--------------------------------------------------------------------------------



                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                      ------------------------------------



                                   Form 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 29, 1996
                         Commission file number 0-24982

                      ------------------------------------


                               Silver Diner, Inc.
           (Exact name of the registrant as specified in its charter)

                                    Delaware
         (State or other jurisdiction of incorporation or organization)

                                   04-3234411
                      (I.R.S. employer identification no.)

                              11806 Rockville Pike
                           Rockville, Maryland 20852
                                  301-770-0333
 (Address and telephone number of the registrant's principal executive offices)

          Securities registered pursuant to Section 12(b) of the Act:

      Title of each class              Name of each exchange on which registered
      -------------------              -----------------------------------------
Common Stock, $.00074 Par Value                           None

         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 by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         At December 29, 1996, the  registrant  had 11,520,473  shares of common
stock (the "Common Stock")  outstanding,  and the aggregate  market value of the
Common  Stock  held  by  non-affiliates  of  the  registrant  was  approximately
$23,775,182.

--------------------------------------------------------------------------------


                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's  Proxy Statement for its Annual Meeting of
Shareholders in 1997 are incorporated by reference into Part III.



<PAGE>



                                     PART I

Item 1.  Business.

The Merger

         Silver Diner,  Inc. (the "Company" or "Silver Diner") was  incorporated
in  Delaware in April 1994 under the name Food  Trends  Acquisition  Corporation
("FTAC").  In March 1996, a subsidiary  of the Company  merged with Silver Diner
Development,  Inc., a Virginia corporation  ("SDDI").  As a result of the merger
("Merger"), SDDI became a wholly owned subsidiary of the Company and the Company
changed  its name from  Food  Trends  Acquisition  Corporation  to Silver  Diner
Development,  Inc.,  and in June 1996,  to Silver Diner,  Inc. In addition,  the
Merger resulted in SDDI's stockholders owning 57% of the Company's common stock,
par value $.00074 per share ("Common Stock"),  and SDDI's directors and officers
becoming the  Company's  directors and  officers.  Unless the context  otherwise
requires,  references to the Company or Silver Diner also include FTAC, SDDI and
their wholly owned subsidiaries.

         Prior to the Merger,  the Company was a publicly traded "blind pool" of
$14.2 million in cash which was raised  essentially  on the reputation of George
Naddaff, the former Chairman and Chief Executive Officer of Boston Chicken. This
infusion of capital resulted in a virtually debt-free balance sheet and cash for
the Company to fund growth.

         The Company's  executive  offices are located at 11806  Rockville Pike,
Rockville,  Maryland  20852  and its  telephone  number is (301)  770-0333.  The
Company's  Common  Stock trades on the Nasdaq  National  Market under the symbol
"SLVR."

Acquisition of Minority Interest in Silver Diner Limited Partnership

         Silver Diner Limited Partnership ("SDLP"), of which the Company was the
general  partner,  operated the first three Silver  Diner  restaurants.  In June
1996, the Company  acquired all of the limited  partner  interests in SDLP for a
purchase price of $2.472 million and 84,000  warrants to purchase  shares of the
Common Stock at $8.00 per share and,  subsequently,  liquidated  SDLP into SDDI.
The warrants are exercisable at any time on or before the earlier of January 31,
1998 or 30 days following the first public  offering of Common Stock on or after
June 30, 1997.

Business

         The Company  currently  operates eight Silver Diner  restaurants in the
Washington/Baltimore Metropolitan Area serving breakfast, lunch, dinner and late
night  meals.  The  Company  targets the growing  number of  customers  tired of
traditional fast food whose need for a quick,  high-quality,  reasonably  priced
meal  is not  being  adequately  served  by  existing  family  or  casual  theme
restaurants;  the Company  capitalizes  on the timeless  diner theme to uniquely
address this need. By attracting a broad range of customer segments, maintaining
extended operating hours, a diverse menu and convenient  locations,  the Company
is able to  compete  effectively  in the fast food,  family  and  casual  dining
segments of the  restaurant  industry,  contributing  to the  significant  sales
volumes of its units.  The  Company is  introducing  Silver  Diner To Go,  which
features  a range  of  carry  out  options  targeting  the  growing  "home  meal
replacement"  market,  as well as specialty  coffee  drinks and expanded  bakery
selections.

         The  restaurants  typically  are open for  business  from 7:00 a.m.  to
midnight on weekdays  and from 7:00 a.m.  to 3:00 a.m. on  weekends.  The Silver
Diner menu  strategy  is to "serve  real home  cooking at a real fair  price" by
serving generous  portions of  made-from-scratch  cooking at prices  competitive
with traditional  family dining  restaurants.  The average check per customer is
approximately $7.00 and the average dining time is approximately 30 minutes. For
the last fiscal year, the six Silver Diner  restaurants open throughout the year
had sales  ranging  from $2.2 million to $4.0 million with average unit sales of
$2,741,000 on an average of 208 seats.  Management  attributes  the  significant
sales  volumes of its units to its  ability to attract a broad range of customer
segments,


<PAGE>



extended  operating hours,  diverse menu, and convenient  locations.  Management
believes it has  established a strong company mission and culture by emphasizing
a sense of ownership  and  entrepreneurship  in its  employees  and by providing
frequent  training,  recognition and development of its management.  Each Silver
Diner is led by a general manager who lives, and participates,  in the community
and, through an  incentive-based  bonus system which includes profit sharing and
stock ownership, has a long-term commitment to that restaurant's success.

         Diners have been indigenous to the United States for more than 100
years.  Since opening the first Silver Diner restaurant in 1989, the Company has
capitalized  on the diner  restaurant  theme to uniquely  address the customers'
need of where to go for quick,  high quality  meals at  reasonable  prices.  Key
elements which  differentiate  Silver Diner  restaurants from other  restaurants
include:

         o Broad and  diverse  menu  combining  "traditional  diner"  items with
contemporary  regional  specialties  -  The  menu  includes  a  broad  range  of
made-from-scratch  meal choices featuring traditional  home-style diner fare and
all-day breakfast,  as well as more contemporary  "heart healthy" selections and
regional specialty items. Each Silver Diner restaurant bakes from scratch all of
its cakes,  pies and other baked goods on the  premises and features a carry-out
section offering its full menu of home-meal replacement items.

         o Classic,  readily recognizable diner exterior,  in combination with a
comfortable diner interior decor and atmosphere - The visually striking exterior
of the Silver  Diner  restaurants  is both  familiar and  distinctive  combining
polished stainless steel, glass block and neon lighting traditional to old-style
diners with more  contemporary  tile,  accent  colors and a 25-foot clock tower.
Similarly,  the Silver Diner  restaurant's  interior combines  traditional diner
motifs such as a counter area with  seating,  booths and tabletop old style juke
boxes with a contemporary  open kitchen and ambient  dining room  lighting.  The
result of these  contrasting  elements  produces a high energy,  fun,  nostalgic
atmosphere which is also comfortable.

         o  Extended  operating  hours with four meal  periods - Silver  Diner's
breadth of entree  selection,  its beer and wine service and night time ambience
allow it to generate close to 50% of its business at dinner and late night,  the
most profitable meal periods.  Additionally,  the Silver Diner's  extended hours
and diverse  menu afford it two extra meal  periods - breakfast  and late night.
Together,  these four meal periods  afford the Silver Diner the  opportunity  to
generate  significantly  greater  customer counts per facility than  traditional
two- or three-meal period full-service restaurants.

         o Rapid meal service  resulting in a table turnover rate  significantly
above industry averages for full service restaurants - Silver Diner's menu, food
preparation  techniques  and  kitchen  engineering  account  for its rapid  meal
service.  The Silver Diner's physical plant and kitchen layout allow it to serve
meals  in  approximately  10  minutes,  providing  quick  turnover  and  further
improving productivity.  The Silver Diner employs a food preparation and storage
process which  incorporates a type of "sous vide" production  technique enabling
it to  efficiently  make a wide range of  scratch-cooking  recipes  with reduced
labor hours,  kitchen  preparation and raw ingredient storage area. As a result,
Silver Diner  restaurants  are able to achieve  high  quality,  consistency  and
excellent productivity despite the broad menu.

         o Generous portions and moderate prices with entrees ranging from $6.99
to $8.99  Management  believes the Silver Diner  delivers  outstanding  value by
providing  generous portions of fresh,  high quality food at affordable  prices.
Appetizers  range from $3.99 to $5.99,  entrees  range from $6.99 to $8.99,  and
full meals are available at moderate  prices  including  senior citizen meals at
$3.49, early bird specials at $4.99 and blue plate specials at $6.99.



                                     - 2 -

<PAGE>



         Restaurants.   The following sets forth certain information regarding
         the Company's existing restaurants.

<TABLE>
<CAPTION>

                                                                                           Approximate
                                                                    Approximate               Number
  Operating Locations                     Date Opened               Square Feet              of Seats
  -------------------                     -----------               -----------            -----------
<S><C>
  Rockville, Maryland                    February 1989                 5,500                   256
    Laurel, Maryland                    September 1990                 4,680                   153
Potomac Mills, Virginia                  October 1991                  4,675                   164
    Towson, Maryland                    September 1992                 5,250                   194
  Fair Oaks, Virginia                     April 1995                   5,675                   240
Tysons Corner, Virginia                  December 1995                 5,675                   240
  Clarendon, Virginia                    December 1996                 5,675                   240
  Merrifield, Virginia                   February 1997                 5,675                   240
</TABLE>

         The  Company  leases its  corporate  offices at 11806  Rockville  Pike,
Rockville,  Maryland,  which  is the  location  of  the  original  Silver  Diner
restaurant.

         Management believes the greater  Washington/Baltimore  area can support
fifteen to twenty  Silver Diner  restaurants  and it will  continue to penetrate
this market area in order to take  advantage of increased name  recognition  and
economies  of  scale in  advertising,  management  and  overhead.  Silver  Diner
restaurants  are currently  under  construction  at locations in Springfield and
Reston,  Virginia,  and the  Company has signed a letter of intent for a site in
Columbia,  Maryland.  Management  believes  that there are numerous  other major
metropolitan  areas  throughout  the United  States  that can  support a similar
concentration  of Silver Diner  restaurants  and intends to pursue  expansion in
these markets in a manner similar to Washington/Baltimore.  The Company has been
aggressively  pursuing locations in new geographical  markets,  specifically the
Philadelphia-Southern  New  Jersey  area and South  Florida.  To that  end,  the
Company has signed a lease  agreement  for a Silver Diner  restaurant  in Cherry
Hill, New Jersey, and a land purchase agreement for a Silver Diner restaurant in
Kendall,   Florida,   which  pending  successful   completion  of  various  site
contingencies,  will  allow  the  Company  to open a new  store in each of those
markets in 1997 and 1998,  respectively.  The  Company  expects  that the Silver
Diner   restaurants   opened  in  the  next  two  years  will   continue  to  be
company-owned;    however,    expansion    into   any    markets    outside   of
Washington/Baltimore may include area joint-ventures or franchises.  There is no
assurance  that the  Company's  expansion  plans will be realized or that future
Silver Diner restaurants will be favorably received.

         Marketing.  Management focuses on providing its customers with superior
food quality,  service and perceived  value in a distinctive  atmosphere and has
relied primarily on its eye-catching appearance,  customer satisfaction and word
of mouth to obtain repeat  customers as well as to attract new  clientele.  As a
result, the Company has been able to maintain a minimal marketing budget for its
existing  restaurants,  with  marketing  funds  primarily  used for  pre-opening
events,  public relations and direct marketing for new Silver Diner openings. As
the Company achieves  sufficient market  penetration  within a given market area
and economies of scale with respect to its discretionary marketing budget, other
mass marketing vehicles,  including television  advertising,  will become viable
methods of further increasing average unit volume.

         Menu.   The  Silver  Diner  menu  includes  a  broad  range  of  dining
alternatives  featuring  traditional  diner fare,  including soups,  sandwiches,
burgers,  Blue  Plate  Specials  as well as more  contemporary  "Heart  Healthy"
salads,  grilled chicken,  seafood,  pasta and stir-fried regional  specialties.
Silver Diner's full breakfast menu, including  omelettes,  pancakes and waffles,
is available  throughout the day and night.  The menu includes  numerous entrees
which rotate on a seasonal basis,  as well as signature  homemade pies and cakes
baked on premises. High-quality

                                     - 3 -

<PAGE>



ingredients  are used for all menu items,  including  Silver  Diner's own unique
gravies,  sauces and dressings.  Silver Diner's recipes are prepared for the way
management believes people eat today with an emphasis on fresh ingredients,  low
salt and cholesterol-free oil. In addition,  Silver Diner's "heart healthy" menu
features  a dozen  low- fat  popular  items  formulated  to exceed  USDA  "heart
healthy" dietary guidelines.  Silver Diner restaurants also serve beer, wine and
non-alcoholic specialty beverages.

         Purchasing.  The Company  purchases  items on a  centralized  basis and
negotiates  directly  with  suppliers  for food and beverage  products to ensure
consistent  quality and  freshness of products as well as to obtain  competitive
prices.  Food and supplies are shipped directly to the Silver Diner restaurants.
All shipments are inspected for quality and freshness by a kitchen  manager upon
receipt.   The  Company  does  not  maintain  a  central  product  warehouse  or
commissary.  The Company's food and supplies are available from a wide number of
suppliers.  Therefore, Silver Diner is not dependent on any particular source of
supplies.

         Customer  Satisfaction/Quality  Control.  The  Company has a variety of
programs  to measure its  customer  satisfaction,  including  comment  cards,  a
mystery shopper program, and frequent visits by supervisory management.  Through
the use of these techniques,  senior management  receives valuable feedback from
customers  and through  prompt  action,  demonstrates  a  continued  interest in
meeting  customer needs and desires.  In addition,  Silver Diner staff perform a
variety of quality  checks and are authorized to not serve any products which do
not meet Silver Diner's quality standards.

Competition

         The restaurant industry is intensely competitive with respect to price,
service,  location and food  quality.  With respect to quality and cost of food,
size of food  portions,  decor and quality  service,  Silver  Diner  restaurants
compete with fast food and family style  restaurants with ready to cook food and
take-out. Silver Diner restaurants are located in areas of high concentration of
such restaurants.  There are many well established food service competitors with
substantially  greater  financial and other  resources than the Company and with
substantially  longer operating  histories.  These competitors will also compete
with the Company in obtaining premium locations for restaurants (e.g.,  shopping
malls and strip shopping centers) and in attracting and retaining employees.  In
addition,  one or more national  food service  chains or other  companies  could
introduce a multi-unit chain of food service establishments that use one or more
food service  concepts which  resemble one or more of the food service  concepts
used by the Company.

         The restaurant  business is also affected by changes in consumer tastes
and eating patterns of the general public; national,  regional or local economic
conditions;  demographic trends;  traffic patterns;  as well as the type, number
and location of competitors.  In addition, factors such as inflation,  increased
food,  labor and benefit costs and a lack of  experienced  management and hourly
employees  may  adversely  affect the  restaurant  industry  in general  and the
Company in particular.

         The Company  believes that its  distinctive  diner concept,  attractive
price-value  relationship  and quality of food and service and long-term  appeal
enable it to  differentiate  itself  from its  competitors.  While  the  Company
believes that its restaurants  are distinctive in design and operating  concept,
it is aware of  restaurants  that  operate with  similar  concepts.  The Company
believes  that its ability to compete  effectively  will continue to depend upon
its ability to offer  high-quality,  moderately  priced  food in a  full-service
distinctive dining environment.

Employees

         As of December 29, 1996, the Company had  approximately  665 employees,
13 of whom  are  corporate  personnel,  42 of  whom  are  restaurant  management
personnel  (including  4  managers-in-training),  and the  remainder of whom are
hourly  restaurant  personnel.  None of the Company's  employees is covered by a
collective bargaining agreement. The Company considers its employee relations to
be good.

