<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 30, 2001
                         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
-------------------                    -----------------------------------------
       None                                              None

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

                         Common Stock, $.00074 Par Value

         Indicated 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 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.

         At March 13, 2002, the registrant had 11,777,045 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 $1,885,865. The
aggregate market value was determined based on the closing price of the Common
Stock on the OTC Bulletin Board ("OTCBB") on March 13, 2002.

                                       1

<PAGE>

PART I

Item 1.  Business.

General

         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"), which was formed in and
operated Silver Diner restaurants since 1987. Silver Diner Limited Partnership
("SDLP"), of which SDDI 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. Unless the context
otherwise requires, references to the Company or Silver Diner also include FTAC,
SDDI and their wholly owned subsidiaries.

         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 presently trades on The OTC Bulletin Board ("OTCBB")
under the symbol "SLVR" (See Item 5).


Business

         The Company currently operates ten Silver Diner restaurants in the
Washington Metropolitan Area, one in Cherry Hill, New Jersey, and one in
Virginia Beach, Virginia, 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, and 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 also offers Silver Diner To Go, which features a range of carry
out/delivery options targeting the growing "home meal replacement" market.

         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 generous portions of made-from-scratch cooking
at prices competitive with traditional family dining restaurants. The average
check per customer is approximately $8.50 and the average dining time is
approximately 45 minutes. For the last fiscal year the Silver Diner restaurants,
in operation for the full year, had sales ranging from $1.7 million to $4.3
million with average unit sales of $2.5 million and an average of 222 seats.
Management attributes the sales volumes of its units to its ability to attract a
broad range of customer segments, 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 operations management team.

         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 that differentiate Silver Diner restaurants from other restaurants
include:

                  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 most of its pies
and cakes on the premises and features a carryout section offering its full
menu.

                  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 restaurants' interior combines traditional
diner motifs such as a counter area with seating, booths and tabletop old style
jukeboxes with a contemporary open kitchen and ambient dining room lighting. The
result of these contrasting elements produces a high energy, fun, nostalgic
atmosphere that is also comfortable.

                  Extended operating hours with four meal periods - Silver
Diner's breadth of entree selection, its beer and wine service and night time
ambiance 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 affords it two extra meal periods - breakfast
and late night. Together, these four meal periods provide the Silver Diner the
opportunity to generate significantly greater customer counts per facility than
traditional two- or three-meal period full-service restaurants.

                  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 the majority of meals in approximately 10 minutes, providing
quick turnover and further improving productivity. The Silver Diner employs a
food preparation and storage process that 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.

                  Generous portions and moderate prices with entrees from $6.99
and up - Management believes the Silver Diner delivers outstanding value by
providing generous portions of fresh, high quality food at affordable prices.
Appetizers start at $4.99, entrees range from $6.99 to $12.99, and full meals
are available at moderate prices including a 10% senior citizen discount and
"blue plate specials."


                                       2

<PAGE>

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

                                                                    Approximate
                                                     Approximate      Number
Operating Locations               Date Opened        Square Feet     of Seats
-------------------               -----------        -----------     --------

Rockville, Maryland              February 1989          5,500           256

Laurel, Maryland                September 1990          4,680           153

Potomac Mills, Virginia          October 1991           4,675           164

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

Springfield, Virginia             April 1997            5,675           240

Reston, Virginia                   June 1997            5,675           240

Cherry Hill, New Jersey          November 1997          5,675           240

Virginia Beach, Virginia           June 2000            4,950           184

Gaithersburg, Maryland          September 2000          4,200           152


         The Company leases its corporate offices at 11806 Rockville Pike,
Rockville, Maryland, which is the location of the original Silver Diner
restaurant. All operating units except the Reston, Virginia location are leased.

     Management's near-term focus is to continue to improve operations in the
existing restaurants, to maximize the cash flow generation of the business and
to refine opportunities for future growth. The Company believes the greater
Washington area can support twelve to fifteen Silver Diner restaurants. Under
the right circumstances, the Company may resume its penetration of this market
in order to take advantage of increased name recognition and economies of scale
in advertising, management and overhead. Management believes that there are
other major metropolitan areas in the Mid-Atlantic region that can support a
similar concentration of Silver Diner restaurants and may, in the future, pursue
expansion in these markets in a manner similar to the greater Washington area.
Expansion into any markets outside of the Mid-Atlantic region 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. Since
1998, the Company has focused its marketing efforts on direct marketing, which
allows the Company to target customers and create a relationship in the
neighborhoods surrounding each restaurant. The Company's penetration in its core
Washington Metro market has generated economies of scale.

                                       3

<PAGE>

         Menu. The Silver Diner menu includes a broad range of dining
alternatives featuring traditional diner fare, including soups, sandwiches,
hamburgers, "blue plate specials" as well as more contemporary "heart healthy"
items, salads, grilled chicken, seafood, pasta and regional specialties. Silver
Diner's full breakfast menu, including omelets, pancakes and waffles, is
available throughout the day and night. The menu includes numerous entrees that
rotate on a seasonal basis, as well as signature homemade pies and cakes baked
on premises. High-quality 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 several low-fat popular items formulated
to exceed USDA "heart healthy" dietary guidelines. Silver Diner restaurants also
serve beer and wine in all locations except Cherry Hill, New Jersey, 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.
Upon delivery, a kitchen manager or supervisor inspects all food and beverage
products for quality and freshness. 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, exit
interviews, 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 performs a variety of quality
checks and are authorized to not serve any products that do not meet Silver
Diner's quality standards.


Competition

         The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The Company competes 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 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,
national food service chains or other companies could introduce a multi-unit
chain of food service establishments that use one or more of the concepts that
resemble those of the Company.

         The restaurant industry 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. In addition, the poor performance of the Company's stock
has hindered the ability to attract and retain qualified employees.

         The Company believes that its distinctive diner concept, attractive
price-value relationship and quality of food and service 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.

                                       4

<PAGE>

Employees

         As of December 30, 2001, the Company had 894 employees, of whom 12 are
corporate personnel, 51 are restaurant management personnel (including
managers-in-training), and the remainder are hourly restaurant personnel. None
of the Company's employees are covered by a collective bargaining agreement. The
Company considers its employee relations to be good.

         The management staff of a typical Silver Diner restaurant consists of
one Operating Partner (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 Operating Partner Program. To attract and retain talented
management, the Company's compensation program 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 Operating Partner Program. Under the Program, the Operating Partner
receives an annual salary and periodic, profit based, cash bonuses equal to a
percentage of the restaurant's operating income. In addition, each operating
partner is required to purchase $5,000 of Common Stock at market value and can
potentially receive an annual award up to $5,000 and 3,000 shares of Common
Stock, dependent upon achievement of performance criteria as established and
evaluated by the Board of Directors. This program is a successor to previous
Operating Partner plans. The stock awards under these plans are awarded at the
discretion of the Company's Board of Directors.

         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 sixty-day 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 eight 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, wine
and liquor (except in Cherry Hill, New Jersey where the Company does not sell
alcohol), 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 could 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.

                                       5

<PAGE>

         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.

         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>   <C>                  <C>
Robert T. Giaimo        50       1987              Chairman of the Board,
                                                   President and Chief Executive Officer
Ype Hengst              51       1987              Director, Vice President, Executive Chef and
                                                   Corporate Secretary
Patrick Meskell         49       1996              Executive Vice President, Operations

<FN>
(1)      Includes service with SDDI.
</FN>
</TABLE>

         All of the officers have had the principal occupation indicated under
"Position(s) Held" for the previous five years except that prior to May 2001 Mr.
Meskell was Senior Vice President, Human Resources.

Item 2.  Property.

         On November 16, 2001, the Company entered into a lease termination
agreement to close its diner in Towson, Maryland. The Company incurred $295,726
of expense in connection with terminating its lease and closing the diner. These
expenses were offset by a write-off of $186,986 of deferred rent related to the
Towson diner, resulting in a net expense of $108,740. The cash expenditures
related to the closing of the diner were $254,673. Additional information
concerning the registrant's property is set forth under "Restaurants" in Item 1
of Part I.

Item 3.  Legal Proceedings.

         There are no pending matters that should have a material adverse effect
on the Company.

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

         Not Applicable.

                                       6

<PAGE>

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
Market Information. Since May 7, 2001 the Company's Common Stock has been quoted
on the OTC Bulletin Board under the symbol SLVR. From March 27, 1996 to May 6,
2001 the Common Stock was listed on The NASDAQ Stock Market under the symbol
SLVR. The following table sets forth the high and low closing prices for the
Common Stock for the periods indicated:


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


2000             First                          $1.125                $0.84
                 Second                         $1.06                 $0.78
                 Third                          $1.38                 $0.84
                 Fourth                         $1.03                 $0.75

2001             First                          $0.94                 $0.44
                 Second                         $0.59                 $0.20
                 Third                          $0.44                 $0.15
                 Fourth                         $0.35                 $0.15


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

         Holders. As of December 30, 2001, there were 962 record holders of the
Common Stock.



                                       7

<PAGE>

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                                                             Fiscal Years Ended
                                                --------------------------------------------------------------------------------
                                                December 30,     December 31,      January 2,       January 3,      December 28,
                                                    2001             2000             2000             1999             1997
                                                ------------     ------------     ------------     ------------     ------------
<S>                                             <C>              <C>              <C>              <C>              <C>
Statement of Operations Data:
Net sales                                       $ 31,833,252     $ 31,559,535     $ 29,157,366     $ 28,561,422     $ 24,259,156

Total restaurant costs and expenses             $ 30,245,859       31,916,201       26,733,538       27,008,263       22,999,566
                                                ------------     ------------     ------------     ------------     ------------

Restaurant operating income (loss)                 1,587,393         (356,666)       2,423,828        1,553,159        1,259,590

General and administrative expenses                2,873,327        3,379,958        3,133,073        2,921,299        3,065,436
Depreciation and amortization                        334,653          362,724          339,725          267,171          263,484
Write off of abandoned site costs                    267,448          102,012              -             32,455          172,618
                                                ------------     ------------     ------------     ------------     ------------

     Operating Loss                               (1,888,035)      (4,201,360)      (1,048,970)      (1,667,766)      (2,241,948)
                                                ------------     ------------     ------------     ------------     ------------

Net proceeds from fire insurance                     114,098              -                -                -                -
Interest expense                                    (191,155)         (85,963)         (23,826)         (40,639)         (10,702)
Investment income, net                                65,641           91,759          100,917          151,967          294,231
                                                ------------     ------------     ------------     ------------     ------------

     Loss before cumulative effect of a
          change in accounting principle          (1,899,451)      (4,195,564)        (971,879)      (1,556,438)      (1,958,419)

Cumulative effect of a change in accounting
     principle                                           -                -                -           (326,868)             -
                                                ------------     ------------     ------------     ------------     ------------
     NET LOSS                                   $ (1,899,451)    $ (4,195,564)    $   (971,879)    $ (1,883,306)    $ (1,958,419)
                                                ============     ============     ============     ============     ============

Basic and diluted net loss per common share
     before cumulative effect of a change in
     accounting principle                              (0.16)           (0.36)           (0.08)           (0.13)           (0.17)

Cumulative effect of a change in accounting
     principle                                           -                -                -              (0.03)             -
                                                ------------     ------------     ------------     ------------     ------------

Net loss per common share                       $      (0.16)    $      (0.36)    $      (0.08)    $      (0.16)    $      (0.17)
                                                ============     ============     ============     ============     ============

Weighted average common shares outstanding        11,705,187       11,611,915       11,586,512       11,591,822       11,609,400
                                                ============     ============     ============     ============     ============

<CAPTION>
                                                                                   As of (i)
                                                --------------------------------------------------------------------------------
                                                December 30,     December 31,      January 2,       January 3,      December 28,
                                                    2001             2000             2000             1999             1997
                                                ------------     ------------     ------------     ------------     ------------
<S>                                             <C>              <C>              <C>              <C>              <C>
Balance Sheet Data:
Working capital (deficiency)                    $   (230,593)    $   (893,151)    $    460,049     $    625,043     $  1,332,141
Total assets                                      17,470,382       18,206,382       20,594,533       21,638,497       23,646,765
Current liabilities                                2,302,811        2,402,834        2,024,801        2,227,222        2,207,891
Long-term liabilities                              3,708,308        2,591,586        1,295,338        1,173,280        1,317,667
Stockholders' equity                              11,459,263       13,211,962       17,274,394       18,237,995       20,121,207
</TABLE>

(i)      Selected financial data as of and for the years ended December 30,
2001, December 31, 2000 and January 2, 2000 were obtained from the Company's
audited financial statements. Selected financial data as of and for the years
ended January 3, 1999 and December 28, 1997 were obtained from the Company's
financial statements audited by another accounting firm whose opinion was
unqualified.

