UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 16, 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 -------------------------------------------------------------------------------- (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 August 25, 2000: 11,622,220 shares SILVER DINER, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets as of July 16, 2000 (unaudited) and January 2, 2000 3 Consolidated Statements of Operations for the Twelve and Twenty Eight Weeks Ended July 16, 2000 (unaudited) and July 18, 1999 (unaudited) 4 Consolidated Statements of Cash Flows for the Twenty Eight Weeks Ended July 16, 2000 (unaudited) and July 18, 1999 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information Item 1. Legal Proceedings 10 Item 2. Changes in Securities and Use of Proceeds 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signature 11 2 Item 1. Financial Statements SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

~~April~~(UNAUDITED) 23July 16, January 2, 2000 2000 --------------~~---~~ --------------~~---~~ ASSETS Current assets: Cash and cash equivalents $ 1,~~761~~871,~~022~~588 $ 1,122,755 Marketable securities available for sale -- 813,452 Inventory ~~147~~131,~~322~~384 134,698 Prepaid rent -- 158,447 Incentive rebates 2131,~~629~~722 108,928 Prepaid expenses and other current assets ~~282~~258,~~352~~040 146,570 -------------- -------------- Total current assets 2,~~212~~292,~~325~~734 2,484,850 Property, equipment and improvements, net 1516,~~530~~066,~~232~~557 15,583,903 Due from related parties ~~126~~118,~~291~~798 142,293 Goodwill, net 2,~~057~~015,~~820~~244 2,114,587 Deposits and other ~~349~~450,~~369~~221 268,900 -------------- -------------- Total assets $ 20,~~276~~943,~~037~~554 $ 20,594,533 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,~~247~~478,~~194~~224 $ 1,757,801 Note payable ~~267~~- current portion 17,~~000~~800 267,000 -------------- -------------- Total current liabilities 2,496,024 2,024,801 Deferred rent liability 1,~~256~~209,~~912~~329 1,295,338 Long-term Note Payable 1,249,200 - -------------- -------------- Total liabilities 34,~~771~~954,~~106~~553 3,320,139 Stockholders' equity: Preferred stock, at July 16, 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; at July 16, 2000, 11,~~592~~622,~~691~~220 shares issued and outstanding; at January 2, 2000, 11,585,510 shares issued and outstanding 8,~~563~~585 8,563 Additional paid-in capital 30,~~804~~829,~~387~~069 30,773,262 Unearned compensation (~~218~~176,~~771~~301) (227,489) Treasury ~~stock~~Stock (~~161~~162,~~583~~988) (101,239) Accumulated deficit (1314,~~927~~509,~~665~~364) (13,178,703) -------------- -------------- Total stockholders' equity 1615,~~504~~989,~~931~~001 17,274,394 -------------- -------------- Total liabilities and stockholders' equity $ 20,~~276~~943,~~037~~554 $ 20,594,533 ============== ==============

Accompanying notes are an integral part of these financial statements 3 SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