                                     - 4 -

<PAGE>



          The management staff of a typical Silver Diner restaurant  consists of
one "owner operator" (general manager) and four assistant managers,  including a
kitchen manager and a service manager. Each Silver Diner restaurant also employs
approximately 75 associates on a part-time and full-time basis.

         Restaurant  Personnel.  The Company has  established  a strong  company
mission  focusing on culture and values and emphasizing a sense of ownership and
entrepreneurship  that empowers its people to achieve  professional and personal
excellence.  Management believes that its people are its most valuable asset and
has a variety of programs to provide  training,  recognition  and development of
its management and associates to their full potential. Non-management employees'
performance  is  tracked  daily  through  productivity   measurements  that  are
established as an integral part of a system of frequent incentive awards.

         Restaurant   Owner  Operator  Plan.  To  attract  and  retain  talented
management,  the Company's  compensation  plan is very  competitive.  Management
believes that a key component for long-term success is for each restaurant to be
led by a  general  manager  who  lives  in the  community  and  has a  long-term
commitment to that restaurant's success. Accordingly, management has established
a Restaurant  Owner Operator Plan whereby the general manager receives an annual
salary and a monthly cash profit  sharing award which equals a percentage of the
restaurant's operating income. In addition,  each general manager is required to
purchase  $12,500 of Common Stock at a price equal to 50% of the Common  Stock's
market  value and  receives  an annual  award of between  $5,000 and  $10,000 of
Common Stock.

         Selection, Training and Supervision.  Management has developed specific
profiles and protocols used to interview and select its management and associate
staff.  Management  personnel  are required to  participate  in a 12- to 15-week
training  program  emphasizing  the  Company's  operating  procedures as well as
management   development  programs.   Each  associate  also  participates  in  a
standardized  training  program  ranging  from two to five  days  (depending  on
position)  which utilizes  testing  results to ensure all  associates  achieve a
specified standard of performance.

Government Regulations

         The  Company  is  subject  to  numerous  federal,  state and local laws
affecting health,  sanitation and safety standards as well as to state and local
licensing  regulation  of the  sale of  alcoholic  beverages.  The  Company  has
appropriate  licenses from regulatory  authorities  allowing it to sell beer and
wine, and has food service licenses from local health authorities. The Company's
licenses  to sell  alcoholic  beverages  must  be  renewed  annually  and may be
suspended or revoked at any time for cause,  including  violation by the Company
or its  employees of any law or  regulation  pertaining  to  alcoholic  beverage
control,  such as those  regulating  the  minimum  age of patrons or  employees,
advertising,  wholesale  purchasing and inventory control. The Company's failure
to obtain or  retain  liquor or food  service  licenses  would  have a  material
adverse  effect on its  operation.  To reduce  this  risk,  each  restaurant  is
operated with procedures in accordance with complete  compliance with applicable
code and regulations.  There can be no assurance,  however,  that such approvals
and  licenses for new  restaurants  will be obtained  and, if obtained,  will be
renewed or not revoked.

         The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic  beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing  comprehensive general liability insurance.  The Company has never been
named as a defendant in a lawsuit involving "dram-shop" statutes.

         The development  and  construction  of additional  restaurants  will be
subject  to  compliance  with  applicable  zoning,  land  use and  environmental
regulations.  The  Company's  operations  are also  subject to federal and state
minimum wage laws governing such matters as working conditions, overtime and tip
credits and other employee matters.

                                     - 5 -

<PAGE>



         Management  believes it is in  compliance  with all current  applicable
regulations relating to restaurant accommodations for the disabled including the
Federal Americans With Disabilities Act of 1992.

Trademarks

         Management  believes that its trademarks and  servicemarks are valuable
to the marketing of its restaurants  and that it has substantial  rights in such
trademarks and  servicemarks for the Silver Diner name, based upon the Company's
actual usage and constructive usage derived from its U.S. trademark. The Company
intends to  aggressively  protect  its marks  from  infringement  and  competing
claims.  However,  there can be no assurance that the Company's marks,  even as,
and if, registered do not or will not violate the proprietary  rights of others,
that the marks will be upheld if  challenged,  or that the  Company  will not be
prevented  from using the  marks,  any of which  could  have a material  adverse
effect on the  Company.  Management's  policy is to pursue  registration  of its
marks whenever possible and to oppose vigorously any infringements of its marks,
the success of which cannot be assured.

Executive Officers of the Company

         The name,  age,  period of  service  and  position  held of each of the
executive officers of the Company are as follows:

<TABLE>
<CAPTION>

Name                                Age     Served Since(1)   Position(s) Held
---------------------------------------------------------------------------------------------------------------
<S><C>
Robert T. Giaimo                    45      1987              Chairman of the Board,
                                                              President and Chief Executive Officer
Ype Hengst                          46      1987              Director, Vice President, Executive Chef and
                                                              Corporate Secretary
David Oden                          36      1995              Chief Financial Officer and Senior Vice President
Patrick Meskell                     43      1996              Senior Vice President, Human Resources
Daniel Brannan                      27      1997              Vice President, Finance
</TABLE>

(1) Includes service with SDDI.

         All of the officers have had the principal  occupation  indicated under
"Position(s)  Held" for the previous five years except as follows:  Mr. Oden was
Vice President,  Chief Financial Officer,  Treasurer and Assistant Secretary for
Pancho's Mexican Buffet, a public restaurant company with annual sales exceeding
$86  million;   Mr.   Meskell  was  an   independent   consultant  to  financial
institutions,  specializing in the areas of risk  management  systems design and
implementation  from 1988 to 1992 and Director of  Organizational  Development &
Management & Operations Training for the Student Loan Marketing Association from
1992  to  1995;  and  Mr.  Brannan  was the Company's  controller  from  1996 to
1997.  Previously,  Mr.  Brannan  was  corporate   controller   for   Greenstone
Industries,  a public  manufacturing  company  with annual sales  exceeding  $30
million from 1995 to 1996 and was an auditor with KPMG  Peat  Marwick  LLP  from
1991-1995.

Item 2.  Property.

         Information  concerning  the  registrant's  property is set forth under
"Restaurants" in Item 1 of Part I.

Item 3.  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  restaurant.  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

                                     - 6 -

<PAGE>



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  respondent  superior.
Plaintiff  seeks  recovery  of $500,000  for each count.  It is not clear if the
counts are in the alternative or cumulative.  The Company's insurance carrier is
currently defending the claim with reservation of rights. The Company is insured
up to $1,000,000  with respect to the above mentioned  claims.  The Company does
not believe that it is liable to the plaintiff and intends to vigorously  defend
itself.

Item 4.  Submission of Matters to a Vote of Security-Holders.

         Not Applicable.

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         Market  Information.  Since March 27,  1996,  the Common Stock has been
quoted on the Nasdaq  National  Market under the symbol SLVR.  Before that date,
the Common Stock was quoted on the OTC Bulletin Board under the symbol FDTR. The
following  table sets forth the high and low closing prices for the Common Stock
for the periods indicated:

                  Quarter                            High              Low
                  -------                            ----              ---

1995              First                              $4-3/8            $4-1/4
                  Second                             $4-1/2            $4-3/8
                  Third                              $4-15/16          $4-1/2
                  Fourth                             $5-1/16           $4-15/16

1996              First (to March 26)                $6-11/16          $4-3/4
                  First (March 27 to March 31)       $6-3/4            $6-1/8
                  Second                             $7-7/8            $5-5/8
                  Third                              $6                $4-1/2
                  Fourth                             $5-5/8            $3-1/2

         Dividends. Since the Company's inception, no dividends have been paid
on the Common Stock.

         Holders.  As of December 29, 1996, there were approximately 400 record
holders of the Common Stock.

                                     - 7 -

<PAGE>



Item 6.  Selected Financial Data.

<TABLE>
<CAPTION>
                                                                                   Fiscal Years Ended
                                              -------------------------------------------------------------------------------------
                                                   December 31,     December 31,      January 1,      December 31,     December 29,
                                                       1992             1993             1995             1995             1996
<S><C>
Statement of Operations Data:
Net sales                                          $9,912,161      $11,257,307      $10,896,682      $13,350,255      $16,550,468

Restaurant costs and expenses:
      Cost of sales                                 2,951,033        3,179,552        3,036,995        3,655,254        4,526,286
      Labor                                         3,161,115        3,519,484        3,525,472        4,452,134        5,464,896
      Operating                                     1,410,686        1,660,515        1,642,039        2,015,668        2,536,609
      Occupancy                                     1,103,606        1,316,757        1,293,842        1,588,527        1,931,866
      Depreciation and amortization                   508,525          860,126          382,082          715,426          882,843
                                              ---------------  ---------------  ---------------  ---------------  ---------------
           Total restaurant costs and expenses      9,134,965       10,536,434        9,880,430       12,427,009       15,342,500
                                              ---------------  ---------------  ---------------  ---------------  ---------------

           Restaurant operating income                777,196          720,873        1,016,252          923,246        1,207,968

General and administrative expenses                 1,088,921        1,179,264        1,877,774        2,077,735        2,705,940
Depreciation and amortization                          38,386           41,639           61,042           97,351          183,928
Development and abandoned site costs                   22,622          746,026           98,637                -                -
                                              ---------------  ---------------  ---------------  ---------------  ---------------

      Operating loss                                 (372,733)      (1,246,056)      (1,021,201)      (1,251,840)      (1,681,900)
                                              ---------------  ---------------  ---------------  ---------------  ---------------

Interest expense                                      289,224          382,291          254,810          334,086          180,293
Investment income                                      (2,255)         (16,759)           3,599          (83,021)        (432,721)
                                              ---------------  ---------------  ---------------  ---------------  ---------------

      Loss before minority interest                  (659,702)      (1,611,588)      (1,279,610)      (1,502,905)      (1,429,472)

Minority interest in net loss of SDLP                 144,020          137,224          332,977          180,175                -
                                              ---------------  ---------------  ---------------  ---------------  ---------------

      NET LOSS                                     $ (515,682)     $(1,474,364)     $  (946,633)     $(1,322,730)     $(1,429,472)
                                              ===============  ===============  ===============  ===============  ===============

Net loss per common share                          $    (0.15)     $     (0.39)     $     (0.19)     $     (0.26)     $     (0.15)
                                              ===============  ===============  ===============  ===============  ===============

Weighted average common shares outstanding          3,364,839        3,755,038        4,982,414        5,013,319        9,545,681
                                              ===============  ===============  ===============  ===============  ===============

                                                                                       As of
                                              ------------------------------------------------------------------------------------

                                                  December 31,     December 31,      January 1,      December 31,     December 29,
                                                      1992             1993             1995             1995             1996

Balance Sheet Data:
Working capital (deficiency)                      $(1,364,967)      $1,697,475      $  (560,972)    $ (5,201,102)   $   6,542,348
Total assets                                        6,427,155        8,947,195        7,078,679       10,794,469       25,864,375
Current liabilities                                 3,061,806        2,765,405        2,580,329        6,975,363        3,174,262
Long-term liabilities                               3,364,569        2,726,974        2,205,695        2,584,832          749,396
Stockholders' equity (deficit)                       (675,478)       2,941,664        2,112,480        1,234,274       21,940,717
</TABLE>

                                     - 8 -

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

General

         At  December  29,  1996,  the  Company  operated  seven  diners  in the
Washington/Baltimore metropolitan area and plans to operate 12 diners by the end
of 1997,  including  one in Cherry  Hill,  New  Jersey,  its first  outside  the
Washington/Baltimore  area. The Company is also pursuing  locations in the South
Florida  market for 1998.  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.  One Silver Diner  restaurant  was opened during fiscal 1996, the
Company's seventh restaurant which opened in Arlington, Virginia on December 17,
1996. The eighth Silver Diner opened February 24, 1997 in the Merrifield area of
Fairfax County,  Virginia.  Additional  Silver Diners are under  construction in
Springfield and Reston, Virginia.

         On  March  27,  1996,  FTAC  Transition  Corporation,  a  wholly  owned
subsidiary  of FTAC,  merged with and into Silver  Diner  Development,  Inc.,  a
Virginia Corporation,  with SDDI surviving as a wholly owned subsidiary of FTAC.
In  connection  with  the  Merger,   FTAC  changed  its  name  to  Silver  Diner
Development,  Inc.,  then  subsequently  to Silver Diner,  Inc.  Pursuant to the
merger  agreement,  each  outstanding  share of SDDI common stock converted into
33.339 shares of the common stock of FTAC. Upon consummation of the Merger,  the
stockholders of SDDI became the owners in the aggregate of approximately  57% of
the  outstanding  common  stock of FTAC and the  directors  and officers of SDDI
became directors and officers of FTAC.

         For accounting and financial reporting purposes, the Merger was treated
as a  recapitalization  of SDDI and as an  issuance  of SDDI  common  shares for
monetary assets and  liabilities.  The Company has reflected in its consolidated
financial  statements  the  assets,  liabilities  and  equity  of  SDDI  and its
subsidiary  Silver Diner Limited  Partnership at their  historical  book values.
Accordingly,  the consolidated  results of operations and financial  position of
the  Company  for  periods  and dates  prior to the Merger are the  consolidated
historical  results of operations  and  financial  position of SDDI and SDLP for
such periods and dates.

         All historical shares of common stock and per share amounts for periods
prior to the Merger have been retroactively  adjusted to reflect the FTAC shares
issued to the SDDI shareholders at the time of the Merger.

         In  connection  with the  Merger,  on April 2, 1996,  notes  payable to
related  parties  totaling  $1,236,811  were repaid by the offset of amounts due
from affiliates of $355,023 and the net outstanding  balance was paid in full by
the  Company.  On April 1,  1996,  the  Company  terminated  its  capital  lease
obligation  with a related  party by  purchasing  the  leased  equipment  at the
remaining lease obligation balance of approximately  $148,000. In addition,  the
Company repaid certain bank notes of SDDI in the approximate  amount of $904,000
on April 4, 1996.

         On June 13, 1996,  the Company  completed  its purchase of the minority
interest in SDLP from the original  investors for  $2,472,000 in cash and 84,000
warrants  to  purchase  common  stock  exercisable  at $8.00 per share until the
earlier of 30 days  following a public  offering or January 31, 1998.  The offer
was  accepted  by  100%  of  the  limited  partners.  Because  SDLP's  financial
statements are included in the consolidated financial statements of the Company,
acquisition  of the  minority  interest  will not  result  in any  change in the
Company's future reported net sales, restaurant costs and expenses or restaurant
operating  income.  The  acquisition  has been  accounted for under the purchase
method and the entire cost of the transaction,  totaling $2.8 million,  has been
recorded as goodwill  and is being  amortized on a  straight-line  basis over 15
years.

         On July 11, 1996, the Company completed a $8,250,000  private placement
of common stock  through the sale of 1.5 million  shares at $5.50 per share.  Of
the $7.6 million net proceeds of the sale,  $2.5 million was used to replace the
funds used for the acquisition of the minority interests in SDLP,  approximately
$400,000 was used to repay the bank debt of SDLP and the  remainder is available
to fund expansion. On August 7, 1996, the Company registered the shares with the
Securities and Exchange Commission pursuant to a Form S-3 Registration Statement
filed under the Securities and Exchange Act of 1933, as amended.


                                     - 9 -

<PAGE>



         Effective  January 1, 1994, the Company  adopted a 52 or 53-week fiscal
year which ends on the Sunday nearest  December 31. Fiscal  quarters  consist of
accounting periods of 16, 12, 12 and 12 or 13 weeks, respectively.
As a result of the change, the year ended January 1, 1995 was a 366-day year.