                                       8

<PAGE>

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

         Certain information included herein contains statements that are
forward-looking, such as statements relating to plans for future expansion and
other business development activities as well as operating costs, capital
spending, financial sources and the effects of competition. Such forward-looking
information is subject to changes and variations which are not reasonably
predictable and which could significantly affect future results. Accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These changes and variations which could
significantly affect future results include, but are not limited to, development
and construction activities, including delays in opening new diners, acceptance
of the Silver Diner concept, increased competition in the restaurant industry,
weather conditions, the quality of the Company's restaurant operations, the
adequacy of operating and management controls, dependence on discretionary
consumer spending, dependence on existing management, inflation and general
economic conditions, and changes in federal or state laws or regulations.


General

         The following discussion includes comments and data relating to the
Company's financial condition and results of operations for the three-year
period ended December 30, 2001. As of this date, the Company operates 12 diners,
10 in the Washington metropolitan area, one in Cherry Hill, New Jersey and one
in Virginia Beach, Virginia. The Company is currently working to improve the
performance of its existing units and is not expanding. If satisfactory results
are achieved by the existing restaurants, the Company, may, under the
appropriate circumstances, resume expansion. Future plans may include expanding
the Silver Diner chain in the Mid-Atlantic region through opening Company-owned
restaurants and possibly through the development of franchise or joint venture
relationships. The following table reflects the change in number of restaurants
over the three-year period.

         Restaurants                              1999      2000      2001
         -----------                              ----      ----      ----
         In operation, beginning of year           11        11        13
         Newly opened                               0         2         0
         Closed                                     0         0         1
                                                 ------    ------    ------
         In operation, end of year                 11        13        12
                                                 ------    ------    ------


         The Company has a 52 or 53-week fiscal year that ends on the Sunday
nearest December 31. Fiscal quarters consist of accounting periods of 16, 12, 12
and 12 or 13 weeks, respectively. Fiscal years 2001, 2000 and 1999 consisted of
52 weeks and ended on December 30, 2001, December 31, 2000 and January 2, 2000,
respectively.

                                       9

<PAGE>

Results Of Operations

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

<TABLE>
<CAPTION>
                                                                Fiscal Years Ended
                                              ------------------------------------------------------
                                               December 30,        December 31,         January 2,
                                                   2001                2000                2000
                                              --------------      --------------      --------------
<S>                                           <C>                 <C>                 <C>
Net Sales                                            100.0%              100.0%              100.0%

Restaurant costs and expenses:
   Cost of Sales                                      27.5%               26.7%               26.1%
   Labor                                              35.5%               34.7%               33.8%
   Operating                                          16.6%               18.7%               18.0%
   Occupancy                                          11.2%                9.6%                9.8%
   Depreciation and amortization                       3.9%                4.1%                4.0%
   Preopening expenses                                 0.0%                1.0%                0.0%
   Impairment of long-lived assets                     0.0%                6.3%                0.0%
   Loss on diner closing                               0.3%                0.0%                0.0%
                                              --------------      --------------      --------------

      Restaurant Operating Income (Loss)               5.0%               -1.1%                8.3%

General and administrative expenses                    9.0%               10.7%               10.8%
Depreciation and amortization                          1.1%                1.2%                1.2%
Write-off of abandoned site costs                      0.8%                0.3%                0.0%
                                              --------------      --------------      --------------

      Operating Loss                                  -5.9%              -13.3%               -3.7%

Proceeds from Fire Insurance Claim                     0.4%                0.0%                0.0%
Interest Expense                                      -0.6%               -0.3%               -0.1%
Investment Income                                      0.2%                0.3%                0.4%
                                              --------------      --------------      --------------

   Net Loss                                           -5.9%              -13.3%               -3.4%
                                              ==============      ==============      ==============
</TABLE>

                                       10

<PAGE>

Year Ended December 30, 2001 Compared to the Year Ended December 31, 2000

         Net sales for the fiscal year ended December 30, 2001 ("Fiscal 2001")
of $31,833,252 increased $273,717 or .9% compared to the fiscal year ended
December 31, 2000. ("Fiscal 2000"). Full year of operations during fiscal 2001
in Virginia Beach, Virginia and Gaithersburg, Maryland ("New Stores") resulted
in an increase of $1,531,161 while same store 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 $1,257,444 or 4.3% compared to Fiscal 2000. Sales for the twelve weeks
ended December 30, 2001 (Fourth Quarter 2001) showed increased same store sales
of $84,160, or 1.3% while new store sales declined $272,133 or 23.2%.

         Cost of sales, consisting of food and beverage costs, increased from
26.7% of net sales in Fiscal 2000 to 27.4% of net sales in Fiscal 2001. The
increase of 0.7% was attributable to higher food costs as well as an increasing
emphasis on value oriented menu offerings.

         Labor, which consists of restaurant management and hourly employee
wages and bonuses, payroll taxes, workers' compensation insurance, group health
insurance and other benefits increased 0.8% to 35.5% of net sales for Fiscal
2001. The increase of $360,262 was due, in part, to higher hourly labor costs.
Labor for same stores decreased 0.6%, or $63,604, offset by new store labor
increases of $423,866.

         Operating expenses, which consist of all restaurant operating costs
other than cost of sales, labor, occupancy and depreciation, including supplies,
utilities, repairs and maintenance and advertising decreased 2.1% to 16.6% of
net sales for Fiscal 2001, compared to 18.7% for Fiscal 2000. A decrease of
$450,000 in promotion and marketing expenses as well a reduction of $185,000 in
administrative costs accounted for a substantial portion of the change.

         Occupancy, which is composed primarily of rent, property taxes and
property insurance, increased $514,096 for Fiscal 2001 compared to Fiscal 2000.
As a percentage of net sales occupancy expenses increased 1.5% in Fiscal 2001 to
11.2% compared to 9.7% in Fiscal 2000. The majority of the dollar increase, or
$279,000 was attributable to the New Stores full year of operations. In
addition, higher property insurance premiums and common area maintenance costs
contributed to higher occupancy expenses in Fiscal 2001.

         Restaurant depreciation and amortization decreased $50,837 to
$1,253,409 for Fiscal 2001. Depreciation and amortization expense for same
stores decreased approximately $158,000, a result of the Company write-down, in
Fiscal 2000, of the assets of two restaurants.

         The Company periodically evaluates its asset base for potential
impairment of long-lived assets, including goodwill, utilizing projections of
undiscounted cashflows in order to determine the future recoverability of an
asset or group of assets. In Fiscal 2000, the trends of operations of two
restaurants indicated the undiscounted cashflows from their operations would be
less than the net book value of the assets of the two restaurants. As a result,
during the fourth quarter of Fiscal 2000 the Company recorded an impairment loss
of $1,980,116. Management believes that it has taken all of the appropriate
actions regarding the carrying value of its' assets and that no further material
impairment exists at this time. The Company will adopt the provisions of SFAS
No. 142 on December 31, 2001 and will complete its initial assessment of
goodwill impairment by June 29, 2002. The impact of impairment, if any, will be
recorded as a cumulative effect of a change in accounting principle during the
first quarter of fiscal 2002.

         On November 16, 2001, the Company entered into a lease termination
agreement to close its diner in Towson, Maryland. The Company incurred $295,726
of expense in connection with terminating its lease and closing the diner. These
expenses were offset by a write-off of $186,986 of deferred rent related to the
Towson diner for a net expense of $108,740. The Company had cash expenditures of
$254,673 related to the closing of the diner.

         Preopening expenses of $318,282 in Fiscal 2000 were principally labor
costs (wages, taxes and benefits) incurred prior to opening the New Stores.
There were no pre-opening expenses in Fiscal 2001.

                                       11

<PAGE>

         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 $2,873,327 for
Fiscal 2001, a decrease of $506,631. As a percentage of net sales, the Company's
administrative overhead decreased 1.7% to 9.0% in Fiscal 2001 from 10.7% in
Fiscal 2000. This was primarily due to a decrease in investor relations
expenses, professional fees and travel costs.

         Abandoned site costs were $267,448 in Fiscal 2001. The decision to
abandon plans to construct a diner in the Pentagon Row site in Arlington
Virginia led to Fiscal 2001 expenses of $267,448 for the lease termination and
other fees. Legal, architectural and design costs of $102,012 for Pentagon Row
were written off in Fiscal 2000.

         The Company earned $65,641 in investment income for Fiscal 2001,
compared to investment income of $91,759 for Fiscal 2000. The decrease is
primarily a result of reduced levels of cash available for investment as well as
lower yields. Interest expense was $191,155 for Fiscal 2001 and $85,963 for
Fiscal 2000. The increase in interest expense was attributable to the increase
in funds borrowed under the Company's line of credit.

         Net loss for Fiscal 2001 was $1,899,451 or $0.16 per share, compared to
a net loss of $4,195,564 or $0.36 per share in Fiscal 2000. Excluding the impact
of the charge for impairment of long-lived assets, the net loss for fiscal year
2000 was $2,215,448 or $0.19 per share. Weighted average shares outstanding
remained essentially unchanged in 2001 versus 2000. Management expects that the
Company will continue to incur losses, but at reduced levels due to reductions
in administrative expenses, until revenues and operating efficiencies are
sufficient to absorb the general and administrative expenses associated with
developing and running the company.

Year Ended December 31, 2000 Compared to the Year Ended January 2, 2000

         Net sales for the fiscal year ended December 31, 2000 ("Fiscal 2000")
of $31,559,535 increased $2,402,169 or 8.2% compared to the fiscal year ended
January 2, 2000 ("Fiscal 1999"). Substantially all of the increased sales were
attributable to new unit openings in Virginia Beach, Virginia and Gaithersburg,
Maryland.

         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) were flat
compared to Fiscal 1999. Same store customer counts were down 5.2%, while check
averages increased 5.8%. The Company also had a 6.5% decrease in take-out sales
further eroding the gains achieved in the average check. The Company believes
the reversal of nine consecutive quarters of same store sales increases was
primarily caused by three factors. First, the more contemporary menu implemented
in April 2000 did not meet the expectations of our customers; second, the price
action taken at the time of the new menu implementation met some consumer
resistance and lastly, the marketing activities employed in 2000 were not
adequate to move the business above the record levels achieved in Fiscal 1999.

         Cost of sales, consisting primarily of food and beverage costs,
increased from 26.1% of net sales in Fiscal 1999 to 26.7% of net sales in Fiscal
2000. The increase of 0.6% was attributable to increased costs in the existing
stores and higher costs in the New Stores related to slightly different menu
offerings as well as the initial cost escalation normally associated with the
new unit openings.

         Labor, which consists of restaurant management and hourly employee
wages and bonuses, payroll taxes, workers' compensation insurance, group health
insurance and other benefits increased 0.9% to 34.7% of net sales for Fiscal
2000. The increase was largely due to the overstaffing of New Stores during the
first several periods of operation.