~~Sixteen~~Twelve Weeks Ended Twenty Eight Weeks Ended July 16, July 18, July 16, July 18, 2000 1999 2000 1999 ------------- -------------~~-------------~~ ~~April 23, April 25, 2000 1999~~ --------------~~-----~~ --------------~~---~~ Net sales $ 87,~~840~~522,~~179~~294 $ 86,~~719~~819,~~730~~461 $ 16,362,473 $ 15,539,191 Restaurant costs and expenses Cost of sales 2,~~325~~062,~~994~~485 21,~~266~~783,~~815~~764 4,388,479 4,050,579 Labor 32,~~083~~593,~~615~~047 2,~~980~~292,~~644~~128 5,676,662 5,274,008 Operating 1,~~712~~429,~~641~~307 1,~~435~~321,~~595~~167 3,141,948 2,756,761 Occupancy ~~888~~693,~~500~~349 ~~885~~668,~~594~~619 1,581,849 1,554,213 Depreciation and amortization ~~363~~285,~~195~~679 ~~366~~263,~~423~~865 648,874 630,288 Preopening 25Expenses 158,~~663~~691 - 184,354 - ------------- ------------- -------------- -------------- Total restaurant costs and expenses 87,~~399~~222,~~608~~558 76,~~935~~329,~~071~~543 15,622,166 14,265,849 ------------- ------------- -------------- -------------- Restaurant operating income ~~440~~299,~~571~~736 ~~784~~489,~~659~~918 740,307 1,273,342 General and administrative expenses 802,452 781,583 1,~~099~~902,~~840~~290 1,~~026~~807,~~967~~313 Depreciation and amortization ~~110~~84,~~968~~681 9972,~~299~~616 195,649 171,915 ------------- ------------- -------------- -------------- Operating loss (~~770~~587,~~237~~397) (~~341~~364,~~607~~281) (1,357,632) (705,886) Interest expense 720,~~061~~573 75,~~684~~763 27,634 13,446 Investment income (2826,~~336~~269) (3630,~~794~~373) (54,605) (67,167) ------------- ------------- -------------- -------------- NET LOSS $ (~~748~~581,~~962~~701) $ (~~312~~339,~~497~~671) $ (1,330,661) $ (652,165) ============= ============= ============== ============== Basic and diluted loss per common share $ (0.0605) $ (0.03) $ (0.12) $ (0.06) Weighted average shares outstanding 11,605,534 11,769,885 11,612,723 11,769,885 ============= ============= ~~Weighted average shares outstanding 11,592,691 11,797,024~~ ============== ==============

Accompanying notes are an integral part of these financial statements 4 SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~Sixteen~~Twenty Eight Weeks Ended ~~-------------------------------~~July ~~April 23~~16, ~~April~~2000 25July 18, ~~2000~~ 1999 ------------- ------------- Cash flows from operating activities Net loss $ (~~748~~1,~~962~~330,661) $ (~~312~~652,~~497~~165) Adjustments to reconcile net loss to net cash provided by (used in) operations Depreciation and amortization ~~474~~844,~~161~~523 ~~465~~802,~~722~~203 Compensation expense - stock options and deferred compensation 3989,~~843~~714 1530,~~044~~378 Changes in operating assets and liabilities Inventory ~~(12~~3,~~624)~~314 ~~18,305~~919 Prepaid rent 158,447 182,796 Incentive rebates 8777,~~299~~206 174,~~298~~867 Prepaid expenses and other current assets (~~135~~111,~~782~~470) ~~(20~~25,~~328)~~927 Deposits and other (59103,~~154~~329) (2119,~~019~~585) Accounts payable and accrued expenses ~~489~~720,~~393~~423 (~~117~~282,~~674~~297) Deferred rent liability (3886,~~426~~009) (422,~~368~~394) ~~Advances~~Due tofrom ~~officer~~related ~~and~~parties ~~employees 16~~23,~~002~~495 (212,~~140~~426) -------------- ------------- Net cash (used in) provided by operating activities ~~270~~285,~~197~~653 ~~240~~(41,~~139~~777) -------------- ------------- Cash flows from investing activities Purchases of property and equipment (~~385~~1,~~038~~305,826) (~~172~~241,~~624~~662) Maturities of ~~marketable securities~~ available for sale marketable securities 813,452 746,597 -------------- ------------- Net cash provided by (used in) investing activities ~~428~~(492,~~414~~374) ~~573~~504,~~973~~935 -------------- ------------- Cash flows from financing activities Net proceeds from sale of common stock 17,303 - Repurchase of common stock from employees -- (10,000) Purchase of treasury stock (6061,~~344~~749) - Proceeds from long-term debt 1,000,000 - -------------- ------------- Net cash (used in) provided by financing activities ~~(60~~955,~~344)~~554 (10,000) -------------- ------------- Net increase/(decrease) in cash and cash equivalents ~~638~~748,~~267~~833 ~~804~~453,~~112~~158 Cash and cash equivalents at beginning of the period 1,122,755 1,611,757 -------------- ------------- Cash and cash equivalents at end of the period $ 1,~~761~~871,~~022~~588 $ 2,~~415~~064,~~869~~915 ============== ============= Supplemental disclosure of cash flow information: Interest paid $ 727,~~061~~634 $ 713,~~684~~446 ============== ============= Noncash investing and financing: Construction payables included in accounts payable and accrued expenses $ 191,531 $ - ============== =============