         In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123 ").  SFAS No. 123 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. SFAS No.
123 addresses the accounting for awards of stock-based compensation to employees
and transactions in which an entity issues its equity instruments to acquire
goods and services from nonemployees.  SFAS No. 123 allows an entity to continue
to measure compensation cost for awards of stock-based compensation to employees
using the intrinsic value based method of accounting prescribed by APB Opinion
No. 25.  However, entities electing to remain with the accounting under APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share, as if the fair value method of accounting defined within SFAS No. 123 had
been applied.  The Company's management has elected to remain with the
accounting under APB Opinion No. 25 and to provide the pro forma disclosures as
required under SFAS No. 123.


                                     - 10 -

<PAGE>


Results Of Operations

         The  following  table sets forth the  percentage  of net sales of items
included in the consolidated statements of operations for the periods indicated:

<TABLE>
<CAPTION>

                                                                Fiscal Years Ended
                                                  -------------------------------------------------

                                                   December 29,     December 31,       January 1,
                                                       1996             1995              1995
                                                  ---------------  ---------------   --------------
<S><C>
Net sales                                              100.0%           100.0%           100.0%

Restaurant costs and expenses:
  Cost of sales                                         27.4%            27.4%            27.9%
  Labor                                                 33.0%            33.3%            32.4%
  Operating                                             15.3%            15.1%            15.1%
                                                  ---------------  ---------------   --------------

    Restaurant operating margin                         24.3%            24.2%            24.6%



  Occupancy                                             11.7%            11.9%            11.8%
  Depreciation and amortization                          5.3%             5.4%             3.4%
                                                  ---------------  ---------------   --------------

    Restaurant operating income                          7.3%             6.9%             9.4%


General and administrative expenses                     16.3%            15.6%            17.2%
Depreciation and amortization                            1.1%             0.7%             0.6%
Development and abandoned site costs                     0.0%             0.0%             0.9%
                                                 ---------------  ---------------   --------------

     Operating  Loss                                   (10.1%)           (9.4%)           (9.3%)

Interest expense                                         1.1%             2.5%             2.4%
Investment (income) loss, net                           (2.6%)           (0.6%)            0.0%
                                                 ---------------  ---------------   --------------

     Loss before minority interest                      (8.6%)          (11.3%)          (11.7%)

Minority interest in net loss of SDLP                    0.0%             1.4%             3.1%
                                                 ---------------  ---------------   --------------

    Net loss                                            (8.6%)           (9.9%)           (8.6%)
                                                 ===============  ===============   ==============
</TABLE>

     Year Ended  December 29, 1996 Compared to the Year Ended December 31, 1995.
Net sales for the fiscal year ended December 29, 1996 ("Fiscal 1996")  increased
$3.2 million to $16,550,468  compared to  $13,350,255  for the fiscal year ended
December 31, 1995 ("Fiscal 1995"). Silver Diner restaurants opened during Fiscal
1995 and Fiscal 1996 in Fair Oaks,  Tysons Corner and Arlington,  Virginia added
$3.3 million to net sales.

     Comparable   Company  sales  (sales  for  Silver  Diner   restaurants  open
throughout  both periods  being  compared,  excluding  the initial six months of
operations  during which sales are typically higher than normal) decreased 1.2%.
Average net sales for Rockville and Tysons Corner,  the Company's highest volume
stores,  were  $3,598,000  for  Fiscal  1996,  with the two  diners  aggregating
approximately 44% of net sales. Average net sales for the other four restaurants
open throughout Fiscal 1996 were approximately $2,312,000.

     Cost of sales,  primarily food and beverage cost, was unchanged at 27.4% of
net sales for Fiscal 1996 compared to Fiscal 1995. Management was able to offset
higher  wholesale  food costs during the year through  improved  purchasing as a
result of the Company's stronger financial condition.

     Labor,  which consists of restaurant  management and hourly  employee wages
and  bonuses,  payroll  taxes,  workers'  compensation  insurance,  group health
insurance  and other  benefits,  was 33.0% of net sales for the Fiscal  1996,  a
decrease of 0.3% of net sales compared to Fiscal 1995. Fiscal 1996 was favorably
impacted  by the  maturing  of the Fair  Oaks and  Tysons  Corner  Silver  Diner
restaurants opened during 1995, as well as lower

                                     - 11 -

<PAGE>



workers' compensation costs in the Company's Virginia stores.

     Congress has passed  legislation which increased the minimum wage effective
October 1, 1996. Many of the Company's  employees are paid hourly wages, and any
increase in the minimum wage increases the Company's cost.  Management estimates
that the  minimum  wage  increase  raised the  Company's  overall  labor cost by
approximately  0.2% to 0.3% of net sales.  The Company  expects to recover  this
increased cost through increased operating efficiencies, and to a lesser degree,
price increases to customers.

     Operating expenses,  which consist of all restaurant  operating costs other
than labor and occupancy, including supplies, utilities, repairs and maintenance
and  advertising,  increased to 15.3% of net sales for Fiscal 1996,  compared to
15.1% for Fiscal 1995.  Lower  comparable  store sales,  combined  with slightly
above average  operating  expenses in new stores,  resulted in the increase as a
percentage of net sales.

     Restaurant  operating  margin,  which  consists  of net sales minus cost of
sales, labor and operating expenses exclusive of occupancy, improved to 24.3% of
net sales for  Fiscal  1996 from  24.2% for  Fiscal  1995.  Management  believes
restaurant  operating  margin  is the most  consistent  measure  of store  level
operating results because it focuses on unit level performance.  The Fiscal 1996
improvement was due to better control of costs overall,  and the maturing of the
Company's new stores at Fair Oaks and Tysons Corner.

     In late 1996,  the  Company  began  testing a new menu  designed to enhance
customer  value  and  build  sales,  while  reducing   operational   complexity.
Management  believes that the new menu,  which was  implemented in all stores in
late  January  1997,  will  increase  cost of  sales  but  decrease  labor  as a
percentage  of net  sales,  with the  result  being  no  significant  change  in
restaurant  operating  margin.  However,  the  implementation of the new menu is
expected to temporarily  increase cost of sales, labor and operating expenses in
the first quarter of 1997 due to initial training and smallwares costs.

     Occupancy, which is composed primarily of rent, property taxes and property
insurance,  increased  $343,339  for Fiscal 1996  compared to Fiscal  1995,  due
primarily to the opening of new restaurants during 1995 and 1996.

     Restaurant depreciation and amortization increased $167,417 for Fiscal 1996
compared to Fiscal 1995, primarily due to new restaurant openings.  Depreciation
decreased approximately $75,000 overall in the first four diners, due in part to
a  prospective  reduction  in the  estimated  useful life of  smallwares,  which
increased   expense  in  Fiscal  1995.  Fiscal  1996  and  Fiscal  1995  include
approximately $240,000 and $153,000,  respectively,  of preopening amortization.
Preopening costs are amortized on a straight-line  basis over twelve months from
the date of each new restaurant opening.

     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 $2,705,940 for
Fiscal 1996, an increase of $628,205 compared to Fiscal 1995. As a percentage of
net sales, general and administrative expenses increased to 16.3% in Fiscal 1996
from 15.6% in Fiscal 1995.  Increased  corporate salary costs, higher restaurant
management and recruitment costs, new menu costs and additional expenses related
to  being  a  public  company  were  the  primary  factors  contributing  to the
increases.  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.  Also,  during Fiscal 1996,  the Company began to incur  expenses
related to the recruitment and training of restaurant  management to support new
Silver Diner openings in late 1996 and early 1997. As revenues  increase in 1997
with the addition of new Silver Diners, general and administrative  expenses are
expected to decrease as a percentage of net sales.

     Depreciation  and  amortization  for  Fiscal  1996  includes  approximately
$100,000 for  amortization  of goodwill  related to the  acquisition of the SDLP
minority interest.


                                     - 12 -

<PAGE>



     In September  1995, the Company raised $2.5 million in a private  placement
of subordinated  notes and common stock  warrants,  and in October 1995 borrowed
$750,000  from a bank.  Investment  income,  interest  expense and  amortization
expense  (related to deferred loan costs) all initially  increased during Fiscal
1996  compared  to  Fiscal  1995 as a  result  of  these  borrowings.  Following
consummation of the Merger with FTAC, the subordinated notes were converted into
common stock, the common stock warrants were canceled  and  the  Company's  bank
debt and affiliate debt was  repaid.  The  bank  debt  of  SDLP was subsequently
repaid in late July  1996  following  acquisition of the SDLP minority interest.
Interest  expense  and  amortization  of deferred loan costs were eliminated for
the remainder of Fiscal 1996  due  to  the  repayment  of debt.  Interest income
increased  significantly in Fiscal 1996 due to  investment  of  the  Merger  and
private placement proceeds.

     The limited  partners'  interest  in the net loss of SDLP of  $180,175  for
Fiscal 1995 depleted the remaining equity of the limited partners.  Accordingly,
minority  interest was not available in Fiscal 1996 prior to the  acquisition of
the  minority  interest in SDLP to absorb SDLP  losses,  and SDLP's  losses were
realized by the Company in their entirety.

     Net loss for Fiscal 1996 was  $1,429,472,  or $0.15 per share,  compared to
the net loss of $1,322,730,  or $0.26 per share, for Fiscal 1995. Average shares
outstanding  increased  from  5,013,319  for Fiscal 1995 to 9,545,681 for Fiscal
1996. The increase in shares resulted from the Merger and the private placement.
Management  expects that the Company will continue  incurring  relatively modest
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.

     Year Ended  December 31, 1995  Compared to the Year Ended  January 1, 1995.
Net sales for Fiscal  1995  increased  $2,453,573  to  $13,350,255,  compared to
$10,896,682  for the year ended January 1, 1995 (Fiscal 1994).  New  restaurants
opened  during  Fiscal  1995 in Fair  Oaks  and  Tysons  Corner,  Virginia  were
primarily  responsible  for the  increase,  contributing  $2,503,884  to  sales.
Comparable  Company sales increased 0.8% after adjustment for the additional two
days in Fiscal 1994 resulting from the change in the Company's fiscal year.

     Cost of sales decreased 0.5% of net sales to 27.4% in Fiscal 1995, compared
to 27.9% for 1994.  Fiscal 1995  reflected  the full  benefit of a change in the
Company's  primary supplier in the spring of 1994,  favorable poultry prices and
ongoing menu refinements.

     Labor was 33.3% of net sales for Fiscal  1995,  an  increase of 0.9% of net
sales compared to Fiscal 1994. This increase  resulted from higher initial labor
costs associated with the Fair Oaks and Tysons Corner openings, and, to a lesser
degree,  increased  restaurant  management  bonuses due to better than  budgeted
store  level  financial  performance.  Labor  costs  for  existing  restaurants,
excluding Fair Oaks and management bonuses in both years,  decreased 0.4% of net
sales.

     Operating expenses were unchanged at 15.1% of net sales.

     Occupancy  increased  $294,685 for Fiscal 1995 compared to Fiscal 1994. The
new  restaurants  in Fair Oaks and  Tysons  Corner had total  occupancy  cost of
approximately  $243,000.  The  remainder of the increase  was  primarily  due to
consumer  price index  related rent  increases  and  expansion of the  Rockville
diner.

     Restaurant depreciation and amortization increased $333,344 for Fiscal 1995
compared to Fiscal 1994. Of this increase, $199,722 is associated with Fair Oaks
and  Tysons  Corner,   including   $153,029  of  preopening  cost  amortization.
Depreciation and  amortization  also increased due to expansion of the Rockville
diner,  improvements  to  other  established  Silver  Diners  and a  prospective
reduction in the estimated useful life of smallwares.

     General and administrative expenses increased $199,961 to $2,077,735 in
1995.  As a percentage of net sales, general and administrative expenses fell
from 17.2% in 1994 to 15.6% in 1995.  The Company's administrative

                                     - 13 -

<PAGE>



overhead as a percentage of net sales is above the industry  average,  primarily
due to  the  Company's  commitment  to,  and  subsequent  cost  of,  building  a
management team to support its intermediate and long-term growth plans.

     During  Fiscal 1994,  the Company  abandoned a proposed site due to a legal
dispute and recorded a charge to operations of $98,637.  No sites were abandoned
during Fiscal 1995.

     In September  1995, the Company raised $2.5 million in a private  placement
of subordinated notes and common stock warrants,  and in October,  1995 borrowed
$750,000  from a bank.  Investment  income,  interest  expense and  amortization
expense  (related to deferred loan costs) all increased  during Fiscal 1995 as a
result of these borrowings.

     The limited  partners'  interest  in the net loss of SDLP of  $180,175  for
Fiscal 1995 depleted the remaining equity of the limited partners,  resulting in
a decrease in minority  interest in net loss of SDLP of $152,802 for Fiscal 1995
compared to Fiscal 1994.

     Income Taxes.  No current or deferred  income tax benefit has been provided
in the Company's  consolidated financial statements due to the Company's history
of net  operating  losses for income tax  purposes.  At December 29,  1996,  the
Company has a net operating loss carryforward of approximately  $4.9 million for
income tax  purposes  that expires in 2008  through  2011,  which may be used to
reduce future taxable income and tax liabilities.

Liquidity and Capital Resources

     The  Company's  current  financial  position  is  strong as a result of the
consummation of the Merger and the private placement. At December 29, 1996, cash
and cash  equivalents  were  $8.3  million,  short-term  investments  were  $1.1
million, working capital was $6.5 million, the Company had no long-term debt and
stockholders' equity was $21.9 million. Cash and cash equivalents increased $6.7
million  during  Fiscal  1996,  due  primarily  to net Merger  proceeds of $11.9
million and net private placement proceeds of approximately  $7.6 million,  less
cash used to repay debt, finance the Fiscal 1996 operating cash flow deficit and
pay for purchases of property and  equipment,  including  construction  payables
associated with the Tysons Corner diner, which opened in December 1995.

     The Company's  principal  future capital  requirement is expected to be the
development  of  restaurants.  The Company plans to open five new  Company-owned
Silver Diner restaurants in 1997 and 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  $1,625,000.  Land
generally will be leased. When land is purchased, management intends to pursue a
sale leaseback or debt financing strategy following the restaurant's opening.

     At  December  29,  1996,  the  Company  was  under   construction   in  the
Washington/Baltimore  market on  locations  in  Merrifield  (opened in  February
1997),  Springfield and Reston, Virginia. Due to above average site costs, these
locations  are  expected to average  approximately  $1.7  million for  building,
equipment and site costs.  The Reston land is being purchased for  approximately
$1.3 million. Management is continuing to negotiate to obtain other sites in the
Washington/Baltimore market.

     The  Company  has been  pursuing  locations  in new  geographical  markets,
specifically  the  Philadelphia-Southern  New Jersey area and South Florida.  To
that end, the Company has entered  into a lease  agreement  and a land  purchase
agreement that, pending successful  completion of site plan contingencies,  will
allow the  Company  to open a new store in Cherry  Hill,  New Jersey in 1997 and
Kendall, Florida in 1998.

     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

                                     - 14 -

<PAGE>



capital in 1997 to meet its 1998 requirements, management may be forced to limit
1998 growth.

Seasonality and Quarterly Results

     Although the Company's limited operating history,  geographic concentration
and small  number of existing  Silver  Diners make future  trends  difficult  to
predict,  Silver Diner  restaurants  have generally  experienced  higher average
weekly  net sales in the  second  and third  quarters.  The timing of new Silver
Diner  restaurant  openings and extreme  weather,  especially  during the winter
months,   may  also   affect   sales   and   quarterly   results.   Accordingly,
quarter-to-quarter comparisons of the Company's results of operations may not be
meaningful,  and results for any quarter are not  necessarily  indicative of the
results that may be achieved for a full fiscal  year.  The first fiscal  quarter
includes  16 weeks of  operations  as  compared to 12, 12 and 12 or 13 weeks for
each of the subsequent three quarters, respectively. As a result, despite higher
average weekly sales, net sales from comparable Silver Diners can be expected to
be lower in the second quarter as compared to the first quarter of each year.