         Operating expenses, which consist of all restaurant operating costs
other than cost of sales, labor, occupancy and depreciation, including supplies,
utilities, repairs and maintenance and advertising increased 0.7% to 18.7% of
net sales for Fiscal 2000, compared to 18.0% for Fiscal 1999. Increased supply,
utility, maintenance costs, credit card fees and advertising expenses accounted
for the majority of the increase. The New Stores had only a minimal impact on
these expenses.

         Occupancy, which is composed primarily of rent, property taxes and
property insurance, increased $175,369 for Fiscal 2000 compared to Fiscal 1999.
As a percentage of net sales occupancy expenses decreased 0.2%

                                       12

<PAGE>

in Fiscal 2000 to 9.6% compared to 9.8% in Fiscal 1999. Nearly all of the dollar
increase was attributable to the New Stores and was offset by a $59,311 rent
refund, relating to a partial taking of the parking lot under the right of
eminent domain at the Springfield location. The company does not anticipate a
significant negative impact on sales as a result of the partial taking of the
parking lot.

         Restaurant depreciation and amortization increased $131,849 to
$1,304,246 for Fiscal 2000. Approximately two thirds of the increase was a
result of depreciation associated with the addition of the New Stores. The
remainder of the increase was a product of upgrading the existing asset base.

         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 $3,379,958 for
Fiscal 2000, an increase of $246,885, or 7.9%, compared to Fiscal 1999. The
dollar increase in expenses was largely due to the recruitment and hiring of a
vice president of operations coupled with a re-alignment of field management
personnel and the recruitment, hiring and training of store management personnel
for the New Stores. As a percentage of net sales, general and administrative
expenses remained flat at 10.7% for Fiscal 2000. The Company's administrative
overhead as a percentage of net sales remains above the industry average
primarily due to the cost of the corporate management team required to support
the Company's growth plans, which have been slower than anticipated.

         Preopening expenses of $318,282 were principally labor costs (wages,
taxes and benefits) incurred prior to opening the New Stores.

         The Company periodically evaluates its' asset base for potential
impairment of long-lived assets, including goodwill, utilizing projections of
undiscounted cashflows in order to determine the future recoverability of an
asset or group of assets. Based on that evaluation, the trends of operations of
two restaurants indicated the undiscounted cashflows from their operations would
be less than the net book value of the assets of the two restaurants. As a
result, during the fourth quarter of Fiscal 2000 the Company recorded an
impairment loss of $1,980,116. Management believes that it has taken all of the
appropriate actions regarding the carrying value of its' assets and that no
further material impairment exists at this time.

         The $102,012 write off of abandoned site costs is related to legal,
architectural and design costs for the Pentagon Row site in Arlington, Virginia
which the Company decided not to construct.

    The Company earned $91,759 in investment income for Fiscal 2000, compared to
investment income of $100,917 for Fiscal 1999. The decrease is primarily a
result of reduced levels of cash available for investment, stemming from the
construction of the New Stores. Interest expense was $85,963 for Fiscal 2000 and
$23,826 for Fiscal 1999. The increase in interest expense was attributable to
the increase in funds utilized under the Company's line of credit.

         Net loss for Fiscal 2000 was $4,195,564 or $0.36 per share, compared to
a loss of $971,879 or $0.08 per share in Fiscal 1999. Excluding the impact of
the charge for impairment of long-lived assets, the net loss for Fiscal 2000 was
$2,215,448 or $0.19 per share. Weighted average shares outstanding remained
essentially unchanged in 2000 versus 1999. Management expects that the Company
will continue to incur losses until such time as revenue generation from
increased market penetration operating efficiencies are sufficient to absorb the
general and administrative infrastructure costs currently in place.

                                       13

<PAGE>

Recent Accounting Pronouncement

         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible
Assets" which requires that upon adoption, amortization of goodwill will cease,
and instead, the carrying value of goodwill will be evaluated for impairment on
an annual basis. Identifiable intangible assets will continue to be amortized
over their useful lives and reviewed for impairment in accordance with SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". SFAS 142 is effective for fiscal years beginning after December
15, 2001. As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $1.7 million, which will be subject to the transition
provisions of SFAS 142. Amortization expense related to goodwill was $185,000
for the fiscal year ended December 30, 2001. The Company will adopt the
provisions of SFAS No. 142 on December 31, 2001, and will complete its initial
assessment of goodwill impairment by June 29, 2002. The impact of impairment, if
any is determined during such an assessment, will be recorded as a cumulative
effect of a change in accounting principle during the first quarter of fiscal
2002.

Liquidity and Capital Resources

         The Silver Diner's operations are subject to significant external
influences beyond its control. Any one, or any combination of such factors,
could materially impact the actual results of the Diner's operations. Those
factors include, but are not limited to: (I) changes in general economic
conditions, (II) changes in consumer spending habits (III) changes in the
availability and cost of raw materials, (IV) changes in the availability of
capital resources, (V) changes in the prevailing interest rates, (VI) changes in
the competitive environment and (VII) changes in Federal or State laws.

         At December 30, 2001, the Company's cash and cash equivalents were
$1,839,091, an increase of $1,293,860 over Fiscal 2000 as a result of additional
borrowings on available credit facilities. The Company's working capital deficit
was $230,593 compared to a deficit of $893,151 at December 31, 2000, an
improvement of $662,558 during 2001 as a result of additional borrowings.
Additionally, the Company's long-term debt was $2,557,317 and stockholders'
equity was $11,459,263.

         Based on the Company's current operating plan, the Company believes
that the cash generated from operating activities, coupled with borrowings on
its line of credit facility and additional cost reductions, where necessary,
will be sufficient to meet the anticipated needs for working capital, capital
expenditures and non-cancelable lease obligations for at least the next 12
months. Thereafter, if cash generated from operations is insufficient to satisfy
the Company's liquidity needs, the Company may seek to obtain additional
capacity on its line of credit, sell convertible debt securities, subject to
consent being received from the Company's bank, or sell additional equity
securities. However, no assurances can be given that any such addition financing
sources will be available on acceptable terms or at all.

         The Company closed its diner in Towson, Maryland on November 18, 2001.
Expenses related to termination of the lease and closure of the diner were
$295,726, offset by a write off of deferred rent of $186,986, for a net expense
of $108,740. The cash expenditures related to the closing of the diner were
$254,673.

         The Company has a loan agreement with its bank whereby the Company may
borrow, through December 31, 2002 up to $3,000,000. As of December 30, 2001, the
Company has borrowed $2,500,000 under the agreement. Terms of the loan agreement
limit the Company's ability to incur new debt, which may restrict the Company's
ability to expand and to finance working capital requirements. As defined in the
loan agreement, the Company may draw additional funds only to the extent that
its cash flow is equal to or greater than 1.3 times the debt service coverage
requirements. The amount borrowed in 2000, $1,000,000, was payable interest only
until December 1, 2001. Principal and interest are payable monthly beginning
January 1, 2002 through December 1, 2007. The amount borrowed in 2001,
$1,500,000, is payable interest only until December 1, 2002. Principal and
interest are payable monthly beginning January 1, 2003 through December 1, 2008.
Annual principal payments are $166,667 in 2002, $416,667 in 2003 thru 2007 and
$250,000 in 2008.

         Currently, the Company does not meet the debt service coverage
requirements of the loan agreement. Future borrowings under the agreement may be
dependent on the Company meeting the debt service coverage requirements at the
time of the additional borrowing. However, the Company's failure to maintain the
debt service

                                       14

<PAGE>

coverage ratio for any quarter including the quarter ended December 30, 2001,
shall not be a default under the loan agreement, if, during the immediately
succeeding quarter the Company achieves a material improvement in the debt
service coverage ratio and demonstrates a reasonable prospect of achieving the
debt service coverage ratio by the beginning of the next quarter.

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 7A. Quantitative and Qualitative Disclosures about Market Risk.

         Not applicable.

                                       15

<PAGE>

Item 8.  Financial Statements

INDEPENDENT AUDITORS' REPORT                                                 17


CONSOLIDATED FINANCIAL STATEMENTS


     CONSOLIDATED BALANCE SHEETS AS OF
     DECEMBER 30, 2001 AND DECEMBER 31, 2000                                 18


     CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
     FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000
     AND JANUARY 2, 2000                                                     19


     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
     EQUITY FOR THE FISCAL YEARS ENDED DECEMBER 30, 2001,
     DECEMBER 31, 2000 AND JANUARY 2, 2000                                   20


     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
     FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND
     JANUARY 2, 2000                                                         21


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                   22


                                       16

<PAGE>

                   [LETTERHEAD OF REZNICK FEDDER & SILVERMAN]


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Silver Diner, Inc.

We have audited the accompanying consolidated balance sheets of Silver Diner,
Inc. and Subsidiary (the "Company") as of December 30, 2001 and December 31,
2000, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for fiscal years ended December 30, 2001,
December 31, 2000 and January 2, 2000. The consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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, Inc.
and Subsidiary as of December 30, 2001 and December 31, 2000, and the results of
their operations and their cash flows for the fiscal years ended December 30,
2001, December 31, 2000 and January 2, 2000, in conformity with accounting
principles generally accepted in the United States of America.





/s/ Reznick Fedder & Silverman
Bethesda, Maryland
February 28, 2002

                                       17

<PAGE>

                        Silver Diner, Inc. and Subsidiary

                           CONSOLIDATED BALANCE SHEETS

                     December 30, 2001 and December 31, 2000

<TABLE>
<CAPTION>
                                                                           2001            2000
                                                                       ------------    ------------
<S>                                                                    <C>              <C>
ASSETS

Current assets:
   Cash and cash equivalents                                           $  1,839,091    $    545,231
   Accounts receivable - landlords                                                -         559,311
   Inventory                                                                 99,846         178,332
   Incentive rebates                                                         53,296          70,664
   Prepaid expenses and other current assets                                 79,985         156,145
                                                                       ------------    ------------
              Total current assets                                        2,072,218       1,509,683

Property, equipment and improvements, net                                13,241,787      14,219,713

Due from related parties                                                     40,000          60,000
Goodwill, net                                                             1,745,599       1,930,093
Deferred charges and other, net                                             370,778         486,893
                                                                       ------------    ------------

Total assets                                                           $ 17,470,382    $ 18,206,382
                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses                               $  2,118,345    $  2,385,034
   Notes payable, current portion                                           184,466          17,800
                                                                       ------------    ------------
              Total current liabilities                                   2,302,811       2,402,834

Long term liabilities:
   Deferred rent liability                                                1,150,991       1,349,803
   Notes payable, net of current portion                                  2,557,317       1,241,783
                                                                       ------------    ------------
Total liabilities                                                         6,011,119       4,994,420
                                                                       ------------    ------------

Commitments and contingencies                                                     -               -

Stockholders' equity:
   Preferred stock, $.001 par value, 1,000,000 shares authorized,
     none issued                                                                  -               -
   Common stock, $.00074 par value, 20,000,000 shares authorized;
     at December 30, 2001, 11,761,004 shares issued and outstanding;
     at December 31, 2000, 11,627,836 shares issued and outstanding;          8,687           8,589
Additional paid-in capital                                               30,797,207      30,699,460
Treasury stock (138,702 and 183,702 shares of common stock at cost)         (72,913)       (121,820)
Accumulated deficit                                                     (19,273,718)    (17,374,267)
                                                                       ------------    ------------
              Total stockholders' equity                                 11,459,263      13,211,962
                                                                       ------------    ------------

Total liabilities and stockholders' equity                             $ 17,470,382    $ 18,206,382
                                                                       ============    ============
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       18

<PAGE>

                        Silver Diner, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                           Fiscal Years Ended
                                              ----------------------------------------------
                                              December 30,     December 31,      January 2,
                                                  2001               2000           2000
                                              ------------     ------------     ------------
<S>                                           <C>              <C>              <C>
Net sales                                     $ 31,833,252     $ 31,559,535     $ 29,157,366
                                              ------------     ------------     ------------

