729,366
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Restaurant operating income 187,390 165,062
General and administrative expenses 983,743 675,689
Depreciation and amortization 65,874 45,857
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Operating loss (862,227) (556,484)
Interest expense -- 174,709
Investment income (114,165) (33,102)
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NET LOSS $ (748,062) $ (698,091)
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Net loss per common share $ (0.06) $ (0.11)
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Weighted average common shares outstanding 11,575,266 6,186,505
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Accompanying notes are an integral part of these financial statements
4
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Sixteen Weeks Ended April 20, 1997
Common Stock Additional
------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ------ ----------- ------------ -------------
Balance at December 29, 1996 11,520,473 $8,526 $30,297,290 $(8,365,099) $ 21,940,717
Sale of common stock 89,840 66 94,934 -- 95,000
Stock options exercised 16,669 12 30 -- 42
Amortization of unearned compensation -- -- 36,299 -- 36,299
Net loss -- -- -- (748,062) (748,062)
---------- ------ ----------- ----------- ------------
Balance at April 20, 1997 11,626,982 $8,604 $30,428,553 $(9,113,161) $ 21,323,996
========== ====== =========== =========== ============
Accompanying notes are an integral part of these financial statements
5
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Sixteen Weeks Ended
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April 20, April 21,
1997 1996
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Cash flows from operating activities
Net loss $ (748,062) $ (698,091)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 381,426 362,922
Compensation expense - stock options and deferred compensation 36,341 31,053
Changes in operating assets and liabilities
Inventory (31,806) 26,971
Prepaid expenses and other current assets (76,678) (95,038)
Preopening costs (313,643) --
Deposits and other 1,633 5,420
Accounts payable and accrued expenses (281,389) (117,203)
Deferred rent liability 74,228 32,759
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Net cash used in operating activities (957,950) (451,207)
Cash flows from investing activities
Purchases of property and equipment (2,857,882) (596,036)
Purchases of marketable securities
available for sale (2,960,250) --
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Net cash used in investing activities (5,818,132) (596,036)
Cash flows from financing activities
Net proceeds from merger -- 12,276,161
Sale of common stock 95,000 --
Payments of principal - notes payable -- (1,189,955)
Payments of principal - notes payable - related party -- (881,788)
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Net cash provided by financing activities 95,000 10,204,418
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Net (decrease) increase in cash and cash equivalents (6,681,082) 9,157,175
Cash and cash equivalents at beginning of the period 8,285,533 1,584,716
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Cash and cash equivalents at end of the period $ 1,604,451 $10,741,891
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ 115,860
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Noncash investing and financing activities:
Recapitalization costs included in accounts payable and accrued expenses $ -- $ 418,021
=========== ===========
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
=========== ===========
Accompanying notes are an integral part of these financial statements
6
SILVER DINER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIXTEEN WEEKS ENDED APRIL 20, 1997 AND APRIL 21, 1996
(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 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 20,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 28, 1997. All significant intercompany balances and
transactions have been eliminated in consolidation. During 1996, the Company
acquired the minority interest in Silver Diner Limited Partnership ("SDLP"),
liquidated SDLP into SDDI and began presenting results on a consolidated basis.
Because SDLP's financial statements were previously combined with the Company's,
the change to a consolidated basis did not have a material impact on the
Company's financial statements. 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 December 29, 1996.
2. New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share,"
was recently issued by the Financial Accounting Standards Board. SFAS No. 128 is
effective for periods ending after December 15, 1997 and early adoption is not
permitted.
SFAS No. 128 requires the Company to compute and present a basic and diluted
earnings per share. Had the company computed net loss per share in accordance
with SFAS No. 128 for the sixteen weeks ended April 20, 1997 there would be no
material difference in the reported net loss per share.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company currently operates nine Silver Diners in the Washington/Baltimore
metropolitan area, including restaurants opened February 24, 1997 and April 21,
1997 in the Merrifield and Springfield areas of Fairfax County, Virginia. The
Company's tenth restaurant is scheduled to open on June 16 in Reston, Virginia.
The Silver Diner's eleventh and twelfth restaurants, in Columbia, MD and Cherry
Hill, NJ, will open in late 1997 or early 1998, depending on construction
contingencies. The Company also is negotiating for additional sites in the
Washington/Baltimore and Philadelphia/Southern New Jersey markets. The
Philadelphia/ Southern New Jersey area is Silver Diner's first
non-Washington/Baltimore market. In addition, the Company continues to explore
the South Florida market. The Company continues to explore the development of a
franchise/joint venture plan in order to accelerate growth outside of the
Washington/Baltimore area and to move toward its vision of operating and
franchising restaurants throughout the U.S.
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 20, April 21,
1997 1996
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Net sales 100.0% 100.0%
Restaurant costs and expenses
Cost of sales 28.7% 27.7%
Labor 34.6% 34.9%
Operating 17.1% 15.1%
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Restaurant operating margin 19.6% 22.3%
Occupancy 11.4% 12.4%
Depreciation and amortization 5.1% 6.5%
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Restaurant operating income 3.1% 3.4%
General and administrative expenses 16.1% 13.8%
Depreciation and amortization 1.1% 0.9%
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Operating loss (14.1%) (11.3%)
Interest expense 0.0% 3.6%
Investment income (1.9%) (0.6%)
----- -----
Net Loss (12.2%) (14.3%)
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8
Net sales for the 16 weeks ended April 20, 1997 ("First Quarter 1997") increased
$1.2 million to $6,132,204, compared to $4,894,428 for the 16 weeks ended April
21, 1996 ("First Quarter 1996"), primarily due to sales generated by two new
restaurants. Comparable Silver Diner sales (sales for Silver Diners open
throughout both periods being compared, excluding the initial six months of
operations during which sales are typically higher than normal) increased 1.0%
compared to the first quarter of 1996 (which was negatively affected by severe
winter weather), although since March 1997, comparable store sales have been
negative.