Impact of Inflation

     Management  does not believe that  inflation  has  materially  affected the
Company's  operating  results.  Substantial  increases  in costs  and  expenses,
particularly  food,  supplies,  labor  and  operating  expenses,  could  have  a
significant  impact on the Company's  operating  results to the extent that such
increases cannot be passed along to customers.

Item 8.  Financial Statements and Supplementary Data.

                      SILVER DINER, INC. AND SUBSIDIARIES
                       INDEX TO FINANCIAL STATEMENTS AND
                               SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                                                                                 Page
<S><C>
Reports of Independent Auditors.................................................................................. 16

Consolidated Financial Statements:

Consolidated Balance Sheets as of
     December 29, 1996 and December 31, 1995..................................................................... 18

Consolidated Statements of Operations for the
     Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995................................. 19

Consolidated Statements of Stockholders' Equity for the
     Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995................................. 20

Consolidated Statements of Cash Flows for the
     Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995................................. 21

Notes to Consolidated Financial Statements....................................................................... 23
</TABLE>

                                     - 15 -

<PAGE>



INDEPENDENT AUDITORS' REPORT

To the Stockholders of Silver Diner, Inc.:

We have audited the  accompanying  consolidated  balance  sheet of Silver Diner,
Inc. and  subsidiaries  (the  "Company") as of December 29, 1996 and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  year  (52  weeks)  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on these  financial  statements  based on our audit.  The  consolidated
financial  statements of the Company as of December 31, 1995 and for each of the
years (52 weeks)  ended  December  31, 1995 and January 1, 1995 were  audited by
other  auditors  whose  report,  dated April 2, 1996,  expressed an  unqualified
opinion on those combined statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of Silver Diner, Inc. and subsidiaries
as of December 29, 1996 and the results of their operations and their cash flows
for the  year (52  weeks)  then  ended in  conformity  with  generally  accepted
accounting principles.

/s/ Deloitte & Touche LLP
-------------------------
March 14, 1997


                                     - 16 -

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders
Silver Diner, Inc. and Subsidiaries

     We have audited the accompanying consolidated balance sheet of Silver
Diner, Inc. and Subsidiaries (formerly Silver Diner Development, Inc., Silver
Diner Limited Partnership and Silver Diner Potomac Mills, Inc.), as of
December 31, 1995, and the related consolidated statements of operations,
stockholders' equity and partners' deficit and cash flows for each of the two
years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the corporations' and partnership's
managements. Our responsibility is to express an opinion on these financial
statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Silver
Diner Development, Inc., Silver Diner Limited Partnership and Silver Diner
Potomac Mills, Inc. as of December 31, 1995, and the results of their
operations, their stockholders' equity and partners' deficit and their cash
flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.


/s/ REZNICK FEDDER & SILVERMAN
______________________________
Bethesda, Maryland
April 2, 1996


                                     - 17 -

<PAGE>



                      SILVER DINER, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           December 29,        December 31,
                                                                               1996                1995
                                                                         ----------------    ----------------
                                                    ASSETS
<S><C>
Current assets:
     Cash and cash equivalents                                             $    8,285,533     $     1,584,716
     Marketable securities available for sale                                   1,081,015                   -
     Inventory                                                                    147,981             117,393
     Prepaid and other current assets                                             202,081              72,152
                                                                         ----------------    ----------------
           Total current assets                                                 9,716,610           1,774,261

Property, equipment and improvements, net                                      12,956,119           7,142,120

Due from affiliates                                                                55,957             355,023
Preopening costs, net                                                             127,413             239,750
Deferred issuance costs                                                                 -             907,373
Goodwill, net                                                                   2,667,810                   -
Deposits and other                                                                340,466             375,942
                                                                         ----------------    ----------------

           Total assets                                                    $   25,864,375     $    10,794,469
                                                                         ================    ================

                                       LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
   Accounts payable and accrued expenses                                   $    3,174,262     $     3,582,238
   Current maturities of notes to related parties                                       -             200,000
   Current maturities of long-term debt                                                 -           3,193,125
                                                                         ----------------    ----------------
           Total current liabilities                                            3,174,262           6,975,363

Deferred rent liability                                                           749,396             574,821
Notes to related parties, less current maturities                                       -           1,036,811
Long-term debt, less current maturities                                                 -             973,200
                                                                         ----------------    ----------------
           Total liabilities                                                    3,923,658           9,560,195

Commitments and contingencies (Note 10)

Stockholders' equity:
   Preferred stock, at December 29, 1996, $.001 par value, 1,000,000 shares
   authorized; none issued                                                              -                   -

   Common stock, at December 29, 1996, $.00074 par value, 20,000,000 shares
   authorized; 11,520,473 shares issued and outstanding; at December 31, 1995,
   $.10 par value, 1,000,000 shares authorized, 150,947 pre-merger shares issued
   and outstanding                                                                  8,526              15,095

   Additional paid-in capital                                                  30,297,290           8,154,806
   Accumulated deficit                                                         (8,365,099)         (6,935,627)
                                                                         ----------------    ----------------
           Total stockholders' equity                                          21,940,717           1,234,274
                                                                         ----------------    ----------------
           Total liabilities and stockholders' equity                      $   25,864,375     $    10,794,469
                                                                         ================    ================
</TABLE>

     Accompanying notes are an integral part of these financial statements

                                     - 18 -

<PAGE>



                      SILVER DINER, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                          Fiscal Years Ended
                                                                     ---------------------------------------------------------------
                                                                        December 29,           December 31,           January 1,
                                                                            1996                   1995                  1995
                                                                     ------------------     ------------------     -----------------
<S><C>
Net sales                                                             $   16,550,468         $   13,350,255        $   10,896,682

Restaurant costs and expenses:
     Cost of sales                                                         4,526,286              3,655,254             3,036,995
     Labor                                                                 5,464,896              4,452,134             3,525,472
     Operating                                                             2,536,609              2,015,668             1,642,039
     Occupancy                                                             1,931,866              1,588,527             1,293,842
     Depreciation and amortization                                           882,843                715,426               382,082
                                                                  ------------------     ------------------     -----------------

           Total restaurant costs and expenses                            15,342,500             12,427,009             9,880,430
                                                                  ------------------     ------------------     -----------------

           Restaurant operating income                                     1,207,968                923,246             1,016,252

General and administrative expenses                                        2,705,940              2,077,735             1,877,774
Depreciation and amortization                                                183,928                 97,351                61,042
Development and abandoned site costs                                               -                      -                98,637
                                                                  ------------------     ------------------     -----------------

     Operating loss                                                       (1,681,900)            (1,251,840)           (1,021,201)

Interest expense                                                             180,293                334,086               254,810
Investment (income) loss, net                                               (432,721)               (83,021)                3,599
                                                                  ------------------     ------------------     -----------------

     Loss before minority interest                                        (1,429,472)            (1,502,905)           (1,279,610)

Minority interest in net loss of SDLP                                              -                180,175               332,977
                                                                  ------------------     ------------------     -----------------

           NET LOSS                                                   $   (1,429,472)        $   (1,322,730)      $      (946,633)
                                                                  ==================     ==================     =================

Net loss per common share                                             $        (0.15)        $        (0.26)      $         (0.19)
                                                                  ==================     ==================     =================

Weighted average common shares outstanding                                 9,545,681              5,013,319             4,982,414
                                                                  ==================     ==================     =================
</TABLE>



     Accompanying notes are an integral part of these financial statements


                                     - 19 -

<PAGE>



                      SILVER DINER, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

  Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995

<TABLE>
<CAPTION>
                                               Common Stock                    Additional
                                               ------------                     Paid-in           Accumulated
                                          Shares             Amount              Capital            Deficit              Total
                                     ----------------    ----------------   -----------------   ----------------   ----------------
<S><C>
Balance at December 31, 1993                  149,447     $        14,945    $      7,592,983     $  (4,666,264)     $    2,941,664
Stock options issued                                -                   -             117,449                 -             117,449
Net loss                                            -                   -                   -          (946,633)           (946,633)
                                     ----------------   -----------------   -----------------   ----------------   ----------------
Balance at January 1, 1995                    149,447              14,945           7,710,432        (5,612,897)          2,112,480

Common stock offering                           1,500                 150             202,350                 -             202,500
Stock options issued                                -                   -             242,024                 -             242,024
Net loss                                            -                   -                   -        (1,322,730)         (1,322,730)
                                     ----------------   -----------------   -----------------   ----------------   ----------------
Balance at December 31, 1995                  150,947              15,095           8,154,806        (6,935,627)          1,234,274

Issuance of common stock in connection
       with Merger                          9,227,857              (8,155)         11,739,775                 -          11,731,620
Debenture conversion                          625,000                 463           2,654,140                 -           2,654,603
Common stock offering                       1,500,000               1,111           7,555,427                 -           7,556,538
Payments on notes receivable
        from stockholders                           -                   -              41,669                 -              41,669
Stock options exercised                        16,669                  12                  38                 -                  50
Repurchase of outstanding options                   -                   -             (30,348)                -             (30,348)
Amortization of unearned compensation               -                   -              39,823                 -              39,823
Warrants issued                                     -                   -             141,960                 -             141,960
Net loss                                            -                   -                   -        (1,429,472)         (1,429,472)
                                     ----------------   -----------------   -----------------   ----------------   ----------------
Balance at December 29, 1996               11,520,473     $         8,526    $     30,297,290     $  (8,365,099)     $   21,940,717
                                     ================   =================   =================   ================   ================
</TABLE>

     Accompanying notes are an integral part of these financial statements


                                     - 20 -

<PAGE>



                      SILVER DINER, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                           Fiscal Years Ended
                                                                    ----------------------------------------------------------------
                                                                      December 29,             December 31,            January 1,
                                                                          1996                     1995                   1995
                                                                    ----------------         ----------------        ---------------
<S><C>
Cash flows from operating activities
Net loss                                                          $      (1,429,472)      $       (1,322,730)      $       (946,633)
Adjustments to reconcile net loss to net cash used in operations
     Depreciation and amortization                                        1,066,771                  812,777                443,124
     Compensation expense - stock options and deferred
          compensation                                                       81,489                  368,505                 78,240
     Minority interest                                                            -                 (180,175)              (332,977)
     Changes in operating assets and liabilities
           Inventory                                                        (30,588)                 (47,802)                 7,711
           Prepaid expenses and other assets                               (129,929)                  41,294                 54,453
           Preopening expenses                                             (128,287)                (392,779)                     -
           Deposits and other                                               (78,696)                (185,234)               (33,386)
           Accounts payable and accrued expenses                           (284,195)                 628,798                240,851
           Deferred rent liability                                          174,575                   86,772                 19,668
                                                                    ----------------         ----------------        ---------------

     Net cash used in operating activities                                 (758,332)                (190,574)              (468,949)
                                                                    ----------------         ----------------        ---------------

Cash flows from investing activities
Purchases of property and equipment                                      (5,729,378)              (2,691,826)              (247,406)
Maturities of short-term investments                                              -                1,529,543              1,231,262
Purchase of short term investments                                       (1,081,015)                (120,000)            (2,760,805)
Advances to affiliates                                                            -                 (204,080)              (472,083)
Payment of advances to affiliates                                                 -                   84,371                285,580
                                                                    ----------------         ----------------        ---------------

Net cash used in investing activities                                    (6,810,393)              (1,401,992)            (1,963,452)
                                                                    ----------------         ----------------        ---------------
</TABLE>

                                  (continued)

     Accompanying notes are an integral part of these financial statements


                                     - 21 -

<PAGE>



                      SILVER DINER, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

<TABLE>
<CAPTION>
                                                                                           Fiscal Years Ended
                                                                    ----------------------------------------------------------------
                                                                          December 29,           December 31           January 1,
                                                                              1996                   1995                 1995
                                                                    --------------------   --------------------   ------------------
<S><C>
Cash flows from financing activities
Loan Costs                                                                            -                (26,439)              (3,469)
Net proceeds from merger                                                     11,916,868               (167,764)                   -
Net proceeds from sale of stock                                               7,556,538                202,500                    -
Net proceeds from sale of stock options to employees                                  -                 39,471                    -
Acquisition of minority interest in Silver Diner Limited Partnership         (2,625,453)                     -                    -
Proceeds from notes payable                                                           -              3,620,000                    -
Payments on advances - affiliates                                                     -                (13,000)                   -
Payments of principal - notes payable                                        (1,666,325)              (641,106)          (1,290,165)
Payments of principal - capital leases                                                                (107,123)            (168,547)
Payments of principal - notes payable - related party                          (881,788)                     -              (55,604)
Repurchase of employee stock options                                            (30,298)               (10,720)                   -
                                                                    --------------------   --------------------   ------------------
Net cash provided by (used in) financing activities                          14,269,542              2,895,819           (1,517,785)
                                                                    --------------------   --------------------   ------------------

Net increase (decrease) in cash and cash equivalents                          6,700,817              1,303,253           (3,950,186)
Cash and cash equivalents at beginning of the period                          1,584,716                281,463            4,231,649
                                                                    --------------------   --------------------   ------------------

Cash and cash equivalents at end of the period                        $       8,285,533    $        1 ,584,716    $         281,463
                                                                    ====================   ====================   ==================

Supplemental disclosure of cash flow information:
     Interest paid                                                    $         137,300    $           334,086    $         245,677
                                                                    ====================   ====================   ==================
Noncash investing and financing activities:
     Construction payables included in accounts payable and
        accrued expenses                                              $       1,054,652    $           301,702    $         746,142
                                                                    ====================   ====================   ==================
     Recapitalization costs included in accounts payable and
        accrued expenses                                              $               -    $           722,128    $               -
                                                                    ====================   ====================   ==================
     Repayment of notes payable - related party by offset amounts
        due from affiliates                                           $         355,023    $                 -    $               -
                                                                    ====================   ====================   ==================
     Conversion of senior subordinated convertible promissory
        notes to 625,000 shares of common stock                       $       2,500,000    $                 -    $               -
                                                                    ====================   ====================   ==================
     Issuance of 84,000 warrants in conjunction with
        SDLP purchase                                                 $         141,960    $                 -    $               -
                                                                    ====================   ====================   ==================
</TABLE>


     Accompanying notes are an integral part of these financial statements


                                     - 22 -

<PAGE>



                      SILVER DINER, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 29, 1996


1.   Organization and Summary of Significant Accounting Policies
     Silver Diner, Inc. and its subsidiaries develop and operate the Silver
     Diner restaurant chain.  At December 29, 1996, the Company owned and
     operated seven diners in the Washington/Baltimore metropolitan area.


     Basis of Presentation
     The  consolidated  financial  statements for the fiscal year ended December
     29, 1996 include the accounts and  operations of the Company and its wholly
     owned subsidiaries, Silver Diner Development, Inc. and Silver Diner Limited
     Partnership.  All significant  intercompany  balances and transactions have
     been eliminated in consolidation.  Certain previously reported amounts have
     been reclassified to conform to the 1996 presentation.

     The financial  statements for the years ended December 31, 1995 and January
     1,  1995  reflect  the  combined  financial   statements  of  Silver  Diner
     Development,  Inc.,  Silver  Diner  Limited  Partnership  and Silver  Diner
     Potomac Mills, Inc. During 1996, the Company acquired the minority interest
     in SDLP (see  Note 3),  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.