Restaurant costs and expenses
Cost of sales                                    8,738,148        8,422,103        7,609,271
Labor                                           11,296,483       10,936,221        9,850,921
Operating                                        5,292,679        5,912,929        5,234,014
Occupancy                                        3,556,400        3,042,304        2,866,935
Depreciation and amortization                    1,253,409        1,304,246        1,172,397
Preopening expenses                                      -          318,282                -
Impairment of long-lived assets                          -        1,980,116                -
Loss from diner closing                            108,740                -                -
                                              ------------     ------------     ------------

Total restaurant costs and expenses             30,245,859       31,916,201       26,733,538
                                              ------------     ------------     ------------

Restaurant operating income (loss)               1,587,393         (356,666)       2,423,828

General and administrative expenses              2,873,327        3,379,958        3,133,073
Depreciation and Amortization                      334,653          362,724          339,725
Write off of abandoned site costs                  267,448          102,012                -
                                              ------------     ------------     ------------
         Operating Loss                         (1,888,035)      (4,201,360)      (1,048,970)

Other income (expense)
Net proceeds from fire insurance                   114,098                -                -
Interest expense                                  (191,155)         (85,963)         (23,826)
Investment income, net                              65,641           91,759          100,917
                                              ------------     ------------     ------------

NET LOSS                                      $ (1,899,451)    $ (4,195,564)    $   (971,879)
                                              ============     ============     ============

Basic and diluted loss per common share       $      (0.16)    $      (0.36)    $      (0.08)
                                              ============     ============     ============

Weighted average common shares outstanding      11,705,187       11,611,915       11,586,512
                                              ============     ============     ============
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       19

<PAGE>

                       Silver Diner Inc. and Subsidiaries

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

   Fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000


<TABLE>
<CAPTION>
                                             Common Stock              Treasury Stock      Additional
                                       ------------------------  ------------------------    Paid-in    Accumulated
                                          Shares       Amount       Shares        Cost       Capital       Deficit       Total
                                       -----------  -----------  -----------  -----------  -----------  ------------  -----------
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>           <C>
Balance at January 3, 1999              11,585,510  $     8,558            -  $         -  $30,436,261  $(12,206,824) $18,237,995

Issuance of common stock                    15,050           11            -            -       10,878             -       10,889
Common stock purchased                      (7,869)          (6)           -            -       (9,994)            -      (10,000)
Purchase of treasury stock                       -            -     (165,802)    (101,239)           -             -     (101,239)
Stock options issued                             -            -            -            -       31,015             -       31,015
Cancellation of outstanding options              -            -            -            -      (24,604)            -      (24,604)
Amortization of unearned compensation            -            -            -            -      102,217             -      102,217
Net loss                                         -            -            -            -            -      (971,879)    (971,879)
                                       -----------  -----------  -----------  -----------  -----------  ------------  -----------

Balance at January 2, 2000              11,592,691        8,563     (165,802)    (101,239)  30,545,773   (13,178,703)  17,274,394


Issuance of common stock                    27,744           21            -            -       22,048             -       22,069
Stock options exercised                      7,401            5            -            -           (3)            -            2
Purchase of treasury stock                       -            -      (72,900)     (76,581)           -             -      (76,581)
Issuance of treasury stock                       -            -       55,000       56,000      (28,500)            -       27,500
Stock options issued                             -            -            -            -       11,969             -       11,969
Cancellation of outstanding options              -            -            -            -      (22,344)            -      (22,344)
Amortization of unearned compensation            -            -            -            -      170,517             -      170,517
Net loss                                         -            -            -            -            -    (4,195,564)  (4,195,564)
                                       -----------  -----------  -----------  -----------  -----------  ------------  -----------

Balance at December 31, 2000            11,627,836        8,589     (183,702)    (121,820)  30,699,460   (17,374,267)  13,211,962


Issuance of common stock                   117,815           87            -            -       16,672             -       16,759
Stock options exercised                     15,353           11            -            -           36             -           47
Issuance of treasury stock                       -            -       45,000       48,907      (26,407)            -       22,500
Cancellation of outstanding options              -            -            -            -      (29,118)            -      (29,118)
Amortization of unearned compensation            -            -            -            -      136,564             -      136,564
Net loss                                         -            -            -            -            -    (1,899,451)  (1,899,451)
                                       -----------  -----------  -----------  -----------  -----------  ------------  -----------

Balance at December 30, 2001            11,761,004  $     8,687     (138,702) $   (72,913) $30,797,207  $(19,273,718) $11,459,263
                                       ===========  ===========  ===========  ===========  ===========  ============  ===========
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       20

<PAGE>
                        Silver Diner, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Fiscal years ended
                                                                    -----------------------------------------
                                                                    December 30,   December 31,   January 2,
                                                                       2001           2000           2000
                                                                    -----------    -----------    -----------
<S>                                                                    <C>              <C>              <C>
Cash flows from operating activities
Net loss                                                            $(1,899,451)   $(4,195,564)   $  (971,879)
Adjustments to reconcile net loss to net cash provided by
 (used in) operations
   Depreciation and amortization                                      1,588,062      1,666,970      1,512,122
   Impairment of long-lived assets                                            -      1,980,116              -
   Loss on diner closing                                                108,740              -              -
   Development and abandoned site costs                                       -        102,012              -
   Compensation expense - stock options and deferred compensation       107,493        160,142        108,627
Changes in operating assets and liabilities
   Accounts receivable- landlords                                       559,311       (559,311)             -
   Inventory                                                             78,486        (43,634)         4,341
   Prepaid rent                                                               -        158,447         24,349
   Incentive rebates                                                     17,368         38,264        (47,518)
   Prepaid expenses and other current assets                             76,160         (9,575)       (35,904)
   Deferred charges and other                                          (179,610)       (48,056)       (25,683)
   Accounts payable and accrued expenses                               (266,689)       627,227       (204,377)
   Deferred rent liability                                              (11,827)        54,471        122,058
   Due from related parties                                              20,000         39,851         15,777
                                                                    -----------    -----------    -----------

       Net cash (used in) provided by operating activities              198,043        (28,640)       501,913
                                                                    -----------    -----------    -----------

Cash flows from investing activities
   Purchases of property and equipment                                 (425,642)    (2,327,904)      (792,156)
   Maturities of short term investments                                       -        813,452        750,000
   Purchase of short term investments                                         -              -       (816,855)
                                                                    -----------    -----------    -----------

       Net cash used in investing activities                           (425,642)    (1,514,452)      (859,011)
                                                                    -----------    -----------    -----------

Cash flows from financing activities
   Proceeds from issuance of common stock                                16,759         22,066         10,889
   Purchase of common stock                                                   -              -        (10,000)
   Purchase of treasury stock                                                 -        (76,581)      (101,239)
   Proceeds from issuance of treasury stock                              22,500         27,500              -
   Proceeds from long-term debt                                       1,500,000      1,000,000              -
   Payment of long-term debt                                            (17,800)        (7,417)             -
                                                                    -----------    -----------    -----------

       Net cash provided by (used in) financing activities            1,521,459        965,568       (100,350)
                                                                    -----------    -----------    -----------

Net increase (decrease) in cash and cash equivalents                  1,293,860       (577,524)      (457,448)
Cash and cash equivalents at beginning of the period                    545,231      1,122,755      1,611,757
                                                                    -----------    -----------    -----------

Cash and cash equivalents at end of the period                      $ 1,839,091    $   545,231    $ 1,154,309
                                                                    ===========    ===========    ===========

Supplemental disclosure of cash flow information:
             Interest paid                                          $   186,659    $    80,141    $    37,492
                                                                    ===========    ===========    ===========
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       21

<PAGE>

                        Silver Diner, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            December 30, 2001, December 31, 2000 and January 2, 2000


1.   Organization

     Silver Diner, Inc. (the "Company") and its subsidiary develop and operate
     the Silver Diner restaurant chain. At December 30, 2001, the Company owned
     and operated 10 diners in the Washington metropolitan area, one in Cherry
     Hill, New Jersey and one in Virginia Beach, Virginia.

2.   Summary Of Significant Accounting Policies

     Basis of Presentation and Consolidation
     ---------------------------------------

     The consolidated financial statements include the accounts and operations
     of the Company and its subsidiary, Silver Diner Development, Inc. (SDDI).
     All significant intercompany balances and transactions have been eliminated
     in consolidation.

     Fiscal Year
     -----------

     The Company operates on a 52- or 53-week fiscal year that 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 2001, 2000 and 1999 consisted of 52 weeks and ended on December 30,
     2001, December 31, 2000 and January 2, 2000, respectively.

     Cash and Cash Equivalents
     -------------------------

     The Company considers all highly liquid short-term investments with
     maturity of three months or less, when acquired, to be cash equivalents.
     Cash and cash equivalents are stated at cost which approximates fair value.

     Inventory
     ---------

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

     Property, Equipment and Improvements
     ------------------------------------

     Property, equipment and improvements are recorded 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 two to ten years. Depreciation is computed using the straight-line
     method.

     Deferred Lease Costs
     --------------------

     Deferred lease costs represent brokerage commissions, legal fees and
     zoning-related costs primarily related to leases on the land upon which the
     Company constructed its restaurants and are amortized on a straight-line
     basis over the life of the respective lease agreement.

                                       22

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


2.   Summary Of Significant Accounting Policies (Continued)

     Pre-opening Costs
     -----------------

     In accordance with Statement of Position (SOP) No. 98-5, "Reporting on the
     Cost of Start-Up Activities," costs associated with start-up activities,
     such as opening a new facility, are expensed as incurred.

     Goodwill
     --------

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

     The Financial Accounting Standards Board has issued Statement of Financial
     Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible
     Assets" which requires that upon adoption, amortization of goodwill will
     cease, and instead, the carrying value of goodwill will be evaluated for
     impairment on an annual basis. Identifiable intangible assets will continue
     to be amortized over their useful lives and reviewed for impairment in
     accordance with SFAS 121 "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to be Disposed Of". SFAS 142 is effective
     for fiscal years beginning after December 15, 2001. As of the date of
     adoption, the Company expects to have unamortized goodwill in the amount of
     $1.7 million, which will be subject to the transition provisions of SFAS
     142. Amortization expense related to goodwill was $185,000 for the fiscal
     year ended December 30, 2001. The Company will adopt the provisions of SFAS
     No. 142 on December 31, 2001. The Company will complete its initial
     assessment of goodwill impairment by June 29, 2002. The impact of
     impairment, if any is determined during such an assessment, will be
     recorded as a cumulative effect of a change in accounting principle during
     the first quarter of fiscal 2002.

     Deferred Finance Costs
     ----------------------

     Deferred finance costs consist primarily of legal expenses incurred in
     connection with the credit facility are amortized over the term of the loan
     agreement using the straight-line method. Amortization expense for fiscal
     years 2001, 2000 and 1999 was $25,260, $13,948 and $-0-, respectively.

     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.

                                       23

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


2.   Summary Of Significant Accounting Policies (Continued)

     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. The Company
     implemented Statement of Financial Accounting Standards (SFAS) No. 128,
     which requires presentation of basic and diluted earnings per share amounts
     and a reconciliation of the respective calculations. The Company incurred a
     net loss for the fiscal years ended December 30, 2001, December 31, 2000
     and January 2, 2000; therefore, all potential common shares are
     antidilutive and are not included in the calculation of diluted net loss
     per share. At December 30, 2001, December 31, 2000 and January 2, 2000,
     there were, respectively, 177,888, 206,151 and 80,713 restricted shares of
     common stock outstanding, issued pursuant to the Restaurant Operating
     Partner Program.