Accompanying notes are an integral part of these financial statements 5 SILVER DINER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE AND TWENTY EIGHT WEEKS ENDED JULY 16, 2000 AND JULY 18, 2000 (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 twenty eight week periods ended July 16, 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 12 diners, 10 in the Washington/Baltimore metropolitan area, one in Virginia Beach, Virginia, and one in Cherry Hill, New Jersey. Currently, there is one additional Silver Diner under construction in the Washington/Baltimore metropolitan area. 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. 6 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:

Net sales for the twelve weeks ended July 16, 2000 ("Second Quarter 2000") increased $702,833, or 10.3%, to $7,522,294, compared to $6,819,461 for the 12 weeks ended July 18, 1999 ("Second Quarter 1999"). Year-to-date, net sales for the twenty-eight weeks ended July 16, 2000 ("2000 YTD Period") increased $823,282, or 5.3%, to 16,362,473, compared to $15,539,191 for the twenty-eight weeks ended July 18, 1999 ("1999 YTD Period"). The increase for Second Quarter 2000 was primarily attributable to sales generated by New Stores ($340,942) and a 6.5% increase in average guest check. The increase for the 2000 YTD Period was the result of similar trends. 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) for the 2000 Second Quarter increased 5.2% compared to the second quarter of 1999 and for the 2000 YTD Period increased 3.1% compared to the 1999 YTD Period. The increases in comparable sales for the quarter were the continuing result of the implementation of a new menu, coupled with a price increase of approximately 5.0% and direct coupon mailing. 7 Cost of sales, primarily food and beverage costs increased to 27.4% of net sales for Second Quarter 2000, compared to 26.2% of net sales for Second Quarter 1999. Cost of sales for the 2000 YTD Period were 26.8% of net sales, compared to 26.1% of net sales for the 1999 YTD Period. The increase from the Second Quarter 1999 was primarily attributable to the implementation of a consumer value- oriented menu. The impact of the Virginia Beach opening was approximately 0.1% for both the Second Quarter 2000 and 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 34.5% of net sales in Second Quarter 2000 compared to 33.6% of net sales for Second Quarter 1999. For the 2000 YTD Period, labor expense as a percentage of sales increased from 33.9% in the 1999 YTD Period to 34.7%. Excluding the impact of the Virginia Beach opening, labor expenses as a percentage of net sales were 33.6% (flat to last year, despite higher average hourly wages) for the Second Quarter 2000 and would have improved by 0.4% for the 2000 YTD Period. Further, the 2000 YTD Period was adversely impacted by 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, decreased to 19.0% of net sales for Second Quarter 2000, compared to 19.4% for Second Quarter 1999. For the 2000 YTD Period, operating expenses increased from 17.7% in 1999 to 19.2%. The decrease in operating expenses in the Second Quarter 2000 was largely the result of lower marketing expenses partially offset by increases in supply items and recruitment and retention activities directed toward hourly staff. The increase for the 2000 YTD Period was principally due to higher marketing costs in the first quarter combined with higher repairs and maintenance, utility and unit staffing expenses throughout the twenty-eight week period. Additionally, the opening of the Virginia Beach unit unfavorably affected the operating expense performance of the Company for the Second Quarter 2000 and the 2000 YTD Period by 0.3% and 0.1%, respectively. Occupancy, which is composed primarily of rent, property taxes and property insurance, increased $24,730 for Second Quarter 2000 compared to Second Quarter 1999. The increase of $27,636 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 has decreased from 9.8% for Second Quarter 1999 to 9.2% for Second Quarter 2000, and from 10.0% for the 1999 YTD Period to 9.7% for the 2000 YTD period. Restaurant depreciation and amortization increased $21,814 for Second Quarter 2000 compared to Second Quarter 1999 and increased $18,586 for the 2000 YTD Period compared to the 1999 YTD Period. The Company incurred preopening costs of $158,691 and $184,354 for the Second 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 $802,452 for Second Quarter 2000, an increase of $20,869, or 2.7%, compared to