     Fiscal Year
     Effective  January 1, 1994, the Company adopted a 52 or 53-week fiscal year
     which ends on the Sunday nearest  December 31. The fiscal  quarters for the
     Company  consist  of  accounting  periods of 16, 12, 12 and 12 or 13 weeks,
     respectively.  Fiscal years 1996,  1995 and 1994 were comprised of 52 weeks
     and ended on  December  29,  1996,  December  31, 1995 and January 1, 1995,
     respectively.  As a result of the change,  the fiscal year ended January 1,
     1995 was a 366-day year.


     Cash and Cash Equivalents and Marketable Securities
     All  short-term  investments  are classified as  available-for-sale.  Those
     investments that are part of the Company's cash management portfolio with a
     remaining  maturity of three months or less when  purchased are reported as
     cash equivalents.  The balance of the short-term investments are classified
     as  marketable  securities.  At December  29, 1996,  marketable  securities
     consists of investment  grade commercial  paper.  Cash and cash equivalents
     and marketable  securities are stated at cost plus accrued interest,  which
     approximates fair value.


     Inventory
     Inventory  consists of food and supplies and is valued at the lower of cost
     (first-in, first-out) or market.


     Property, Equipment and Improvements
     Property,  equipment  and  improvements  are stated at cost.  Buildings and
     leasehold  improvements  are depreciated  over the shorter of the estimated
     useful  lives of the  assets or the  respective  anticipated  lease  period
     including  renewal options,  ranging from 20 to 35 years,  with a provision
     for salvage value for the Rockville  building.  Furniture and equipment are
     depreciated over the estimated useful lives of the related assets,  ranging
     from  2 to  10  years.  Depreciation  is  computed  using  accelerated  and
     straight-line  methods,  and includes  assets owned and those under capital
     lease agreements.


     Preopening Costs
     Preopening costs, including payroll,  employee recruitment and advertising,
     incurred  in the  restaurant  start-up  and  training  period  prior to the
     opening of each restaurant,  are amortized on the straight-line  basis over
     twelve months from the date of opening.

                                     - 23 -

<PAGE>



     Deferred Issuance Costs
     Deferred issuance costs, primarily legal, accounting and investment banking
     costs,   incurred  in  connection  with  SDDI's  merger  with  Food  Trends
     Acquisition  Corporation  (see Note 2) were  deferred  and  offset  against
     contributed  capital upon consummation of the merger.  The substance of the
     reverse  acquisition  is  that  of  an  initial  public  offering  and  the
     acquisition  costs incurred by the Company have therefore been treated as a
     reduction in paid-in capital.

     Goodwill
     Cost  in  excess  of fair  value  of net  assets  acquired  related  to the
     acquisition  of the  minority  interest  in  SDLP  (see  Note  3) is  being
     amortized on a straight-line basis over 15 years.

     Deferred Rent
     Deferred  rent is recorded and  amortized  to the extent the total  minimum
     rental payments  allocated to the current period on a  straight-line  basis
     exceed or are less than the cash payments required.


     Income Taxes
     The  provision  for  income  taxes  is based on  earnings  reported  in the
     financial  statements.  Deferred  income taxes are  provided for  temporary
     differences between financial assets and liabilities and those reported for
     income tax purposes. Taxable losses reported by SDLP passed through to, and
     were reportable by, its partners.


     Net Loss Per Common Share
     Net loss per  common  share is  computed  based upon the  weighted  average
     number of common shares  outstanding  during the period.  Fully diluted and
     primary  earnings per common share  calculations  reflecting  the impact of
     stock  options and  warrants  are  antidilutive  and  accordingly,  are not
     presented in the financial  statements.  In connection with the Merger (see
     Note 2), the weighted average shares outstanding for purposes of presenting
     net loss per common  share on a  comparative  basis has been  retroactively
     restated to reflect the effect of the recapitalization  that occured in the
     reverse acquisition.


     Evaluation of Long-Lived Assets
     The Company  evaluates  the  potential  impairment  of  long-lived  assets,
     including  goodwill,  based upon  projections  of  undiscounted  cash flows
     whenever  events or changes in  circumstances  indicate  that the  carrying
     amount of an asset may not be fully  recoverable.  Management  believes  no
     material impairment of these assets exists at December 29, 1996.

     Stock-Based Compensation
     Statement of Financial  Accounting Standards (SFAS) No. 123, Accounting for
     Stock-Based  Compensation,  requires  expanded  disclosures  of stock-based
     compensation  arrangements  with  employees  and  encourages  (but does not
     require) compensation cost to be measured based on fair value of the equity
     instrument  awarded  (see Note 12).  The  Company has chosen to continue to
     account for employee  stock-based  compensation  using the intrinsic  value
     method prescribed in Accounting Principles Board Opinion No. 25, Accounting
     for Stock Issued to Employees,  and related  Interpretations.  Accordingly,
     compensation  costs for stock options is measured as the excess, if any, of
     the quoted  market  price of the  Company's  stock at the date of the grant
     over the amount the employee must pay to acquire the stock.

     Reclassification
     Certain prior year balances have been reclassified to conform with the 1996
     presentation.

     Use of Estimates
     Management  of the Company has made a number of estimates  and  assumptions
     relating to the reporting of assets and  liabilities  and the disclosure of
     contingent assets and liabilities to prepare these financial  statements in
     conformity with generally accepted  accounting  principles.  Actual results
     could differ from those estimates.

                                     - 24 -

<PAGE>



2.   Merger
     On March 27, 1996, FTAC Transition  Corporation,  a wholly owned subsidiary
     of Food Trends Acquisition  Corporation merged with and into SDDI with SDDI
     surviving as a wholly owned  subsidiary  of FTAC.  In  connection  with the
     Merger,  FTAC changed its name to Silver Diner  Development,  Inc.,  and in
     June 1996, to Silver Diner,  Inc.  Pursuant to the Merger  agreement,  each
     outstanding  share of SDDI common stock converted into 33.339 shares of the
     common stock of FTAC. Upon consummation of the Merger,  the stockholders of
     SDDI  became  the  owners  in the  aggregate  of  approximately  57% of the
     outstanding  common  stock of FTAC and the  directors  and officers of SDDI
     became  directors  and officers of FTAC.  Prior to the Merger,  FTAC had no
     operating activities.

     For accounting and financial reporting purposes,  the Merger was treated as
     a  recapitalization  of SDDI and as an issuance  of SDDI common  shares for
     monetary assets and  liabilities.  The transaction was in essence a reverse
     acquisition  with SDDI retaining the majority voting interest in the merged
     entity. The reverse acquisition is a business combination  accounted for by
     the purchase method in which the continuing entity is not assumed to be the
     acquirer.  The substance of the reverse  acquisition  is that of an initial
     public  offering  and the  acquisition  costs  incurred by the Company have
     therefore been treated as a reduction in paid-in  capital.  The Company has
     reflected in its consolidated financial statements the assets,  liabilities
     and  equity  of SDDI at their  historical  book  values.  Accordingly,  the
     consolidated  results of operations  and financial  position of the Company
     for periods and dates prior to the Merger are the  consolidated  historical
     results of operations  and financial  position of SDDI for such periods and
     dates.

     All  historical  shares of common  stock and per share  amounts for periods
     prior to the Merger  have been  retroactively  adjusted to reflect the FTAC
     shares issued to the SDDI shareholders at the time of the Merger.


3.   Acquisition of Minority Interest in Silver Diner Limited Partnership
     On June 13, 1996 the Company  completed  its purchase of all of the limited
     partnership interests in SDLP from the original investors for $2,472,000 in
     cash  and  84,000  warrants  ("New  Warrants")  to  purchase  common  stock
     exercisable at $8.00 per share. The New Warrants are exercisable  until the
     earlier of 30 days  following a public  offering of common stock or January
     31,  1998.  The  offer  was  unanimously  accepted  by all  of the  limited
     partners.  The  acquisition was accounted for under the purchase method and
     the  entire  cost  of the  transaction,  totaling  $2.8  million,  has on a
     preliminary  basis  been  allocated  to  goodwill  based  on the  Company's
     estimate that the fair value of the tangible assets  acquired  approximates
     book value.  The goodwill is being amortized on a straight-line  basis over
     15 years and as a result,  amortization expense related to goodwill totaled
     $99,603 in fiscal year 1996.


4.   Property, Equipment and Improvements
     The major components of property and equipment are as follows:

<TABLE>
<CAPTION>
                                                            December 29,               December 31,
                                                                1996                       1995
                                                          ----------------          -----------------
<S><C>
     Land                                                     $  1,090,470               $          -
     Buildings and leasehold improvements                        7,042,095                  5,661,681
     Furniture, fixtures and equipment                           3,961,786                  2,827,656
     Deferred lease costs                                          599,790                    395,499
     Property under capital leases                                       -                    495,000
     Construction in progress                                    3,168,023                          -
                                                          ----------------          -----------------
                                                                15,862,164                  9,379,836
     Less accumulated depreciation and amortization             (2,906,045)                (2,237,716)
                                                          ----------------          -----------------
                                                              $ 12,956,119               $  7,142,120
                                                          ================          =================
</TABLE>

     Deferred lease costs represent brokerage commissions, legal fees and zoning
     related  costs  primarily  related to those  leases  upon which the Company
     constructed its restaurants.

                                     - 25 -

<PAGE>



5.   Accounts Payable & Accrued Expenses
     Accounts payable and accrued expenses consists of the following:


<TABLE>
<CAPTION>
                                                            December 29,             December 31,
                                                                1996                     1995
                                                          ----------------         -----------------
<S><C>
     Trade payables                                           $  2,564,381              $  2,879,286
     Payroll and related taxes                                     427,584                   360,015
     Interest                                                            -                   114,942
     Sales and use taxes                                            92,628                    69,216
     Other                                                          89,669                   158,779
                                                          ----------------         -----------------
                                                              $  3,174,262              $  3,582,238
                                                          ================         =================
</TABLE>

 6.  Long-Term Obligations
     Long-term debt includes the following:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                                      1995
                                                                               -----------------
<S><C>
     Senior subordinated convertible promissory notes, bearing
     interest at 10%, payable in one installment of principal plus
     accrued  interest on December 31, 1996. On March  27,
     1996,  the  outstanding  promissory  notes,  plus  accrued
     interest, were exchanged for 625,000 shares of the
     Company's common stock.                                                        $  2,500,000

     Installment notes payable to a bank, bearing interest at the
     prime rate plus 2%. These notes were fully paid on April 4,
     1996.                                                                               903,596

     Installment note payable to a bank,  bearing interest at the
     prime rate plus 2%. The note was fully paid on July 30,
     1996.                                                                               346,488

     Promissory notes with a bank, bearing interest at the prime
     rate plus 1.5%.  The notes were fully paid on July 31, 1996.                        238,986
                                                                               -----------------
                                                                                       3,989,070
     Capital lease obligations (See Note 9)                                              177,255
                                                                               -----------------
                                                                                       4,166,325
         Less current installments                                                    (3,193,125)
                                                                               -----------------
                                                                                   $     973,200
                                                                               =================
</TABLE>


7.   Notes Payable - Related Party
     At  December  31,  1995,  the Company  had notes  payable to its  president
     totaling  $1,236,811  bearing interest at prime plus 2%. The entire balance
     of related party notes payable,  net of the balances due from affiliates as
     discussed  in Note 9  below,  was  paid off  concurrent  with  the  Merger.
     Interest  charged to operations  relating to the notes amounted to $30,801,
     $121,847 and $105,242 in fiscal years 1996, 1995 and 1994, respectively.

8.   Private Placement
     On July 11, 1996, the Company  completed a $8,250,000  private placement of
     common  stock  through the sale of 1.5  million  shares at $5.50 per share.
     Approximately  $2.5 million of the approximately  $7.6 million net proceeds
     of the sale were used to replace the funds used for the  acquisition of the
     minority interests in SDLP, and the

                                     - 26 -

<PAGE>



     remainder is available to fund expansion.  In connection with the sale, the
     Company registered the shares with the Securities and Exchange Commission.

 9.  Related Party Transactions
     Silver Diner Potomac Mills, Inc.
     --------------------------------
     The  Company  leases  the  diner at  Potomac  Mills  pursuant  to two lease
     agreements   with  Silver  Diner   Potomac   Mills,   Inc.,  a  corporation
     wholly-owned  by the president of the Company.  The leases expire  October
     14, 2011 and include  annual CPI  adjustments  to base rent and percentage
     rent based on gross  receipts.  For the years  ending  December  29,  1996,
     December 31, 1995 and January 1, 1995,  occupancy  costs include  $389,000,
     $391,000 and $391,000, respectively, in rent and related pass through costs
     associated with the leases.

     Robert Giaimo Leasing, Inc.
     ---------------------------
     The Company  leased the  furniture and equipment at one of its diners under
     terms of a capital lease expiring in 1999 from Robert Giaimo Leasing,  Inc.
     ("RGLI"),  a  corporation  established  solely to  purchase  furniture  and
     equipment  to be  leased  to  the  Company.  RGLI  is  wholly-owned  by the
     president of the Company.  At December  31,  1995,  property and  equipment
     included   $210,000  in  capital   leased   assets,   net  of   accumulated
     depreciation,  and  long-term  debt  included  $177,000  in  capital  lease
     liability related to the lease with RGLI. In connection with the Merger, on
     April 1, 1996,  the Company  terminated its capital lease  obligation  with
     RGLI by purchasing the leased  equipment at the remaining lease  obligation
     balance of approximately  $148,000. For the years ending December 29, 1996,
     December 31, 1995 and January 1, 1995,  interest  expense  includes $3,931,
     $22,000 and $38,000,  respectively,  in interest  related to the lease with
     RGLI.

     Due From/To Affiliates
     ----------------------
     At December 31, 1995, due from affiliates  represented non-interest bearing
     amounts due on demand from RTG Real Estate  Limited  Partnership,  formerly
     Silver Diner Real Estate Limited Partnership, an affiliate, RGLI and Robert
     Giaimo  Development,  Inc.,  resulting  from  current  and prior  year cash
     advances in the amounts of $157,696, $14,110 and $183,217, respectively, at
     December 31, 1995. Balances due from affiliates were offset against amounts
     paid to the  president  of the  Company  concurrent  with  the  Merger,  as
     discussed in Note 7 above.

     At  December  29,  1996,  the  Company  is paying  premiums  for three life
     insurance policies owned respectively by two officers.  Due from affiliates
     represents  non-interest  bearing  amounts  due  on  demand  from  the  two
     officers,  which are  collateralized by the life insurance policies and are
     equal to the amount  paid by the  Company on such life  insurance
     policies.

10.  Commitments and Contingencies
     Operating Leases
     ----------------
     The  Company   leases   restaurant   land  and   buildings   under  various
     noncancellable  operating  leases  with terms  expiring  at  various  dates
     through  2015.  Certain of these leases are with related  parties (see Note
     9). These leases include  minimum lease  payments,  reimbursable  operating
     costs and real estate taxes.  Also, certain of these leases contain renewal
     options for a maximum of 15 years beyond the original term, have provisions
     for additional  rent based on sales at the individual  locations and annual
     increases based on the consumer price index. The leases provide for certain
     rent holidays and escalations in payments over the lease terms.  The effect
     of the holidays and  escalations  have been  reflected in rent expense on a
     straight-line  basis over the initial  lease  terms.  The excess of expense
     over  cash  payments  has  been  reflected  in the  consolidated  financial
     statements as deferred rent.


                                     - 27 -

<PAGE>



     Future minimum lease payments as of December 29, 1996 are:


               1997                          $       1,857,000
               1998                                  2,028,000
               1999                                  2,144,000
               2000                                  2,226,000
               2001                                  2,271,000
               Thereafter                           21,620,000

     Rent  expense  under  the  leases  for  fiscal  1996,   1995  and  1994
     was approximately $1,622,000, $1,270,000 and $1,069,000, respectively,
     inclusive of  contingent  rent of  $9,000  and  $14,000  for  fiscal  1995
     and  1994, respectively.