     Evaluation of Long-Lived Assets
     -------------------------------

     In accordance with Statement of Financial Accounting Standards (SFAS) No.
     121 "Accounting for the Impairment of Long-Lived Assets," the Company
     evaluates the potential impairment of long-lived assets, including
     goodwill, and property and equipment on a restaurant-by-restaurant basis,
     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. At December 31,2000 based on that evaluation, the
     trends of operations of two restaurants indicated the undiscounted cash
     flows from their operations would be less than the carrying value of the
     long-lived assets of the two restaurants. As a result, during the fourth
     quarter of 2000, the carrying values were written down to the Company's
     estimates of fair value and an impairment charge of $1,980,116 related to
     the two restaurants was recorded. Fair value was estimated utilizing the
     best information available using estimates, judgments and projections.
     During fiscal years 2001, 2000 and 1999, the Company wrote off equipment
     with a net book value of $30,065, $52,126 and $41,400, respectively, which
     is included in depreciation and amortization within the statement of
     operations. The write-off resulted from the elimination of the operational
     usefulness for certain equipment and the identification of obsolete or
     no-longer-in-service equipment. Management believes no additional material
     impairment of these assets exists at December 30, 2001.

     Abandoned Site Costs
     --------------------

     Abandoned site costs includes deferred site costs including legal, design
     and development costs for potential restaurant sites the Company is no
     longer pursuing. On March 2, 2001, the Company executed a lease
     modification agreement in connection with the proposed Silver Diner at
     Pentagon Row. The agreement in part preserved the Company's interest in the
     location until September 7, 2001. On March 30, 2001, the Company exercised
     its option to terminate the lease agreement. During fiscal 2000, the
     Company recorded $102,012 of abandoned site costs related to legal,
     architectural and design costs for the Pentagon Row site. During fiscal
     year 2001, abandoned site costs in connection with the lease termination
     agreement were $267,448.

                                       24

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


2.   Summary Of Significant Accounting Policies (Continued)

     Diner Closing Costs
     -------------------

     On November 16, 2001, the Company entered into a lease termination
     agreement to close its diner in Towson, Maryland. The Company incurred
     $295,726 of expense in connection with terminating its lease and closing
     the diner. These expenses were offset by a write-off of $186,986 of
     deferred rent related to the Towson diner.

     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 to the 2001
     presentation.

     Use of Estimates
     ----------------

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenue and expenses
     during the reporting period. Actual results could differ from those
     estimates.

3.   Proceeds from Fire Insurance

     In March 2001, the Tysons Corner Silver Diner sustained property damage
     resulting from a fire. The Company received insurance proceeds to repair
     the damaged property and was reimbursed for lost income, net of expenses,
     during the period the diner was closed for repairs, in the amount of
     $114,098.

4.   Acquisition of Minority Interest in Silver Diner Limited Partnership

     On June 13, 1996, the Company purchased all of the limited partnership
     interests in Silver Diner Limited Partnership (SDLP) from the original
     investors for $2,472,000 and 84,000 warrants (New Warrants) to purchase
     common stock at $8.00 per share. The New Warrants were exercisable until
     the earlier of 30 days following a public offering of common stock or
     January 31, 1998. The acquisition was accounted for under the purchase
     method and the entire cost of the transaction, $2.8 million, has 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. Amortization
     expense related to goodwill is $185,000 in fiscal years 2001, 2000 and
     1999.

                                       25

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


5.   Property, Equipment and Improvements

     The major components of property, equipment and improvements are as
     follows:

                                                    December 30,   December 31,
                                                        2001           2000
                                                    ------------   ------------
     Land                                           $  1,737,655   $  1,737,655
     Buildings and leasehold improvements             11,648,642     11,580,836
     Furniture, fixtures and equipment                 6,008,395      5,819,627
     Deferred lease costs                                883,337        883,680
                                                    ------------   ------------
                                                      20,278,787     20,021,798
                                                    ------------   ------------

     Less accumulated depreciation and amortization    7,036,242      5,802,085
                                                    ------------   ------------
                                                    $ 13,241,787   $ 14,219,713
                                                    ============   ============

     Depreciation expense was $1,287,032, $1,344,247 and $1,269,055 for fiscal
     2001, 2000 and 1999, respectively.

6.   Accounts Payable and Accrued Expenses


     Accounts payable and accrued expenses consist of the following:

                                                    December 30,   December 31,
                                                        2001           2000
                                                    ------------   ------------

           Trade payables                           $  1,235,364   $  1,561,715
           Payroll and related taxes                     671,121        612,595
           Sales and use taxes                           211,860        210,724
                                                    ------------   ------------
                                                    $  2,118,345   $  2,385,034
                                                    ============   ============

7.   Credit Facilities

     Loan Agreement
     --------------

     In October 1999, the Company entered into a loan agreement with its lead
     bank to extend a $3,000,000 credit facility bearing interest at the rate of
     prime + .50% (5.25% at December 30, 2001). The agreement was amended in May
     2000 and a replacement agreement was executed. During 2000, the Company
     borrowed $1,000,000 to finance development and construction of new
     restaurants. During 2001, the Company borrowed $1,500,000 to finance
     working capital requirements. The $1,000,000 credit facility is payable in
     monthly interest-only installments through December 2001 and in principal
     and interest installments thereafter through December 2007. The $1,500,000
     credit facility is payable in monthly interest-only installments through
     December 2002 and in principal and interest installments thereafter through
     December 2008. The credit facility is collateralized by equipment and
     inventory of the Company. For the fiscal years ended December 30, 2001 and
     December 31, 2001, the Company incurred $173,574 and $61,945, respectively,
     in interest expense related to the credit facility

                                       26

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


7.   Credit Facilities (Continued)

     Loan Agreement (Continued)
     --------------

     The Company may only draw additional funds to the extent it continues to
     remain in compliance with the facility's debt service coverage
     requirements. As of December 30, 2001, the Company is not in compliance
     with the debt service coverage requirements. However, the Company's failure
     to maintain the debt service coverage ratio for any quarter including the
     quarter ended December 30, 2001, shall not be a default under the loan
     agreement, if, during the immediately succeeding quarter, the Company
     achieves a material improvement in the debt service coverage ratio and
     demonstrates a reasonable prospect of achieving the debt service coverage
     ratio by the beginning of the next quarter.

     Note Payable
     ------------

     In June 1997, the Company entered into a note agreement in the amount of
     $267,000 with a bank to purchase a parcel of land from the Company's
     president. The principal balance of the note, originally due in June 1999,
     was extended through June 2000. In July 2000, the note was extended through
     June 2003. Interest was paid monthly at an annual rate of 9.25% through
     July 2000. In August 2000, the Company began paying principal in the amount
     of $1,483 monthly plus interest at the prime rate (4.75% at December 30,
     2001). The note is collateralized by the land purchased. The Company
     incurred $17,581, $24,018 and $23,826 in interest expense for fiscal 2001,
     2000 and 1999, respectively.

     Aggregate maturities of credit facilities for the five years following
     December 30, 2001 are as follows:

                     Fiscal years
                             2002      $      184,466
                             2003             640,650
                             2004             416,667
                             2005             416,667
                             2006             416,667

8.   Notes Receivable

     During 1997, the Company entered into note agreements totaling $132,000
     with an outside party, which owns and maintains the jukeboxes in four
     Silver Diner units. The Company receives principal and interest payments on
     these notes on a monthly basis. The outstanding balance, classified as
     deferred charges and other, was $80,251 and $87,355 at December 30, 2001
     and December 31, 2000. Principal payments are based on the amount of
     monthly cash flow generated by the jukeboxes, net of interest calculated at
     a rate of 9% annually. For fiscal years 2001, 2000 and 1999, the Company
     has received $7,104, $10,544 and $15,830 in principal payments,
     respectively, and $7,128, $8,802 and $11,587 in interest income,
     respectively.

                                       27

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


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. The amount of property leased was reduced in 1997
     by the land purchase described in Note 7. For the fiscal years ended
     December 30, 2001, December 31, 2000 and January 2, 2000, occupancy costs
     include $515,050, $356,000 and $360,000, respectively, in rent and related
     pass-through costs associated with the leases.

     Construction and Real Estate Consulting and Management Services
     ---------------------------------------------------------------

     The Company has from time to time entered into contracts with a Director of
     the Company and certain affiliates of the Director to provide construction,
     real estate consulting and real estate management services to the Company.
     During fiscal years ended December 30, 2001 and December 31, 2000 the
     Company incurred costs of $193,191 and $1,050,648, respectively, for the
     construction of the Virginia Beach and Lakeforest Mall locations and for
     renovation of existing diners. During fiscal years 2001 and 2000, $0 and
     $5,400, was paid, respectively, for real estate consulting services. In
     addition, the Company paid an affiliate of the Director, which manages the
     real estate operations for the Merrifield Silver Diner, $210,259 and
     $189,359, during fiscal 2001 and 2000, respectively, in rent and real
     estate taxes.

     Keyman Life Insurance
     ---------------------

     The Company is paying premiums for life insurance policies owned by two
     officers. Expenses of $99,976, $85,362 and $84,596 for 2001, 2000 and 1999,
     respectively consists of premiums paid less the cash surrender value of the
     policies.

     Due from Related Parties
     ------------------------

     In connection with a 1998 employment continuity agreement, the Company made
     a $100,000 loan to an officer of the Company. The note, collateralized by
     the Company's common stock owned by the officer, bears interest at 5.25%.
     The loan and accrued interest is to be repaid by the officer through the
     application of annual bonuses in the amount of $20,000, plus accrued
     interest, by the officer over a five-year period The balance due at
     December 30, 2001 and December 31, 2000 was $40,000 and $60,000,
     respectively.

10.  Commitments and Contingencies

     Operating Leases
     ----------------

     The Company leases restaurant land and buildings under noncancelable
     operating leases with terms expiring at dates through 2017. 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 20
     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 escala-

                                       28

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


10.  Commitments and Contingencies (Continued)

     Operating Leases (Continued)
     ----------------

     tions has 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.

     Future minimum annual lease payments as of December 30, 2001 are:

                        2002               $        2,476,087
                        2003                        2,529,132
                        2004                        2,567,868
                        2005                        2,670,315
                        2006                        2,544,989
                  Thereafter                       10,427,143

     Rent expense under the leases for fiscal years 2001, 2000 and 1999 was
     approximately $2,701,000, $2,382,000 and $2,296,000, respectively.

     Employment Continuity Agreements
     --------------------------------

     SDDI has entered into employment continuity agreements with certain
     executives. The agreements are for one 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 30, 2001 is approximately $1,080,000.

11.  Income Taxes

     At December 30, 2001, the Company has a net operating loss carryforward of
     approximately $9,059,000 for income tax purposes that expires in 2009
     through 2021, which may be used to reduce future income tax expense 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:

                                                December 30,     December 31,
                                                    2001             2000
                                                ------------     ------------

         Net operating loss carryforwards       $  3,602,485     $  3,399,479
         Book over (under) tax depreciation/
            Amortization                             223,207           88,011
         Deferred rent                               457,718          536,501
                                                ------------     ------------
         Deferred tax assets                       4,283,410        4,023,991
         Less: valuation allowance                (4,283,410)      (4,023,991)
                                                ------------     ------------
         Net deferred tax asset                 $          -     $          -
                                                ============     ============

                                       29

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


11.  Income Taxes (Continued)

     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 30, 2001 and December 31, 2000, respectively.

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 and approved by shareholders in June 1997, 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 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 implemented the plan in August 1998. During fiscal 2001, 2000
     and 1999, 38,279 shares, 27,744 shares and 15,050 shares, respectively,
     were issued under the plan.

     1996 Stock Option Plan
     ----------------------

     The 1996 Stock Option Plan was adopted by the Company's Board of Directors
     in September 1996 and approved by the shareholders in June 1997, 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 and range from
     five to ten years, with the ability to accelerate vesting upon the Company
     achieving certain performance measurements, as predetermined by the Board.
     The Company has reserved 1,750,000 shares of common stock for issuance
     under the plan. A total of 141,500, 163,000 and 600,400 options were
     granted under this plan during fiscal 2001, 2000 and 1999, respectively. A
     total of 264,800 options are outstanding under the plan at December 30,
     2001.