Second Quarter 1999. As a percentage of net sales, general and administrative expenses decreased to 10.7% for Second Quarter 2000 from 11.5% for Second Quarter 1999. General and administrative expenses for the 2000 YTD Period increased $94,977, or 5.3% from $1,807,313 in 1999 YTD Period. Despite the increase in general and administrative expenses, 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 $12,065 for Second Quarter 2000 as compared to $72,616 in the Second Quarter 1999 and increased $23,734 for 2000 YTD Period compared to $171,915 in the 1999 YTD Period. The increased expense for both reporting periods is a function of purchases of equipment. Depreciation and amortization included amortization expense of approximately $43,000 for both the Second Quarter 2000 and 1999 and approximately $99,000 for both year-to-date periods. 8 The Company earned $26,269 in investment income for Second Quarter 2000, compared to investment income of $30,373 for Second Quarter 1999. Investment income for 2000 YTD Period was $54,605 compared to $67,167 in 1999 YTD period. The decrease for both the quarterly and year-to-date periods is the result of reduced levels of invested funds and slightly lower yields. Interest expense of $20,573 in Second Quarter 2000 compared to $5,763 for the Second Quarter 1999 was attributable to the extension of a $3,000,000 line of credit by the Company's principal bank. For the 2000 YTD Period interest expense of $27,634 increased by $14,188 as compared to the 1999 YTD Period. Net loss for Second Quarter 2000 was $581,701, or $0.05 per share on a basic and diluted basis, compared to $339,671, or $0.03 per share on a basic and diluted basis, for Second Quarter 1999. Net loss for the twenty-eight weeks ended July 16, 2000 was $1,330,661, or $0.12 per share on a basic and diluted basis, compared to $652,165, or $0.06 per share on a basic and diluted basis for the twenty-eight weeks ended July 18, 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 $216,000 for the Second Quarter 2000 and $243,000 for the 2000 YTD Period, and net loss per share amounts would have been reduced by $0.02 for both measured periods. 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 and 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 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 July 16, 2000, cash and cash equivalents were approximately $1.87 million, the Company had $1.27 Million of long-term debt, of which $17,800 becomes due and payable within the next twelve months and stockholders' equity was approximately $ 15.99 million. Cash and cash equivalents increased approximately $749,000 during Second Quarter 2000, due primarily to the proceeds from the long-term credit facility. 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 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 debt financing strategy following the restaurant's opening. The Virginia Beach, VA restaurant opened for business on June 14, 2000 and the Lakeforest Mall restaurant is currently under construction and expected to open in the third quarter of 2000. 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 the Virginia Beach and Lakeforest 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 beyond 2000. Financial covenants contained in the credit facility may limit the 9 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. 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, results of operations or financial condition. Quantitative and Qualitative Disclosures about Market Risk Not applicable. Part II. Other Information Item 1. Legal Proceedings No reportable events or material developments in reported events occurred during the period ended July 16, 2000. Item 2. Changes in Securities and Use of Proceeds None. Item 4. Submission of Matters to a Vote of Securities Holders The annual meeting of stockholders of the Company was held on June 16, 2000. The following items were voted on and approved by a majority of the stockholders: 1. Re-election of the Company's directors.

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 July 16, 2000. Item 3 is not applicable and has been omitted. 10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SILVER DINER, INC. ----------------------------------------- (Registrant) August 30, 2000 /s/ Craig A. Kendall --------------------------- ----------------------------------------- Date Craig A. Kendall Vice President, Finance (Duly Authorized Officer and Principal Financial Officer) 11

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