     Employment Continuity Agreements
     --------------------------------
     SDDI  has  entered  into  employment   continuity  agreements  with
     certain executives.  The agreements are generally  three to five years in
     length and provide for  minimum  salary  levels,  as  adjusted  for minimum
     percentage increases and include incentive bonuses based on specified
     management goals. The aggregate minimum commitment for future salaries,
     excluding bonuses, as of December 29, 1996 is approximately $1.5 million.

     Legal Matters
     -------------
     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.  The
     Company's   insurance  carrier  is  currently   defending  the  claim  with
     reservation  of rights.  The Company does not believe that it is liable and
     intends to vigorously defend itself.

11.  Income Taxes
     At December 29, 1996, the Company has a net operating loss  carryforward of
     approximately  $4.9 million for income tax  purposes,  that expires in 2008
     through  2011,  which may be used to reduce future  taxable  income and tax
     liabilities.

     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting  purposes  and the  amounts  reported  for income  tax  purposes.
     Significant components of the Company's deferred tax assets and liabilities
     are as follows:

<TABLE>
<CAPTION>
                                                            December 29,            December 31,
                                                                1996                    1995
                                                          ----------------        ----------------
<S><C>
     Net tax operating loss carryforwards                   $    1,962,941          $      452,059
     Book over (under) tax depreciation/amortization               172,063                (106,829)
     Accrued deferred compensation                                       -                  95,540
     Deferred rent                                                 302,697                  36,707
                                                          ----------------        ----------------
     Deferred tax assets                                         2,437,701                 477,477
          Less: valuation allowance                             (2,437,701)               (477,477)
                                                          ----------------        ----------------
     Net deferred tax asset                                 $            -          $            -
                                                          ================        ================
</TABLE>

     As a result of the  Company's  history of  cumulative  losses,  a valuation
     allowance equal to the calculated deferred tax benefit has been recorded at
     December 29, 1996 and December 31, 1995.

12.  Stock Compensation Plans

     The Company has the following stock-based compensation plans:



     1996 Employee Stock Purchase Plan

     The 1996 Employee  Stock Purchase Plan was adopted in September 1996 by the
     Company's  board  of  directors,   subject  to  shareholder  approval,  and
     continues in effect for a term of 10 years.  The Company is  authorized  to
     issue 300,000  shares under the plan to employees who  customarily  work at
     least 20 hours per week and more than five months in a calendar  year,  and
     who have been  continuously  employed by the Company for six months.  Under
     the terms of the plan,  employees  can choose each quarter to have up to 10
     percent of their base

                                     - 28 -

<PAGE>



     earnings (not to exceed $21,250 annually)  withheld to purchase the
     Company's common stock.  The purchase price of the stock is 85% of the
     lower of its beginning-of-quarter or end-of-quarter market price.  The
     Company plans to implement the plan in the spring of 1997.

     Incentive Stock Option Plan

     The  Incentive  Stock  Option  Plan was adopted by the  Company's  board of
     directors in September 1996 and continues in effect for 10 years.  The plan
     provides  for  incentive  stock  options and  nonqualified  stock  options.
     Options may be granted to any  director,  officer,  key employee or outside
     consultant  of the Company.  Terms of the options are set by the  Company's
     board of directors. The Company has reserved 350,000 shares of common stock
     for issuance under the plan.

     Restaurant Owner Operator Program

     The Restaurant Owner Operator  Program,  which was adopted by the Company's
     board of directors in December 1996 for implementation in fiscal year 1997,
     provides for the general  manager  (Owner  Operator)  and the store manager
     team (Store Managers) of each of the Company's  restaurants to share in the
     profits of their  restaurant  and to  participate  as equity  owners of the
     Company.  To  participate  in the  program,  Owner  Operators  must make an
     initial  investment in discounted  Company  common stock,  which may not be
     sold or otherwise  transferred  by the Owner  Operator for a period of five
     years from the date of purchase.  Should the Operating Partner's employment
     terminate  for any reason other than death or  disability,  the Company has
     the right to repurchase the stock from the Owner Operator for the amount of
     his or her investment.  The plan also provides for annual restricted common
     stock awards to Owner  Operators and Store  Managers.  Stock awarded at the
     end of the first year vests after the fourth anniversary of the award date.
     For each year thereafter,  stock awards vest after the third anniversary of
     the award date. The Company has reserved 300,000 shares of common stock for
     issuance under the plan.

     1996 Consultant Stock Option and Stock Purchase Plan

     The 1996 Consultant Stock Option and Stock Purchase Plan was adopted by the
     Company's  board of directors in December 1996, and continues in effect for
     a term of 10 years.  The plan  provides for the  Company's  consultants  to
     purchase  (i) options to purchase  shares of common stock in the Company or
     (ii) shares of common stock in the Company, and apply a portion of the fees
     otherwise payable to them by the Company to pay the purchase price for such
     options or common  stock.  Options  under the plan are  granted at the fair
     market value of the common stock on the first day of each calendar  quarter
     at  a  price  determined  pursuant  to  Black-  Scholes  methodology,   are
     exercisable  at any time in whole  or in part for a period  of three  years
     from date of grant and vest  immediately.  The Company has reserved 100,000
     shares of common stock for issuance under the plan.

     1996 Non-Employee Director Stock Option Plan

     The  1996  Non-Employee  Director  Stock  Option  Plan was  adopted  by the
     Company's  board of  directors  in December  1996,  subject to  shareholder
     approval,  and  continues  in  effect  for 10 years.  Under the plan,  each
     non-employee  director  shall be granted an option to purchase 1,000 shares
     of the Company's common stock at fair market value on the first day of each
     calendar  quarter.  Options  granted under the plan are  exercisable at any
     time in whole or in part for a period  of three  years  from date of grant,
     and vest  immediately.  The Company has  reserved  75,000  shares of common
     stock for issuance under the plan.

     Second Amended and Restated 1991 Stock Option Plan

     The Second  Amended and  Restated  1991 Stock  Option  Plan for  directors,
     officers,   key  employees  and  consultants  provides  for  incentive  and
     non-qualified stock options. The options generally expire 10 years from

                                     - 29 -

<PAGE>



     the date of  grant  and are  exercisable  over the  period  stated  in each
     option. The board of directors  determines the option price (not to be less
     than  fair  market  value  for  incentive  options)  at the date of  grant.
     Excluding the effect of the Merger (see Note 2), options under the plan are
     exercisable  in  full  if  the  Company  executes  a  merger  agreement  or
     consolidates with another company, if more than 50% of the Company's voting
     stock is acquired by another person or group in an other than capital stock
     transaction,  or if Robert T. Giaimo ceases to be President of the Company.
     The plan expires in 2001. At December 29, 1996,  no options were  available
     for future grant under the plan.

     Second Amended and Restated Earned Ownership Plan

     The Second  Amended and Restated  Earned  Ownership  Plan for key employees
     provides for non-qualified  stock options.  The options generally expire 10
     years from the date of grant,  have an option price of $0.0003 and vest 20%
     at date of grant and 20% on each of the next four  anniversaries  following
     the grant date.  Excluding  the effect of the Merger (see Note 2),  options
     under the plan are  exercisable  in full if the  Company  executes a merger
     agreement or  consolidates  with another  company,  if more than 50% of the
     Company's  voting stock is acquired by another  person or group in an other
     than  capital  stock  transaction,  or if  Robert  T.  Giaimo  ceases to be
     President  of the  Company.  The  plan  has no fixed  expiration  date.  At
     December 29, 1996,  no options  were  available  for future grant under the
     plan.

     The Company  applies APB  Opinion  No. 25 and  related  Interpretations  in
     accounting  for its  plans.  The  compensation  cost that has been  charged
     against income under the Company's plans was $81,492,  $227,989 and $76,162
     for the years ended  December  29,  1996,  December 31, 1995 and January 1,
     1995,  respectively.  Had  compensation  cost been determined in accordance
     with FASB  Statement No. 123, the Company's net loss and net loss per share
     would have been the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    Years Ended
                                             ---------------------------------------------------------------
                                                December 29,            December 31,            January 1,
                                                    1996                    1995                   1995
<S><C>
     Net loss:
         As reported                         $    (1,429,472)        $   (1,322,730)         $     (946,633)
         Pro forma                           $    (1,469,539)        $   (1,421,642)         $   (1,079,903)

     Net loss per common share:
         As reported                         $         (0.15)        $        (0.26)         $        (0.19)
         Pro forma                           $         (0.15)        $        (0.28)         $        (0.22)
</TABLE>

     All options  granted  during the year ended  December  29, 1996 were issued
     pursuant to the 1996  Non-Employee  Director  Stock Option  Plan.  The fair
     value of each  option  grant  under this plan is  estimated  on the date of
     grant  using the  Black-Scholes  option-pricing  model  with the  following
     weighted-average  assumptions:  dividend yield of 0.0%, expected volatility
     of 27%, risk free interest rate of 6.2% and an expected life of two years.

     Options  granted  during 1994 and 1995 were  issued  pursuant to the Second
     Amended and  Restated  1991 Stock  Option  Plan and the Second  Amended and
     Restated  Earned  Ownership  Plan.  During  this  period  the  Company  was
     privately  held.  The fair value of each option  grant under these plans is
     estimated on the date of grant using the Black-Scholes option pricing model
     with the following  weighted-average  assumptions:  dividend yield of 0.0%;
     expected  volatility  of 1%;  common  stock  fair  market  value of  $4.05;
     risk-free interest rates of 7.5% and 6.1% for 1994 and 1995,  respectively;
     and an expected life of seven years.


                                     - 30 -

<PAGE>



     A summary of the status of the Company's  stock option plans as of December
     29,  1996,  December  31, 1995 and  January 1, 1995 and changes  during the
     years ended on these dates is:

<TABLE>
<CAPTION>
                                     1996                           1995                            1994
                           -------------------------      --------------------------      --------------------------
                                        Weighted -                      Weighted -                      Weighted -
                                          Average                         Average                         Average
                                         Exercise                        Exercise                        Exercise
                           Shares          Price          Shares           Price          Shares           Price
<S><C>
Options Outstanding, 
 beginning of year         784,959            $ 2.50      279,451             $ 1.49      171,409             $ 0.64
Granted                     18,000            $ 5.83      563,251             $ 3.13      142,948             $ 2.57
Exercised                  (16,669)           $ 0.00            -             $ 0.00            -             $ 0.00
Forfeited                  (82,081)           $ 4.05      (53,276)            $ 3.98      (33,339)            $ 1.80
Repurchased                (14,989)           $ 0.00       (4,467)            $ 0.00       (1,567)            $ 0.00
                           -------                        -------                         -------
Options outstanding,
 end of year               689,220            $ 2.52      784,959             $ 2.50      279,451             $ 1.49
                           =======                        =======                         =======
Options exercisable at
 year end                  313,260                        284,382                         154,170

Weighted-average fair
value of options granted
 during the year                              $ 1.21                          $ 1.98                          $ 2.51
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 29, 1996:

<TABLE>
<CAPTION>
                                       Options Outstanding                            Options Exercisable
                       --------------------------------------------------      -------------------------------
       Range              Number       Weighted-Avg.        Weighted-Avg.         Number         Weighted-Avg.
        of              Outstanding      Remaining            Exercise          Exercisable         Exercise
  Exercise Prices       at 12/29/96   Contractual Life          Price           at 12/29/96          Price
<S><C>
    Less than $0.01          263,417     7.5 years             $  0.00            180,473          $    0.00
     $2.25 to $3.60           16,670     6.7 years             $  2.93             16,670          $    2.93
     $4.05 to $6.50          409,133     8.8 years             $  4.13            116,117          $    4.33
                       -------------                                           -------------
   $0.0003 to $6.50          689,220     8.0 years             $  2.52            313,260          $    1.76
                       =============                                           =============
</TABLE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

     Previous  Independent  Accountants.  Prior  to the  Merger,  the  Company's
certifying  accountant was KPMG Peat Marwick LLP ("Peat  Marwick").  Pursuant to
the  Merger,  and  effective  as of  March  27,  1996,  Reznick  Fedder & Silver
("Reznick"),  4520 East-West  Highway,  Suite 300,  Bethesda,  Maryland,  SDDI's
certifying  accountant,   became  the  Company's  certifying  accountant.   Peat
Marwick's report on the financial  statements for each of the past two years did
not contain an adverse  opinion or disclaimer of opinion,  and was not qualified
or modified as to  uncertainty,  audit scope or  generally  accepted  accounting
principles.  The decision to change  accountants  was approved by the  Company's
board of directors and was reported in the Company's  Current Report on Form 8-K
dated March 27, 1996, as amended.

     During the Company's  two most recent  fiscal years and for any  subsequent
interim period preceding such dismissal,  there have been no disagreements  with
Peat  Marwick on any  matter of  generally  accepted  accounting  principles  or
practices,  financial  statement  disclosure,  or auditing  scope or procedures,
which  disagreement(s),  if not  resolved  to  the  satisfaction  of the  former
accountant, would have caused it to make reference to the subject matter of such
disagreement(s) in connection with its report.

     The  Company's  board  of  directors  and  audit   committee   subsequently
determined  that  it  was  in  the  Company's  best  interest  to  engage  a new
independent   auditor.   The  Company  notified  Reznick  of  its  dismissal  as
independent auditors on December 3, 1996 and reported the dismissal in a Current
Report on Form 8-K dated December 9, 1996.

                                     - 31 -

<PAGE>



     Reznick has not issued any reports on the Company's  financial  statements.
Reznick's report on the Combined  Financial  Statements of SDDI, SDLP and Silver
Diner Potomac  Mills,  Inc.  ("SDPMI") for the years ended December 31, 1995 and
January 1, 1995 contained no adverse  opinion or disclaimer of opinion,  and was
not  qualified  or  modified  as  to  uncertainty,  audit  scope  or  accounting
principles. During the fiscal years ended December 31, 1995 and January 1, 1995,
and through the date of termination on December 3, 1996, neither the Company nor
SDDI had any disagreements  with Reznick on any matter of accounting  principles
or practices,  financial statement  disclosure,  or auditing scope or procedure,
which,  if not  resolved,  would have caused  Reznick to make  reference  to the
subject matter of the disagreement in connection with its report.

     New  Independent  Accountants.  On  December 3, 1996,  the Company  engaged
Deloitte & Touche LLP to audit the Company's  financial  statements for the year
ended December 29, 1996 and reported such engagement on a Current Report on form
8-K dated December 9, 1996.

Item 10.  Directors and Executive Officers of the Company.

     The  information  under  "Election of Directors" in the Proxy Statement for
the Annual Meeting of Shareholders in 1997 is incorporated  herein by reference.
Information concerning executive officers is set forth under "Executive Officers
of the Registrant" in Part I.


Item 11.  Executive Compensation.

     The information  under "Executive  Compensation" in the Proxy Statement for
the Annual Meeting of Shareholders in 1997 is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The information under "Ownership of Common Stock by Directors and Executive
Officers"  and  Election of  Directors"  in the Proxy  Statement  for the Annual
Meeting of Shareholders in 1997 is incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions.

     The information under "Election of Directors" and "Executive  Compensation"
in the  Proxy  Statement  for the  Annual  Meeting  of  Shareholders  in 1997 is
incorporated herein by reference.


                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a) Lists of Documents Filed as Part of this Report

 1. Financial Statements

<TABLE>
<CAPTION>
                                                                                                               Page
<S><C>
Reports of Independent Auditors................................................................................ 16

Consolidated Financial Statements:
     Consolidated Balance Sheets as of
     December 29, 1996 and December 31, 1995................................................................... 18
</TABLE>

                                     - 32 -

<PAGE>


<TABLE>

<S><C>
Consolidated Statements of Operations for the
     Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995............................... 19

Consolidated Statements of Stockholders' Equity for the
     Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995............................... 20

Consolidated Statements of Cash Flows for the
     Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995............................... 21

Notes to Consolidated Financial Statements..................................................................... 23
</TABLE>

 2. Schedules

All Schedules are omitted because the required information is inapplicable or it
is presented in the Consolidated Financial Statements or the notes thereto.