     Restaurant Operating Partners and Restaurant Management Team Programs
     ---------------------------------------------------------------------

     The Restaurant Operating Partner and Restaurant Management Team Programs
     were adopted by the Company's Board of Directors in December 1996 and
     implemented in fiscal year 1997. The programs provide for general managers
     (Operating Partners) 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, employees who became Operating Partners
     prior to January 4, 1999 were required to make an initial investment in
     discounted Company common stock, which may not be sold or otherwise
     transferred by the Operating Partner for a period of five years from the
     date of purchase. Should the

                                       30

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


12.  Stock Compensation Plans (Continued)

     Restaurant Operating Partners and Restaurant Management Team
     ------------------------------------------------------------
     Programs (Continued)
     --------

     Operating Partner's employment terminate for any reason other than death or
     disability, the company has the right to repurchase the stock from the
     Operating Partner for the amount of his or her investment. Employees who
     become Operating Partners between January 4, 1999 and December 31, 2001 are
     required to purchase 8,000 shares of Company common stock at market value
     and could potentially receive an annual award up to 10,000 shares of common
     stock, dependent upon achievement of performance criteria as established
     and evaluated by the Board. During 2001, the Board elected to pay $60,500
     in cash awards in lieu of stock to certain operating partners.

     On December 13, 2001, the Board amended the program such that employees who
     become Operating Partners beginning January 1, 2002 and thereafter are
     required to purchase 5,000 shares of Company common stock at market value
     and can potentially receive an annual award of a $5,000 contribution into a
     new 401(k) program and 3,000 shares of common stock, dependent upon
     achievement of performance criteria as established and evaluated by the
     Board. The 401(k) program will be established effective January 1, 2003.
     The first contribution to the 401 (k) program will consist of cash awards
     otherwise payable as of December 31, 2002.

     The plan also provided for annual restricted commons stock awards to Store
     Managers. In 1999, the Company determined that no future stock awards would
     be made to Store Managers subsequent to the January 1, 1999 stock award
     issuances.

     For employees who became Operating Partners prior to January 4, 1999, stock
     awarded at the end of the first year generally vests after the fourth
     anniversary of the award date. For each year thereafter, stock awards
     generally vest after the third anniversary of the award date. For employees
     who became Operating Partners between January 4, 1999 and December 31,
     2001, stock awarded at the end of the first year vests after the fifth
     anniversary of the award date, stock awarded at the end of the second year
     vests after the fourth anniversary of the award date, and stock awarded in
     each subsequent year vests after the third anniversary of each award date.
     For employees who became Operating Partners beginning January 1, 2002 and
     thereafter, stock awarded will vest in the same manner as the existing
     plan. However, for cash awards contributed into the 401(k) program,
     employees become fully vested after having performed five full years of
     service consisting of five full calendar years during which the employee
     works at least 1,000 hours starting with (i) the calendar year in which the
     plan is first established or (ii) if later, the calendar year in which the
     individual is first hired.

     The stock awards under these plans are awarded at the discretion of the
     Company's Board of Directors. The Company has reserved 415,000 shares of
     common stock for issuance under the plan. No shares were issued under the
     plan during fiscal years 2001, 2000 and 1999.

     Associate Ownership and Profit Sharing Plan--Year 2000
     ------------------------------------------------------

     The Associate Ownership and Profit Sharing Plan for the Year 2000, which
     was adopted by the Company's Board of Directors in December 1999 for
     implementation in fiscal year 2000 and amended in March 2001, provides for
     associates of each of the Company's restaurants to share in the profits of
     their restaurant and to participate as equity owners of the Company. All
     associates employed by the Company as of January 1, 2000

                                       31

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


12.  Stock Compensation Plans (Continued)

     Associate Ownership and Profit Sharing Plan--Year 2000 (Continued)
     ------------------------------------------------------

     were eligible to receive 100 shares of common stock if still employed by
     the Company on January 1, 2001. In addition, associates were also eligible
     to receive shares of common stock from each store's profit pools based on
     the numbers of hours worked by each employee during fiscal year 2000, with
     associates working 749 hours or less receiving no profit sharing;
     associates working between 750 and 1,499 hours receiving a one-half portion
     and associates working 1,500 hours or more receiving a full profit sharing
     portion. The Company has reserved 100,000 shares of common stock for
     issuance under the plan. The Company issued 79,536 shares of common stock
     on April 23, 2001 to participating employees.

     Associate Ownership and Profit Sharing Plan--Year 2001
     ------------------------------------------------------

     The Associate Ownership and Profit Sharing Plan for the year 2001 was
     adopted by the Company's Board of Directors in December 2000 for
     implementation in fiscal year 2001. As amended in March 2001, it provided
     for associates of each of the Company's restaurants to share in the profits
     of their restaurant. Eligible associates would receive common stock from
     each store's profit pool based on the numbers of hours worked by each
     associate during fiscal year 2001, with associates working 749 hours or
     less receiving no profit sharing; associates working between 750 and 1,499
     hours receiving a one-half portion and associates working 1,500 hours or
     more receiving a full profit sharing portion. Each associate was required
     to be employed by the Company on the last business day of fiscal year 2001
     in order to participate in the profit sharing.

     Pursuant to resolutions adopted by the Company's Board of Directors on
     December 13, 2001, the Company will pay the participants in cash rather
     than in shares of common stock. As of December 30, 2001, $37,700 has been
     accrued.

     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 September 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 with an
     exercise price at the fair market value of the common stock on the first
     day of each calendar quarter, and 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 records the transactions at the fair value of the
     options granted to the consultant, using the Black-Scholes option-pricing
     model. The Company has reserved 100,000 shares of common stock for issuance
     under the plan. During fiscal years 2001, 2000 and 1999, no options were
     issued to consultants under this plan. There are no options outstanding
     under the plan at December 30, 2001.

     The 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 September 1996 and approved by shareholders
     in June 1997, and continues in effect for 10 years. Under the plan, as
     originally adopted, each non-employee director was 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. The plan originally

                                       32

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


12.  Stock Compensation Plans (Continued)

     The 1996 Non-Employee Director Stock Option Plan (Continued)
     ------------------------------------------------

     provided that options granted under the plan would be exercisable at any
     time in whole or in part for a period of three years from date of grant,
     and would vest immediately. The plan was subsequently amended in 1999 to
     provide that each non-employee director shall be granted an option to
     purchase 4,000 shares of the Company's common stock at fair market value on
     the date of grant. The options are exercisable at any time in whole or in
     part commencing one year after the date of grant, and expire ten years
     after the date of grant. The Company has reserved 150,000 share of common
     stock for issuance under the plan. A total of 20,000, 20,000 and 27,000
     options were granted under this plan during fiscal years 2001, 2000 and
     1999, respectively. There are 5,000 options outstanding under the plan at
     December 30, 2001.

     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 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. 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 President
     of the Company. The plan expired in 2001, but all remaining options will
     remain outstanding for the balance of their terms. At December 30, 2001,
     193,276 options are outstanding and no options are available for future
     grants 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. 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 30, 2001, 34,271 options are outstanding and
     no options are available for future grants under the plan.

     The Company applies APB Opinion No. 25 and related Interpretations in
     accounting for its plans. Compensation cost charged against income under
     the Company's plans was $129,026, $160,142 and $108,627 for the fiscal
     years ended December 30, 2001, December 31, 2000 and January 2, 2000,
     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:

                                       33

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


12.  Stock Compensation Plans (Continued)

<TABLE>
<CAPTION>
                                                       Fiscal years ended
                                    --------------------------------------------------------
                                    December 30, 2001   December 31, 2001    January 2, 2000
                                    -----------------   -----------------   ----------------
<S>                                 <C>                 <C>                 <C>
     Net loss:
     As reported                    $      (1,899,451)  $      (4,195,564)  $       (971,879)
     Pro forma                      $      (2,139,290)  $      (4,388,557)  $     (1,164,133)

     Net loss per common share:
     As reported                    $          (0.16)   $           (0.36)  $          (0.08)
     Pro forma                      $          (0.18)   $           (0.38)  $          (0.10)
</TABLE>

     Options granted during the fiscal year ended December 30, 2001 were issued
     pursuant to the 1996 Non-Employee Director Stock Option Plan and the 1996
     Stock Option Plan. 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% and
     expected volatility of 140.94%. In addition, in estimating the fair value
     of the options granted under the 1996 Non-Employee Director Stock Option
     Plan and the 1996 Stock Option Plan, the following weighted-average
     assumptions were used: risk free interest rate of 4.88% and an expected
     life of 10 years.

     Options granted during the year ended December 31, 2000 were issued
     pursuant to the 1996 Non-Employee Director Stock Option Plan and the 1996
     Stock Option Plan. 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 assumption: dividend yield of 0.0% and
     expected volatility of 48.33%. In addition, in estimating the fair value of
     the options granted under the 1996 Non-Employee Director Stock Option Plan
     and the 1996 Stock Option Plan, the following weighted-average assumptions
     were used: risk free interest rate of 6% and an expected life ranging from
     3 to 10 years.

     Options granted during the year ended January 2, 2000 were issued pursuant
     to the 1996 Non-Employee Director Stock Option Plan and the 1996 Stock
     Option Plan. 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 assumption: dividend yield of 0.0% and
     expected volatility of 46.48%. In addition, in estimating the fair value of
     the options granted under the 1996 Non-Employee Director Stock Option Plan
     and the 1996 Stock Option Plan, the following weighted-average assumptions
     were used: risk free interest rate of 6% and an expected life ranging from
     3 to 10 years.

                                       34

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


12.  Stock Compensation Plans (Continued)

     A summary of the status of the Company's stock option plans as of December
     30, 2001, December 31, 2000 and January 2, 2000 and changes during the
     years ended on these dates is:

<TABLE>
<CAPTION>
                                          2001                          2000                          1999
                               --------------------------    --------------------------    --------------------------
                                               Weighted-                     Weighted-                     Weighted-
                                                Average                       Average                       Average
                                                Exercise                      Exercise                      Exercise
                                  Shares         Price          Shares         Price          Shares         Price
                               -----------    -----------    -----------    -----------    -----------    -----------
<S>                            <C>            <C>            <C>            <C>            <C>            <C>
     Shares reserved             2,279,721                     2,419,334                     2,426,735
                               ===========                   ===========                   ===========

     Options outstanding,
         beginning of year       2,115,734    $      1.28      2,114,671    $      1.35      1,691,291    $      1.51
     Granted                       161,500           0.30        183,000           0.96        627,400           1.02
     Exercised                     (15,352)        0.0003         (7,403)        0.0003              -              -
     Forfeited (1)              (1,712,361)        1.2241       (174,534)          1.31       (204,020)          1.63
                               -----------    -----------    -----------    -----------    -----------    -----------
                                                                                                    -
     Options outstanding,
         end of year               549,521    $      1.23      2,115,734    $      1.28      2,114,671    $      1.35
                               ===========    ===========    ===========    ===========    ===========    ===========

     Options exercisable at
         end of year               431,961                     1,191,249                      950,607

     Weighted-average fair
         value of options
         granted during the
         year                                 $      0.23                   $      0.77                   $      0.67

<FN>
     (1) Individuals holding an aggregate of 1,273,012 options agreed to
         surrender their options in return for new options to be issued with an
         exercise price at fair market value on July 31, 2002.
</FN>
</TABLE>

                                       35

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


12.  Stock Compensation Plans (Continued)

     The following table summarizes information about stock options outstanding
     at December 30, 2001.