In early 1997, the Company introduced a new menu designed to enhance customer
value and build sales, while reducing operational complexity. The new menu
rollout resulted in initially higher food costs, but the Company believes it
will result in improved future sales, improved overall menu quality, faster
customer service time, and decreased employee training time.
Cost of sales, primarily food and beverage cost, increased to 28.7% of net sales
for First Quarter 1997, compared to 27.7% of net sales for First Quarter 1996.
Initially higher cost of sales associated with the new menu introduced in early
1997 and new store openings in Clarendon and Merrifield resulted in the
increase.
Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, was 34.6% of net sales for First Quarter 1997, a decrease of
0.3% of net sales compared to First Quarter 1996. Seasonal factors and new store
openings contributed to relatively high labor cost in both periods. First
Quarter 1997 also benefited from lower workers' compensation costs but was
unfavorably impacted by the new menu implementation, while First Quarter 1996
was negatively impacted by severe winter weather, which reduced sales.
Operating expenses, which consist of all restaurant operating costs other than
labor and occupancy, including supplies, utilities, repairs and maintenance and
advertising, increased to 17.1% of net sales for First Quarter 1997, compared to
15.1% for First Quarter 1996. Initially higher costs associated with new store
openings, along with higher smallware and take out supply costs associated with
the new menu introduction were primarily responsible for the increase.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $89,515 for First Quarter 1997 compared to First Quarter
1996, due primarily to the opening of the Clarendon and Merrifield diners.
Restaurant depreciation and amortization decreased $1,513 for First Quarter 1997
compared to First Quarter 1996 due to lower preopening cost amortization, offset
by additional property and equipment depreciation for new stores. First Quarter
1997 and First Quarter 1996 include approximately $64,000 and $121,000,
respectively, of preopening amortization. Preopening costs, which are amortized
on a straight-line basis over twelve months from the date of each new restaurant
opening, were reduced from approximately $200,000 per store for Tysons Corner
and Fair Oaks to an average of approximately $140,000 for Clarendon, Merrifield
and Springfield.
9
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 $983,743 for Fiscal 1997,
an increase of $308,054 compared to Fiscal 1996. As a percentage of net sales,
general and administrative expenses increased to 16.1% for First Quarter 1997
from 13.8% for First Quarter 1996. The increase was largely related to higher
restaurant recruitment and training costs associated with new restaurant
openings and additional expenses associated with being a public company,
including preparation of the Company's first annual report, 10-K and annual
proxy statement, plus costs of implementing store management compensation and
stock option and purchase plans adopted in late 1996. 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. As revenues
increase with the addition of new Silver Diners, general and administrative
expenses are expected to decrease as a percentage of net sales.
The Company earned $114,165 in investment income for First Quarter 1997,
compared to interest expense and investment income of $174,709 and $33,102,
respectively for First Quarter 1996, reflecting the Company's stronger financial
position following the merger with Food Trends Acquisition Corporation in March
1996 ("Merger") and a private placement of common stock in July 1996 ("Private
Placement").
Depreciation and amortization increased approximately $20,000 for First Quarter
1997 compared to First Quarter 1996. Depreciation and amortization for First
Quarter 1997 includes approximately $56,000 for amortization of goodwill related
to the acquisition of the Silver Diner Limited Partnership minority interest in
June 1996. First Quarter 1996 includes approximately $30,000 of loan cost
amortization.
Net loss for First Quarter 1996 was $748,062, or $0.06 per share, compared to a
net loss of $698,091, or $0.11 per share, for First Quarter 1996. Average shares
outstanding increased from 6,186,505 for First Quarter 1996 to 11,575,266 for
First Quarter 1997. The increase in shares resulted from the Merger and the
Private Placement. 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 increased overhead put in place to support the
Company's growth plans.
Liquidity and Capital Resources
The Company's current financial position is positive as a result of the
consummation of the Merger and the Private Placement. At April 20, 1997, cash
and cash equivalents were approximately $1.6 million, short-term investments
were approximately $4.1 million, working capital was approximately $4.2 million,
the Company had no long-term debt and stockholders' equity was approximately
$21.3 million. Cash and cash equivalents decreased $6.7 million during First
Quarter 1997, due primarily to cash used to purchase marketable securities,
finance the First Quarter 1997 operating cash flow deficit and purchase property
and equipment for new restaurants.
10
The Company's principal future capital requirement is expected to be the
development of restaurants. The Company plans to grow the number of
Company-owned stores at a rate of approximately 50% annually over the next
several years. The typical building, equipment (including smallwares) and site
development cost of a new Silver Diner prototype is expected to be approximately
$1,665,000. Land generally will be leased. When land is purchased, management
may pursue a sale leaseback or debt financing strategy following the
restaurant's opening.
Management believes that the Company's current capital resources will be
adequate to meet its planned capital requirements through 1997. Additional debt
or equity financing will be required to finance 1998 growth. Management is
currently evaluating financing alternatives. Should the Company be unable to
raise sufficient capital in 1997 to meet its 1998 requirements, 1998 new store
growth could be limited.
11
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
preceding is in early stages of discovery. 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.
12
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 2, 1997 /s/ David Oden
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Date David Oden
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
13