 3. Exhibits

Exhibit Number    Description of Document
--------------    -----------------------
         2        Plan of acquisition, reorganization, arrangement, liquidation
                  or succession

         2.1      Agreement and Plan of Reorganization dated August 29, 1995, as
                  amended  January 25, 1996, by and among FTAC,  FTAC Transition
                  Corporation  and SDDI,  incorporated  by reference to Exhibits
                  2.1 and 2.7 of the registrant's Form S-4 (File No. 33-98844).

         3        Articles of incorporation and bylaws

         3.1      Registrant's   Certificate  of  Incorporation  as  amended  by
                  Certificates of Amendment incorporated by reference to Exhibit
                  3.01 of the registrant's Form 8-K dated March 27, 1996.

         3.2      Registrant's Bylaws incorporated by reference to Exhibit 3.3
                  of the registrant's Form S-4 (File No. 33-98844).

         4        Instruments defining the rights of security holders, including
                  indentures

         4.1      Certificate  of  Designation,  Preferences  and  Rights of the
                  class of the  registrant's  preferred  stock to be  designated
                  Special  Convertible  Preferred  Stock and  Warrant  Agreement
                  between the registrant and Continental  Stock Transfer & Trust
                  Company  incorporated  by  reference  to  Exhibit  4.01 of the
                  registrant's Form 8-K dated March 27, 1996.

         4.2      Form of the registrant's  Special Convertible  Preferred Stock
                  incorporated by reference to Exhibit 4.02 of the  registrant's
                  Form 8-K dated March 27, 1996.

         4.3      Form of the registrant's Common Stock Certificate incorporated
                  by reference to Exhibit 4.03 of the registrant's Form 8-K
                  dated March 27, 1996.

         4.4      Form of the registrant's Warrant Certificate incorporated by
                  reference to Exhibit 4.04 of the registrant's Form 8-K dated
                  March 27, 1996.

         9        Voting Trust Agreements

         9.1      Form of Voting and Lockup Agreement with respect to Stock
                  Option Agreements incorporated by

                                     - 33 -

<PAGE>



                  reference to Exhibit 9.01 of the  registrant's  Form 8-K dated
                  March 27, 1996.

         9.2      Form  of  Lockup  Agreement  among  SDDI  and  certain  of its
                  shareholders,   together  with  schedule  of  executed  Lockup
                  Agreements  incorporated  by  reference to Exhibit 9.02 of the
                  registrant's Form 8-K dated March 27, 1996.

         9.3      SDDI Affiliate Lockup Agreement dated as of August 29, 1995 by
                  and among SDDI, Robert T. Giaimo,  Ype Hengst,  Clinton Clark,
                  Charles Steiner and Edward Kaplan incorporated by reference to
                  Exhibit  9.03 of the  registrant's  Form 8-K  dated  March 27,
                  1996.

         9.4      Form of SDDI Voting and Lockup Agreement among SDDI, Robert T.
                  Giaimo  and  certain   shareholders  of  SDDI,  together  with
                  Schedule of executed Voting and Lockup Agreements incorporated
                  by  reference  to Exhibit  9.04 of the  registrant's  Form 8-K
                  dated March 27, 1996.

         9.5      FTAC Voting and Lockup Agreement dated as of September 15,
                  1995 by and among the registrant and George A. Naddaff,
                  Douglas M. Suliman, Jr., Ralph J. Guarino and Charles A.
                  Cocotas incorporated by reference to Exhibit 9.05 of the
                  registrant's Form 8-K dated March 27, 1996.

         9.6      Assumption of SDDI Voting and Lockup Agreement, SDDI Affiliate
                  Lockup Agreement and Stockholder  Lockup Agreement dated March
                  27, 1996,  pursuant to Section 5.14(c) of merger  agreement by
                  and  among  FTAC,  FTAC   Transition   Corporation  and  SDDI,
                  incorporated by reference to Exhibit 9.06 of the  registrant's
                  Form 8-K dated March 27, 1996.

         9.7      GKN Voting and Lockup Agreement dated as of September 15, 1995
                  by and among the registrant,  Robert T. Giaimo, GKN Securities
                  Corp., and certain additional signatories thereto incorporated
                  by  reference  to Exhibit  9.07 of the  registrant's  Form 8-K
                  dated March 27, 1996.

         10       Material Contracts

                  Material Contracts - Real Property

                  Rockville, Maryland

         10.1     Lease  Agreement   between  Federal  Realty  Investment  Trust
                  (Landlord) and SDLP (Tenant) dated July 13, 1988 as amended by
                  Lease   Modification  dated  August  17,  1988,  Second  Lease
                  Modification  dated February 3, 1989, Third Amendment to Lease
                  dated  January  20,  1993,   and  Fourth  Lease   Modification
                  Agreement dated October 17, 1994  incorporated by reference to
                  Exhibit  10.01 of the  registrant's  Form 8-K dated  March 27,
                  1996.

                  Laurel, Maryland

         10.2     Lease between CG Beltsville Limited Partnership (Landlord) and
                  SDLP  (Tenant)  dated  January 26, 1990,  as amended by Letter
                  Agreement dated October 28, 1995  incorporated by reference to
                  Exhibit  10.02 of the  registrant's  Form 8-K dated  March 27,
                  1996.

                  Dale City, Virginia (Potomac Mills)

         10.3     Lease between RGDI (Landlord) and SDPMI  (Tenant),  dated June
                  10,  1991,  as  amended  by First  Amendment  to Lease,  dated
                  October  14,  1991,  as amended by Second  Amendment  to Lease
                  dated  October 30, 1995  incorporated  by reference to Exhibit
                  10.03 of the registrant's Form 8-K dated March 27, 1996.


                                     - 34 -

<PAGE>



                  Parking Lot (parcel 11-B-1A), Dale City, Virginia (located
                  adjacent to Silver Diner Restaurant at Potomac Mills)

         10.4     Lease  between  Robert  Giaimo   Development,   Inc.  ("RGDI")
                  (Landlord)  and SDPMI  (Tenant) dated May 27, 1992, as amended
                  by Amendment to Lease dated October 30, 1995  incorporated  by
                  reference to Exhibit 10.04 of the registrant's  Form 8-K dated
                  March 27, 1996.

                  Towson, Maryland

         10.5     Lease   Agreement   between  Towson  Town  Center   Associates
                  (Landlord) and the registrant  (Tenant)  effective January 30,
                  1992  incorporated  by  reference  to  Exhibit  10.05  of  the
                  registrant's Form 8-K dated March 27, 1996.

                  Fair Lakes, Virginia (Fair Oaks)

         10.6     Ground Lease Agreement between F.L. Promenade L.P.  (Landlord)
                  and the registrant (Tenant) dated July 12, 1994, as amended by
                  First  Amendment to Ground Lease  Agreement dated February 15,
                  1995,  and Second  Amendment to Ground Lease  Agreement  dated
                  April 4, 1995  incorporated  by reference to Exhibit  10.06 of
                  the registrant's Form 8-K dated March 27, 1996.

                  Tysons Corner, Virginia

         10.7     Ground Lease between Lehndorff Tysons Joint Venture (Landlord)
                  and the  registrant  (Tenant)  dated  December 29,  1994),  as
                  amended  by  First  Amendment  to  Lease  dated  May 14,  1995
                  incorporated by reference to Exhibit 10.07 of the registrant's
                  Form 8-K dated March 27, 1996.

                  Springfield, Virginia

         10.8     Springfield Mall Lease between Franconia Associates (Landlord)
                  and the registrant (Tenant) effective May 1, 1996 incorporated
                  by reference  to Exhibit  10.08 of the  registrant's  Form 8-K
                  dated March 27, 1996.

                  Merrifield, Virginia

         10.9     Agreement  of Lease  dated  September  14, 1995 by and between
                  2909  Gallows  LC  (Landlord)  and  the  registrant   (Tenant)
                  incorporated by reference to Exhibit 10.09 of the registrant's
                  Form 8-K dated March 27, 1996.

                  Reston, Virginia

         10.10    Purchase  and Sale  Agreement  dated  December 29, 1995 by and
                  between  Reston Land  Corporation  (Seller) and the registrant
                  (Buyer)  incorporated  by  reference  to Exhibit  10.10 of the
                  registrant's Form 8-K dated March 27, 1996.

                  Clarendon, Virginia

         10.11    Lease  dated   February  12,  1996  between   Wilson   Limited
                  Partnership    (Landlord)   and   the   registrant    (Tenant)
                  incorporated by reference to Exhibit 10.11 of the registrant's
                  Form 8-K dated March 27, 1996.


                                     - 35 -

<PAGE>



                  Kendall, Florida

         10.12    Purchase Agreement  dated October 4, 1996 by and between
                  Documentation Corp. And Bersin Development Corp. (Sellers) and
                  the registrant (Buyer).*

                  Cherry Hill, New Jersey

         10.13    Lease Agreement dated September 30, 1996 by and between Cherry
                  Hill Associates L.P. (Landlord) and the registrant (Tenant).*

                  Material Contracts - Stock Plans

         10.14    SDDI  Second  Amended and  Restated  1991 Stock  Option  Plan,
                  together  with forms of incentive  stock option  agreement and
                  non-qualified stock option agreement incorporated by reference
                  to Exhibit 10.14 of the registrant's  Form 8-K dated March 27,
                  1996.

         10.15    SDDI  Second  Amended  and  Restated  Earned  Ownership  Plan,
                  together  with form of  non-qualified  stock option  agreement
                  incorporated by reference to Exhibit 10.15 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.16    Silver Diner, Inc. 1996 Non-employee Director Stock Option
                  Plan together with form of stock option agreement incorporated
                  by reference to Exhibit 4(a) of the registrant's Form S-8
                  filed December 20, 1996.

         10.17    Silver  Diner,  Inc.  1996  Consultant  Stock Option and Stock
                  Purchase Plan  together  with form of stock option  agreement,
                  form of stock purchase agreement, form of election to purchase
                  common  stock  and  form  of  election  to  purchase  options,
                  incorporated by reference to Exhibit 4(b) of the  registrant's
                  Form S-8 filed December 20, 1996.

         10.18    Certificate and Agreement of Participation, Silver Diner, Inc.
                  Restaurant Owner Operator Program and Addenda  incorporated by
                  reference  to  Exhibit  4 of the  registrant's  Form S-8 filed
                  February 14, 1997.

         10.19    Silver Diner, Inc. Stock Option Plan together with form of
                  Stock Option Agreement.*

         10.20    Silver Diner, Inc. Employee Stock Purchase Plan together with
                  form of Subscription Agreement and Notice of Withdrawal.*

                  Material Contracts - Agreements with Executive
                  Officers/Directors

         10.21    Letter Agreement dated August 28, 1995, between the registrant
                  and James David Oden regarding terms of employment, as amended
                  by Letter  Agreement  dated  March 26,  1996  incorporated  by
                  reference to Exhibit 10.17 of the registrant's  Form 8-K dated
                  March 27, 1996.

         10.22    Letter   Agreement   dated   December  31,  1995  between  the
                  registrant and Daniel Brannan  regarding  terms of employment,
                  as  amended  by  Letter   Agreement   dated   March  26,  1996
                  incorporated by reference to Exhibit 10.18 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.23    Letter Agreement dated December 4, 1996 between the registrant
                  and Patrick Meskell regarding terms of employment,  as amended
                  by Letter  Agreement  dated  March 26,  1996  incorporated  by
                  reference to Exhibit 10.19 of the registrant's  Form 8-K dated
                  March 27, 1996.


                                     - 36 -

<PAGE>



         10.24    Founder's  Employment  Agreement  dated August 28, 1995 by and
                  between the  registrant and Robert T. Giaimo  incorporated  by
                  reference to Exhibit 10.20 of the registrant's  Form 8-K dated
                  March 27, 1996.

         10.25    Assumption of Founder's  Employment  Agreement dated March 27,
                  1996  pursuant to Section  5.14(b) of merger  agreement by and
                  among   FTAC,   FTAC   Transition   Corporation   and   SDDI,,
                  incorporated by reference to Exhibit 10.21 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.26    Indemnity  Agreement  dated  August  29,  1995 by and  between
                  Robert  T.  Giaimo,   as   indemnitee,   and  the   registrant
                  incorporated by reference to Exhibit 10.22 of the registrant's
                  Form 8-K dated March 27, 1996.

                  Material Contracts -  Miscellaneous

         10.27    1991 Management Agreement (undated in original) between SDPMI
                  (Owner) and SDLP (Manager) in connection with SDPMI Virginia
                  incorporated by reference to Exhibit 10.35 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.28    Option  to  Purchase   dated   January  26,  1990  between  CG
                  Beltsville Limited Partnership (Optionor), and SDLP (Optionee)
                  regarding land parcel on which the Silver Diner  Restaurant in
                  Laurel,  Maryland,  is located  incorporated  by  reference to
                  Exhibit  10.36 of the  registrant's  Form 8-K dated  March 27,
                  1996.

         10.29    Amendment No. 1 to the Stock Escrow Agreement dated as of
                  March 26, 1996 among the Registrant, George A. Naddaff,
                  Douglas M. Suliman, Jr., Ralph J. Guarino, Charles A. Cocotas
                  and Continental Stock Transfer & Trust Company, together with
                  letter dated March 27, 1996 from the Registrant to Continental
                  Stock Transfer & Trust Company incorporated by reference to
                  Exhibit 10.37 of the registrant's Form 8-K dated March 27,
                  1996.

         10.30    Affiliate Warrant Exchange and Custodial Agreement dated
                  September 15, 1996, by and among George A. Naddaff, Douglas M.
                  Suliman, Jr. and Charles A. Cocotas, as Warrant Holders, SDDI
                  and Douglas M. Suliman, Jr., as Custodian incorporated by
                  reference to Exhibit 10.38 of the registrant's Form 8-K dated
                  March 27, 1996.

         10.31    Escrow  Agreement  dated as of February 1, 1996 by and between
                  GKN Securities Corp., certain affiliates thereof, the SDDI and
                  Arent  Fox,  as Escrow  Agent  incorporated  by  reference  to
                  Exhibit  10.39 of the  registrant's  Form 8-K dated  March 27,
                  1996.

         10.32    Option  Agreement dated March 27, 1996 by and between RGDI and
                  SDDI granting option to SDDI for the purchase of Potomac Mills
                  real estate parcels incorporated by reference to Exhibit 10.34
                  of the registrant's Form 8-K dated March 27, 1996.

         21       Subsidiaries of the Registrant.*

         23       Accountants Consents

         23.1     Consent of Reznick Fedder & Silverman.*

         23.2     Consent of Deloitte & Touche LLP.*

         (b) The Company filed a Current  Report on Form 8-K on December 9, 1996
to report a change in the Company's certifying  accountant.  See "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure" in Item 9
of Part II.

*        Filed herewith.  All other exhibits have been previously filed as
         indicated.

                                     - 37 -

<PAGE>




                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                           Silver Diner, Inc.


                                           By:/s/ Robert T. Giaimo
                                              ----------------------------------
                                           Robert T. Giaimo
                                           President and Chief Executive Officer
                                           March 31, 1997

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and int he capacities and on the dates indicated.