<TABLE>
<CAPTION>
                                           Options Outstanding                            Options Exercisable
                         -------------------------------------------------------   ---------------------------------
                                                 Weighted           Weighted-                           Weighted-
                              Number             Average             Average           Number            Average
         Range of          Outstanding          Remaining           Exercise         Exercisable         Exercise
      Exercise Prices     at 12/30/2001     Contractual Life          Price         at 12/30/2001         Price
     -----------------   ---------------   -------------------   ---------------   ---------------   ---------------
<S>                      <C>               <C>                   <C>               <C>               <C>
     Less than $0.01             155,876             2.4 years   $        0.0003           155,876   $        0.0003
     $0.25 to $1.25              269,800             8.0 years             .6669           152,240            0.8603
     $2.25 to $3.60                8,335             1.3 years              3.60             8,335              3.60
     $4.05                       115,510            3.78 years              4.05           115,510              4.05
                         ---------------                                           ---------------

     $0.0003 to $4.05            549,521            5.45 years   $          1.23           431,961   $          1.46
                         ===============                                           ===============
</TABLE>


13.  Employee Benefit Plan

     The Company has a plan to provide retirement benefits under the provision
     of Section 401(k) of the Internal Revenue Code (the "Plan") for all
     employees who have completed one year of service and meet other criteria as
     described in the Plan Document. Benefits under the Plan are limited to the
     assets of the Plan. The Company may elect for any plan year to make a
     matching contribution of up to 100% of the employee's contribution, of the
     first 6% of the employee's compensation, as defined in the Plan Document.
     Employees may elect to contribute up to 15% of their eligible compensation
     on a pretax basis up to a prescribed maximum. During fiscal years 2001,
     2000 and 1999, the Company made no contributions to the Plan.

                                       36

<PAGE>

                        Silver Diner, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

            December 30, 2001, December 31, 2000 and January 2, 2000


14.  Quarterly Results of Operations (Unaudited)

     The following table summarized the consolidated quarterly results of
     operations for fiscal years 2001 and 2000:

     Year Ended December 30, 2001
     ----------------------------

     Quarters Ended:

<TABLE>
<CAPTION>
                                 April 22         July 15         October 7       December 30
                              -------------    -------------    -------------    -------------
<S>                           <C>              <C>              <C>              <C>
     Net Sales                $  9,377,756     $  7,532,777     $  7,595,300     $  7,327,419

     Operating loss           $   (738,198)    $   (728,705)    $   (107,529)    $   (313,603)

     Net loss                 $   (778,046)    $   (711,978)    $    (73,770)    $   (335,657)

     Basic and diluted
     loss per common share    $      (0.06)    $      (0.06)    $      (0.01)    $      (0.03)

     Weighted average
     Common shares
     outstanding                11,633,600       11,721,275       11,742,504       11,756,666
</TABLE>


     Year Ended December 31, 2000
     ----------------------------

     Quarters Ended:

<TABLE>
<CAPTION>
                                 April 23         July 16         October 8       December 31
                              -------------    -------------    -------------    -------------
<S>                           <C>              <C>              <C>              <C>
     Net Sales                $  8,840,179     $  7,522,294     $  7,681,668     $  7,515,394

     Operating loss           $   (770,237)    $   (587,397)    $   (461,817)    $ (2,381,909)

     Net loss                 $   (748,962)    $   (581,701)    $   (464,578)       2,400,323

     Basic and diluted
     loss per common share    $      (0.06)    $      (0.05)    $      (0.04)    $      (0.21)

     Weighted average
     Common shares
     outstanding                11,592,691       11,605,534       11,622,220       11,625,764
</TABLE>

                                       37

<PAGE>

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

NONE


PART III

Item 10. Directors and Executive Officers of the Company

         The Directors, Executive Officers and key employees of the Company are
as follows:

<TABLE>
<CAPTION>
         NAME              AGE      DIRECTOR SINCE                     POSITION
<S>                        <C>      <C>               <C>
Robert T. Giaimo           50           1996          Chairman of the Board, President, Chief
                                                      Executive Officer, and Treasurer
Catherine Britton          48           1996          Director
Michael Collier            47           1999          Director
Ype Von Hengst             51           1996          Director, Vice President, Executive Chef, and
                                                      Secretary
Edward H. Kaplan           63           1996          Director
Louis P. Neeb              62           1996          Director
Charles M. Steiner         60           1996          Director
</TABLE>

         ROBERT T. GIAIMO has been the Company's Chairman of the Board,
President, Chief Executive Officer and Treasurer since March 1996. In 1987 Mr.
Giaimo developed and popularized the Silver Diner concept with Ype Von Hengst
after conducting a one-year national tour of diner-style restaurants. Mr. Giaimo
has been the Co-Founder, Director, President, Chief Executive Officer and
Treasurer of Silver Diner Development, Inc. since its inception in 1987. Mr.
Giaimo was president, chief executive officer and director of Monolith
Enterprises, Inc. ("Monolith") from 1971 to January 1987. From 1972 through
1976, Mr. Giaimo co-founded and operated, through Monolith, Blimpies Restaurant
in Georgetown. In 1977, Mr. Giaimo co-founded and operated, through Monolith,
The American Cafe restaurant, an innovative, award-winning restaurant chain that
was one of the first restaurants to promote "American cuisine" and helped
popularize the croissant sandwich. In 1985, Mr. Giaimo sold The American Cafe to
W.R. Grace & Co. Mr. Giaimo graduated from the Business School of Georgetown
University in 1974 and Harvard University's Smaller Company Management Program
in 1982. He is a member of the Young President's Organization and serves as a
Director and Co-chairman of Development. In 1993, Mr. Giaimo received an
"Entrepreneur of the Year" award from Inc. Magazine in conjunction with Ernst &
Young and Merrill Lynch. Mr. Giaimo is married to Catherine Britton. Mr. Giaimo
currently serves on the board of directors of Panera Bread Co., a publicly
traded company headquartered in St. Louis, Missouri, with annual sales in excess
of $200 million.

         CATHERINE BRITTON has been a Director since March 1996 and was a
director of Silver Diner Development, Inc. from July 1995 until March 1996. She
assisted with marketing and design of Silver Diner restaurants and has been
involved with menu development and concept evolution since Silver Diner
Development, Inc.'s inception. She also participated extensively in the
development of Silver Diner restaurants. Ms. Britton graduated from Georgetown
University in 1975, receiving a Bachelor of Arts degree in Philosophy. Ms.
Britton earned a Masters Degree in Special Education from George Washington
University in 1978. Ms. Britton is married to Robert T. Giaimo.

         MICHAEL COLLIER has been a Director since March 1999. Mr. Collier is
the President of Uniwest Group, Inc. and Uniwest Construction, Inc., companies
which are in the real estate development and general

                                       38

<PAGE>

contracting business and serve as the developer and general contractor for the
Company's diners. He is also President of Atlantic Environmental Services,
Incorporated, a full-service environmental company.

         YPE VON HENGST has been a Director, Vice President, Executive Chef and
Secretary since March 1996 and co-founder, director, vice president of culinary
operations, and executive chef of Silver Diner Development, Inc. since 1987. Mr.
Hengst was a director of operations of "Dominiques" restaurant in Washington,
D.C. from May through September 1987. From 1984 to 1987, Mr. Hengst was
corporate executive chef and director for Food Service for The American Cafe and
was responsible for the central kitchen and bakeshop, menu changes, and food
preparation for all seven American Cafe restaurants. From 1981 to 1984, Mr.
Hengst was corporate executive chef for Restaurant Associates in New York, New
York, where he supervised over fifteen diverse full-service restaurants. From
1976 to 1981, Mr. Hengst held executive chef positions in Charlotte, North
Carolina, Cleveland, Ohio, Houston, Texas, and New York, New York. Prior to
1976, Mr. Hengst worked as a chef in Europe.

         EDWARD H. KAPLAN has been a Director since March 1996 and was a
director of Silver Diner Development, Inc. from 1987 until March 1996. He is a
real estate developer and investor and has served since 1983 as a Director of
Palmer National Bank, Washington, D.C. and subsequently, its successor, George
Mason Bankshares until April 2, 1998, when George Mason merged into United
Bankshares and now serves on the board of directors of United Bank of Virginia.
Mr. Kaplan received his B.A. from the University of Pennsylvania, Wharton School
in 1961. He currently is a member of the Maryland Public Television Commission
and the Maryland Public Television Foundation board of directors.

         LOUIS P. NEEB has been a Director since March 1996 and was a director
of Silver Diner Development, Inc. from 1994 until March 1996. Mr. Neeb is
currently President of Neeb Enterprises, Inc., a corporation that provides
management consulting services and Chairman of the Board of Mexican Restaurants,
Inc. He was the president and chief executive officer of The Spaghetti
Warehouse, Inc. from July 1991 until January 1994 and of Geest Food USA from
1989 until 1991. From 1982 until 1987, he served as president and chief
executive officer of Creative Food N Fun, a subsidiary of W.R. Grace & Co. From
1985 until 1987, he served as president and chief executive officer of a W.R.
Grace & Co., affiliate; Taco Villa, Inc. Mr. Neeb was employed by The Pillsbury
Company from 1973 until 1982. From 1980 to 1982, he served as an executive vice
president of The Pillsbury Company and as chairman and chief executive officer
of its affiliate, Burger King Corporation. In 1973, he was director of
operations at Steak & Ale Restaurants, Inc., another affiliate of The Pillsbury
Company. His leadership role with Steak & Ale Restaurants, Inc. continued until
1980, after serving as vice president of operations and eventually president and
chief operating officer. Currently, Mr. Neeb serves as a director of CEC
Entertainment and Franchise Finance Corporation of America, Inc., both publicly
traded companies. Mr. Neeb received a BBA in marketing from the University of
Notre Dame in 1961 and an MBA from George Washington University in 1969.

         CHARLES M. STEINER has been a Director since March 1996. Mr. Steiner
was a director of Silver Diner Development, Inc. from 1987 until March 1996. He
was the chief executive officer of Branch Group, Inc., an electric distributor.
In 1975, Mr. Steiner founded IMARK, an electric cooperative, and in 1991 founded
EDIC, a distribution insurance company. He is a former director and officer of
the National Association of Electric Distributors (NAED). He received a B.B.A.
in Accounting from the University of Pittsburgh in 1963. Mr. Steiner is
currently a private investor.

         There is no family relationship between any of the Company's directors
or officers except that Catherine Britton is the wife of Robert T. Giaimo. There
are no arrangements between any director of the Company and any other person
pursuant to which he was selected as a director.

                                       39

<PAGE>

NON-DIRECTOR EXECUTIVE OFFICER

         PATRICK MESKELL has been Executive Vice President, Operations, since
May 2001. From January 1996 to May 2001 he held the position of Senior Vice
President, Human Resources. Mr. Meskell was an independent consultant to
institutions, specializing in the areas of risk management system 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.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         To the Company's knowledge, based solely upon a review of reports and
other information furnished to it by its directors, officers, greater than 10%
beneficial owners of the Company, and other persons subject to the reporting
requirements (collectively, the "Reporting Persons"), all reports required to be
filed by such Reporting Persons under Section 16(a) of the Securities Exchange
Act of 1934, as amended, were duly filed during the year ended December 31,
2001, with one exception. Michael Collier, a director, exercised an option for
8,861 shares of Common Stock on August 6, 2001 but did not file a Form 4 during
September 2001 reporting such exercise. A Form 4 covering this transaction was
filed on February 15, 2002.