<TABLE>
<CAPTION>

Signatures                                  Title                                  Date
<S><C>
/s/ Robert T. Giaimo                        President, Chief Executive             March 31, 1997
---------------------------                 Officer and Director
Robert T. Giaimo

/s/ David Oden                              Senior Vice President and Chief        March 31, 1997
---------------------------                 Financial Officer
David Oden


/s/ Catherine Britton                       Director                               March 31, 1997
---------------------------
Catherine Britton


/s/ Clinton Clark                           Director                               March 31, 1997
---------------------------
Clinton Clark


/s/ Ype Hengst                              Director                               March 31, 1997
---------------------------
Ype Hengst


/s/ Edward H. Kaplan                        Director                               March 31, 1997
---------------------------
Edward H. Kaplan


/s/ George A. Naddaff                       Director                               March 31, 1997
---------------------------
George A. Naddaff


/s/ Louis P. Neeb                           Director                               March 31, 1997
---------------------------
Louis P. Neeb


/s/ Charles Steiner                         Director                               March 31, 1997
---------------------------
Charles Steiner


/s/ Douglas M. Suliman                      Director                               March 31, 1997
---------------------------
Douglas M. Suliman
</TABLE>

                                     - 38 -

<PAGE>



                                 EXHIBIT INDEX

Exhibit Number             Description of Document
--------------             -----------------------

         2        Plan of acquisition, reorganization, arrangement, liquidation
                  or succession

         2.1      Agreement and Plan of Reorganization dated August 29, 1995, as
                  amended  January 25, 1996, by and among FTAC,  FTAC Transition
                  Corporation  and SDDI,  incorporated  by reference to Exhibits
                  2.1 and 2.7 of the registrant's Form S-4 (File No. 33-98844).

         3        Articles of incorporation and bylaws

         3.1      Registrant's   Certificate  of  Incorporation  as  amended  by
                  Certificates of Amendment incorporated by reference to Exhibit
                  3.01 of the registrant's Form 8-K dated March 27, 1996.

         3.2      Registrant's Bylaws incorporated by reference to Exhibit 3.3
                  of the registrant's Form S-4 (File No. 33-98844).

         4        Instruments defining the rights of security holders, including
                  indentures

         4.1      Certificate  of  Designation,  Preferences  and  Rights of the
                  class of the  registrant's  preferred  stock to be  designated
                  Special  Convertible  Preferred  Stock and  Warrant  Agreement
                  between the registrant and Continental  Stock Transfer & Trust
                  Company  incorporated  by  reference  to  Exhibit  4.01 of the
                  registrant's Form 8-K dated March 27, 1996.

         4.2      Form of the registrant's  Special Convertible  Preferred Stock
                  incorporated by reference to Exhibit 4.02 of the  registrant's
                  Form 8-K dated March 27, 1996.

         4.3      Form of the registrant's Common Stock Certificate incorporated
                  by reference to Exhibit 4.03 of the registrant's Form 8-K
                  dated March 27, 1996.

         4.4      Form of the registrant's Warrant Certificate incorporated by
                  reference to Exhibit 4.04 of the registrant's Form 8-K dated
                  March 27, 1996.

         9        Voting Trust Agreements

         9.1      Form of Voting  and  Lockup  Agreement  with  respect to Stock
                  Option Agreements incorporated by reference to Exhibit 9.01 of
                  the registrant's Form 8-K dated March 27, 1996.

         9.2      Form  of  Lockup  Agreement  among  SDDI  and  certain  of its
                  shareholders,   together  with  schedule  of  executed  Lockup
                  Agreements  incorporated  by  reference to Exhibit 9.02 of the
                  registrant's Form 8-K dated March 27, 1996.

         9.3      SDDI Affiliate Lockup Agreement dated as of August 29, 1995 by
                  and among SDDI, Robert T. Giaimo,  Ype Hengst,  Clinton Clark,
                  Charles Steiner and Edward Kaplan incorporated by reference to
                  Exhibit  9.03 of the  registrant's  Form 8-K  dated  March 27,
                  1996.

         9.4      Form of SDDI Voting and Lockup Agreement among SDDI, Robert T.
                  Giaimo  and  certain   shareholders  of  SDDI,  together  with
                  Schedule of executed Voting and Lockup Agreements incorporated
                  by  reference  to Exhibit  9.04 of the  registrant's  Form 8-K
                  dated March 27, 1996.

                                     - 39 -

<PAGE>



         9.5      FTAC Voting and Lockup Agreement dated as of September 15,
                  1995 by and among the registrant and George A. Naddaff,
                  Douglas M. Suliman, Jr., Ralph J. Guarino and Charles A.
                  Cocotas incorporated by reference to Exhibit 9.05 of the
                  registrant's Form 8-K dated March 27, 1996.

         9.6      Assumption of SDDI Voting and Lockup Agreement, SDDI Affiliate
                  Lockup Agreement and Stockholder  Lockup Agreement dated March
                  27, 1996,  pursuant to Section 5.14(c) of merger  agreement by
                  and  among  FTAC,  FTAC   Transition   Corporation  and  SDDI,
                  incorporated by reference to Exhibit 9.06 of the  registrant's
                  Form 8-K dated March 27, 1996.

         9.7      GKN Voting and Lockup Agreement dated as of September 15, 1995
                  by and among the registrant,  Robert T. Giaimo, GKN Securities
                  Corp., and certain additional signatories thereto incorporated
                  by  reference  to Exhibit  9.07 of the  registrant's  Form 8-K
                  dated March 27, 1996.

         10       Material Contracts

         Material Contracts - Real Property

         Rockville, Maryland

         10.1     Lease  Agreement   between  Federal  Realty  Investment  Trust
                  (Landlord) and SDLP (Tenant) dated July 13, 1988 as amended by
                  Lease   Modification  dated  August  17,  1988,  Second  Lease
                  Modification  dated February 3, 1989, Third Amendment to Lease
                  dated  January  20,  1993,   and  Fourth  Lease   Modification
                  Agreement dated October 17, 1994  incorporated by reference to
                  Exhibit  10.01 of the  registrant's  Form 8-K dated  March 27,
                  1996.

         Laurel, Maryland

         10.2     Lease between CG Beltsville Limited Partnership (Landlord) and
                  SDLP  (Tenant)  dated  January 26, 1990,  as amended by Letter
                  Agreement dated October 28, 1995  incorporated by reference to
                  Exhibit  10.02 of the  registrant's  Form 8-K dated  March 27,
                  1996.

         Dale City, Virginia (Potomac Mills)

         10.3     Lease between RGDI (Landlord) and SDPMI  (Tenant),  dated June
                  10,  1991,  as  amended  by First  Amendment  to Lease,  dated
                  October  14,  1991,  as amended by Second  Amendment  to Lease
                  dated  October 30, 1995  incorporated  by reference to Exhibit
                  10.03 of the registrant's Form 8-K dated March 27, 1996.

         Parking Lot (parcel 11-B-1A), Dale City, Virginia (located adjacent to
         Silver Diner Restaurant at Potomac Mills)

         10.4     Lease  between  Robert  Giaimo   Development,   Inc.  ("RGDI")
                  (Landlord)  and SDPMI  (Tenant) dated May 27, 1992, as amended
                  by Amendment to Lease dated October 30, 1995  incorporated  by
                  reference to Exhibit 10.04 of the registrant's  Form 8-K dated
                  March 27, 1996.

         Towson, Maryland

         10.5     Lease   Agreement   between  Towson  Town  Center   Associates
                  (Landlord) and the registrant  (Tenant)  effective January 30,
                  1992  incorporated  by  reference  to  Exhibit  10.05  of  the
                  registrant's Form 8-K dated March 27, 1996.

                                     - 40 -

<PAGE>



         Fair Lakes, Virginia (Fair Oaks)

         10.6     Ground Lease Agreement between F.L. Promenade L.P.  (Landlord)
                  and the registrant (Tenant) dated July 12, 1994, as amended by
                  First  Amendment to Ground Lease  Agreement dated February 15,
                  1995,  and Second  Amendment to Ground Lease  Agreement  dated
                  April 4, 1995  incorporated  by reference to Exhibit  10.06 of
                  the registrant's Form 8-K dated March 27, 1996.

         Tysons Corner, Virginia

         10.7     Ground Lease between Lehndorff Tysons Joint Venture (Landlord)
                  and the  registrant  (Tenant)  dated  December 29,  1994),  as
                  amended  by  First  Amendment  to  Lease  dated  May 14,  1995
                  incorporated by reference to Exhibit 10.07 of the registrant's
                  Form 8-K dated March 27, 1996.

         Springfield, Virginia

         10.8     Springfield Mall Lease between Franconia Associates (Landlord)
                  and the registrant (Tenant) effective May 1, 1996 incorporated
                  by reference  to Exhibit  10.08 of the  registrant's  Form 8-K
                  dated March 27, 1996.

         Merrifield, Virginia

         10.9     Agreement  of Lease  dated  September  14, 1995 by and between
                  2909  Gallows  LC  (Landlord)  and  the  registrant   (Tenant)
                  incorporated by reference to Exhibit 10.09 of the registrant's
                  Form 8-K dated March 27, 1996.

         Reston, Virginia

         10.10    Purchase  and Sale  Agreement  dated  December 29, 1995 by and
                  between  Reston Land  Corporation  (Seller) and the registrant
                  (Buyer)  incorporated  by  reference  to Exhibit  10.10 of the
                  registrant's Form 8-K dated March 27, 1996.

         Clarendon, Virginia

         10.11    Lease  dated   February  12,  1996  between   Wilson   Limited
                  Partnership    (Landlord)   and   the   registrant    (Tenant)
                  incorporated by reference to Exhibit 10.11 of the registrant's
                  Form 8-K dated March 27, 1996.

         Kendall, Florida

         10.12    Purchase Agreement  dated October 4, 1996 by and between
                  Documentation Corp. And Bersin Development Corp. (Sellers) and
                  the registrant (Buyer).*

         Cherry Hill, New Jersey

         10.13    Lease Agreement dated September 30, 1996 by and between Cherry
                  Hill Associates L.P. (Landlord) and the registrant (Tenant).*


                                     - 41 -

<PAGE>



         Material Contracts - Stock Plans

         10.14    SDDI  Second  Amended and  Restated  1991 Stock  Option  Plan,
                  together  with forms of incentive  stock option  agreement and
                  non-qualified stock option agreement incorporated by reference
                  to Exhibit 10.14 of the registrant's  Form 8-K dated March 27,
                  1996.

         10.15    SDDI  Second  Amended  and  Restated  Earned  Ownership  Plan,
                  together  with form of  non-qualified  stock option  agreement
                  incorporated by reference to Exhibit 10.15 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.16    Silver Diner, Inc. 1996 Non-employee Director Stock Option
                  Plan together with form of stock option agreement incorporated
                  by reference to Exhibit 4(a) of the registrant's Form S-8
                  filed December 20, 1996.

         10.17    Silver  Diner,  Inc.  1996  Consultant  Stock Option and Stock
                  Purchase Plan  together  with form of stock option  agreement,
                  form of stock purchase agreement, form of election to purchase
                  common  stock  and  form  of  election  to  purchase  options,
                  incorporated by reference to Exhibit 4(b) of the  registrant's
                  Form S-8 filed December 20, 1996.

         10.18    Certificate and Agreement of Participation, Silver Diner, Inc.
                  Restaurant Owner Operator Program and Addenda  incorporated by
                  reference  to  Exhibit  4 of the  registrant's  Form S-8 filed
                  February 14, 1997.

         10.19    Silver Diner, Inc. Stock Option Plan together with form of
                  Stock Option Agreement.*

         10.20    Silver Diner, Inc. Employee Stock Purchase Plan together with
                  form of Subscription Agreement and Notice of Withdrawal.*

         Material Contracts - Agreements with Executive Officers/Directors

         10.21    Letter Agreement dated August 28, 1995, between the registrant
                  and James David Oden regarding terms of employment, as amended
                  by Letter  Agreement  dated  March 26,  1996  incorporated  by
                  reference to Exhibit 10.17 of the registrant's  Form 8-K dated
                  March 27, 1996.

         10.22    Letter   Agreement   dated   December  31,  1995  between  the
                  registrant and Daniel Brannan  regarding  terms of employment,
                  as  amended  by  Letter   Agreement   dated   March  26,  1996
                  incorporated by reference to Exhibit 10.18 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.23    Letter Agreement dated December 4, 1996 between the registrant
                  and Patrick Meskell regarding terms of employment,  as amended
                  by Letter  Agreement  dated  March 26,  1996  incorporated  by
                  reference to Exhibit 10.19 of the registrant's  Form 8-K dated
                  March 27, 1996.

         10.24    Founder's  Employment  Agreement  dated August 28, 1995 by and
                  between the  registrant and Robert T. Giaimo  incorporated  by
                  reference to Exhibit 10.20 of the registrant's  Form 8-K dated
                  March 27, 1996.

         10.25    Assumption of Founder's  Employment  Agreement dated March 27,
                  1996  pursuant to Section  5.14(b) of merger  agreement by and
                  among   FTAC,   FTAC   Transition   Corporation   and   SDDI,,
                  incorporated by reference to Exhibit 10.21 of the registrant's
                  Form 8-K dated March 27, 1996.


                                     - 42 -

<PAGE>


         10.26    Indemnity  Agreement  dated  August  29,  1995 by and  between
                  Robert  T.  Giaimo,   as   indemnitee,   and  the   registrant
                  incorporated by reference to Exhibit 10.22 of the registrant's
                  Form 8-K dated March 27, 1996.

         Material Contracts -  Miscellaneous

         10.27    1991 Management Agreement (undated in original) between SDPMI
                  (Owner) and SDLP (Manager) in connection with SDPMI Virginia
                  incorporated by reference to Exhibit 10.35 of the registrant's
                  Form 8-K dated March 27, 1996.

         10.28    Option  to  Purchase   dated   January  26,  1990  between  CG
                  Beltsville Limited Partnership (Optionor), and SDLP (Optionee)
                  regarding land parcel on which the Silver Diner  Restaurant in
                  Laurel,  Maryland,  is located  incorporated  by  reference to
                  Exhibit  10.36 of the  registrant's  Form 8-K dated  March 27,
                  1996.

         10.29    Amendment No. 1 to the Stock Escrow Agreement dated as of
                  March 26, 1996 among the Registrant, George A. Naddaff,
                  Douglas M. Suliman, Jr., Ralph J. Guarino, Charles A. Cocotas
                  and Continental Stock Transfer & Trust Company, together with
                  letter dated March 27, 1996 from the Registrant to Continental
                  Stock Transfer & Trust Company incorporated by reference to
                  Exhibit 10.37 of the registrant's Form 8-K dated March 27,
                  1996.

         10.30    Affiliate Warrant Exchange and Custodial Agreement dated
                  September 15, 1996, by and among George A. Naddaff, Douglas M.
                  Suliman, Jr. and Charles A. Cocotas, as Warrant Holders, SDDI
                  and Douglas M. Suliman, Jr., as Custodian incorporated by
                  reference to Exhibit 10.38 of the registrant's Form 8-K dated
                  March 27, 1996.

         10.31    Escrow  Agreement  dated as of February 1, 1996 by and between
                  GKN Securities Corp., certain affiliates thereof, the SDDI and
                  Arent  Fox,  as Escrow  Agent  incorporated  by  reference  to
                  Exhibit  10.39 of the  registrant's  Form 8-K dated  March 27,
                  1996.

         10.32    Option  Agreement dated March 27, 1996 by and between RGDI and
                  SDDI granting option to SDDI for the purchase of Potomac Mills
                  real estate parcels incorporated by reference to Exhibit 10.34
                  of the registrant's Form 8-K dated March 27, 1996.

         21       Subsidiaries of the Registrant.*

         23       Accountants Consents

         23.1     Consent of Reznick Fedder & Silverman.*

         23.2     Consent of Deloitte & Touche LLP.*




*        Filed herewith.  All other exhibits have been previously filed as
         indicated.

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