Item 11. Executive Compensation

         The following table sets forth summary information concerning
compensation paid by the Company to each of the Company's executive officers
whose aggregate annual cash compensation exceeded $100,000 for fiscal year 2001.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                              Annual Compensation                         Long-Term Compensation
                                      ---------------------------------- ---------------------------------------------------------
                                                                                     Awards                       Payouts
                                                                         ------------------------------- -------------------------
                                                                                           Securities
                                                           Other Annual    Restricted      Underlying       LTIP      All Other
                                        Salary     Bonus   Compensation      Stock          Options/      Payouts    Compensation
Name and Principal Position    Year       ($)       ($)         ($)       Award(s)($)       SARS($)         ($)          ($)
----------------------------- ------- ------------ ------ -------------- ------------- ----------------- --------- ---------------
<S>                           <C>     <C>          <C>    <C>            <C>           <C>               <C>       <C>
Robert T. Giaimo               2001    278,043       0        18,000            0                0 (1)       0         67,842 (2)
Chairman of the Board,         2000    268,697       0        18,000            0                0           0         57,827 (2)
President, Chief Executive     1999    258,315       0        18,000            0                0           0         57,061 (2)
Officer and Treasurer

Ype Von Hengst                 2001    158,495       0        26,000            0                0 (3)       0         32,135 (5)
Director, Vice President,      2000    153,029       0        26,000            0                0           0         27,535 (5)
Executive Chef and Secretary   1999    145,173       0        26,000            0          150,000 (4)       0         27,535 (5)


Patrick Meskell                2001    140,857       0         6,000            0                0 (6)       0              0
Executive VP, Operations       2000    109,769       0         6,000            0                0           0              0
                               1999    101,769     5,000       6,000            0          200,000 (7)       0              0

Jon Abbott                     2001    138,481(11)   0         2,500            0                0           0         32,500 (10)
Vice President, Operations     2000    103,846       0         4,500      100,000 (8)      100,000 (9)       0              0
                               1999          0       0             0            0                0           0              0
</TABLE>

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

(1)      Pursuant to resolutions unanimously approved by the Company's Board of
         Directors on December 19, 2001, Mr. Giaimo agreed to surrender for
         cancellation options for 400,000 shares exercisable at $1.2375 per
         share, expiring on December 14, 2003 and which would have become 100%
         exercisable at December

                                       40

<PAGE>

         29, 2001. The Board agreed to grant Mr. Giaimo new options for 400,000
         shares on July 31, 2002, which options will (i) have an exercise price
         equal to 110% of the fair market value of the shares on July 31, 2002
         (or February 1, 2003, as applicable), (ii) be 100% vested on July 31,
         2002 (or February 1, 2003, as applicable) and (iii) expire on July 30,
         2007, provided that Mr. Giaimo has the right at any time prior to July
         31, 2002 to elect, for federal income tax purposes, to delay until
         February 1, 2003 issuance of a portion of the new options to be issued
         to him.

(2)      Represents the annual premiums the Company paid on a $3,000,000 split
         dollar life insurance policy on the life of Mr. Giaimo.

(3)      Pursuant to resolutions unanimously approved by the Company's Board of
         Directors on December 19, 2001, Mr. Von Hengst agreed to surrender for
         cancellation options for an aggregate of 355,000 shares, as follows:
         (i) an option for 150,000 shares, which would have become 100%
         exercisable at $1.125 per share on December 29, 2001 and expiring on
         December 28, 2007: (ii) an option for 55,000 shares, exercisable at
         $0.625 per share on December 31, 2005 and expiring on December 15,
         2008; and (iii) an option for 150,000 shares, exercisable at $1.00 per
         share, with 60% becoming exercisable on January 1, 2002, 80% on January
         1, 2003 and 100% on January 1, 2004, and expiring on December 7, 2009.
         The Board agreed to grant Mr. Von Hengst new options for an aggregate
         355,000 shares on July 31, 2002, which options will (i) have an
         exercise price equal to the fair market value of the shares on July 31,
         2002 (or February 1, 2003, as applicable) and (ii) vest on the same
         dates and expire on the same dates as would have the
         previously-described canceled options, provided that Mr. Von Hengst has
         the right at any time prior to July 31, 2002 to elect, for federal
         income tax purposes, to delay until February 1, 2003 issuance of a
         portion of the new options to be issued to him.

(4)      Option was canceled pursuant to resolutions approved by the Company's
         Board of Directors on December 19, 2001, as described in Note 3.


(5)      Represents the annual premiums the Company paid on a $1,500,000 split
         dollar life insurance policy on the life of Mr. Von Hengst.

(6)      Pursuant to resolutions unanimously approved by the Company's Board of
         Directors on December 19, 2001, Mr. Meskell agreed to surrender for
         cancellation options for an aggregate of 430,012 shares as follows: (i)
         an option for 100,000 shares, which would have become 100% exercisable
         at $1.125 per share on December 29, 2001 and expiring on December 28,
         2007; (ii) an option for 55,000 shares, exercisable at $0.625 per share
         on December 31, 2005 and expiring on December 15, 2008; (iii) an option
         for 200,000 shares, exercisable at $1.00 per share, with 60% becoming
         exercisable on January 1, 2002, 80% on January 1, 2003 and 100% on
         January 1, 2004 and expiring on December 7, 2009; and (iv) an option
         for 75,012 shares exercisable at $4.05 per share on the date of
         cancellation and expiring on December 30, 2005. The Board agreed to
         grant Mr. Meskell new options for an aggregate 430,012 shares on July
         31, 2002, which options will (i) have an exercise price equal to the
         fair market value of the shares on July 31, 2002 (or February 1, 2003,
         as applicable) and (ii) vest on the same dates and expire on the same
         dates as would have the previously-described canceled options, provided
         that Mr. Meskell has the right at any time prior to July 31, 2002 to
         elect, for federal income tax purposes, to delay until February 1, 2003
         issuance of a portion of the new options to be issued to him.

(7)      Option was canceled pursuant to resolutions approved by the Board of
         Directors on December 19, 2001 as described in Note 6.

(8)      Mr. Abbott acquired 100,000 shares in connection with his initial
         employment in March of 2000 by the Company, for an aggregate purchase
         price of $50,000, representing 50% of the fair market value of the

                                       41

<PAGE>

         shares on March 24, 2000, i.e. 50% of $1.00 per share. Under the terms
         of Mr. Abbott's employment agreement, the Company had the right to buy
         back the shares at their purchase price within 60 days if Mr. Abbott
         terminated his employment with the Company during the first three
         years. Also, the Company had the right to apply up to 55,000 of the
         shares purchased by Mr. Abbott from the Company, at the original
         purchase price of $0.50 per share, to repay the outstanding balance on
         a non-interest bearing promissory note from Mr. Abbott to the Company
         in the amount of $32,500, if Mr. Abbott terminated his employment with
         the Company prior to December 31, 2001. The proceeds of the promissory
         note were used by Mr. Abbott to defray moving expenses. Following the
         termination of Mr. Abbott's employment by the Company on May 24, 2001,
         the Company elected not to purchase any of the foregoing shares and
         waived repayment by Mr. Abbott of any outstanding balance due under the
         foregoing promissory note.

(9)      Consists of an option to purchase 100,000 shares at $1.00 per share
         through March 23, 2010, which vested as follows: 30,000 shares on
         December 31, 2001, 20,000 shares on December 31, 2002, 20,000 shares on
         December 31, 2003, and 30,000 shares on December 31, 2004. The option
         expired on May 24, 2001, upon the termination of Mr. Abbott's
         employment on that date.

(10)     Upon the termination of Mr. Abbott's employment on May 24, 2001, the
         Company forgave the $32,500 promissory note referenced in note 8 above.

(11)     Mr. Abbott's employment terminated on May 24, 2001. Per the terms of
         his employment contract, Mr. Abbott's salary was continued until
         November 18, 2001. $72,115 of his salary was paid after the May 24,
         2001 termination.

STOCK OPTIONS

No stock appreciation rights have been granted or are outstanding. No stock
options were granted to the Company's executive officers during the year ended
December 31, 2001.

Pursuant to resolutions unanimously adopted by the Company's Board of Directors
as of December 19, 2001, the Company has agreed to grant options to the
following individuals on July 31, 2002, or on February 1, 2003, if the
individual elects to defer the grant date of a portion of the options to enable
the options to qualify for federal income tax purposes as incentive stock
options, for the following number of shares: (i) Robert T. Giaimo: 400,000
shares; (ii) Ype Von Hengst: 355,000 shares; and (iii) Patrick Meskell: 430,012
shares. The Company agreed to grant these options, which are more fully
described in Notes 1, 3 and 6 of the Summary Compensation Table included in this
Proxy Statement, in connection with the cancellation of equal numbers of options
held by the foregoing individuals. The following table provides information as
to the outstanding options at December 30, 2001 held by the following executive
officers. No stock appreciation rights are outstanding.

                                       42

<PAGE>

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR END OPTION/SAR VALUES


<TABLE>
<CAPTION>
                                                   Number of Securities Underlying               Value of Unexercised
                                                     Unexercised Options/SARS at              In-the-money Options/SARs
                                                           Fiscal Year End                      at Fiscal Year End (*)
                                                   -------------------------------          ------------------------------
                       Shares
                      Acquired
                         On           Value
     Name           Exercise (#)   Realized ($)  Exercisable (#)  Unexercisable (#)    Exercisable ($)       Unexercisable ($)
----------------    ------------   ------------  ---------------  -----------------    ---------------       -----------------
<S>                 <C>            <C>           <C>              <C>                  <C>                   <C>
Robert T. Giaimo         0              0                0                0                    0                     0
Ype Von Hengst           0              0                0                0                    0                     0
Patrick Meskell          0              0           25,004                0                4,993                     0

<FN>
(*)  Represents the difference between the fair market value of the Shares
     subject to the options, based on the closing price of $0.20 for the Shares
     on December 28, 2001 (the final trading day for the fiscal year ended
     December 30, 2001), and the exercise prices of the options.
</FN>
</TABLE>

BENEFIT PLANS

         The Company provides insurance benefits to its officers and other
employees, including health, dental, and life insurance, subject to certain
deductibles and co-payments by employees.

EMPLOYMENT AGREEMENTS

FOUNDER'S EMPLOYMENT AGREEMENT. The Company and Robert T. Giaimo entered into a
Founder's Employment Agreement on August 28, 1995, effective as of March 27,
1996, and amended on November 9, 1998. The base compensation under the Founder's
Employment Agreement is $240,000 per annum, increased annually at a minimum
amount equal to the increase in the Consumer Price Index for the Washington,
D.C., Maryland, and Virginia metropolitan area (the "Base Compensation").
Benefits under the agreement include four weeks paid vacation, health and dental
insurance, life and disability insurance, director and officer liability
insurance and a $3,000,000 "split-dollar" life insurance agreement. Perquisites
include an up to $500 per month car allowance, an education fee of $1,000 per
month, and free shift meals.

         The Founder's Employment Agreement had an initial term of five years
and, starting on its first anniversary, was renewable for five years from each
anniversary. If at any such anniversary the Board does not renew, the agreement
will expire five years from such anniversary (the five-year period beginning on
such anniversary is referred to as the "Expiration Term"). The Founder's
Employment Agreement was renewed on December 15, 1999 and, as renewed, expires
in March 2005.

         During the Expiration Term, Mr. Giaimo may, upon at least sixty days
prior written notice, terminate the Founder's Employment Agreement immediately
and such termination shall be an "Involuntary Resignation." If an Involuntary
Resignation occurs, Mr. Giaimo shall be entitled to a severance amount equal to:
(i) his base compensation, including all bonuses, for the immediately preceding
fiscal year (the "Annual Amount"), (ii) divided by 365, and (iii) multiplied by
the number of days remaining in the Expiration Term, provided that the severance
amount paid to Mr. Giaimo due to an Involuntary Resignation shall not exceed
three times the Annual Amount.

                                       43

<PAGE>

         Mr. Giaimo may also terminate the agreement by reason of a material
breach by the Company (as specified in the Founder's Employment Agreement). If
Mr. Giaimo terminates the Founder's Employment Agreement within the first five
years of the agreement for a material breach by the Company, he shall be
entitled to receive the Annual Amount multiplied by ten. If the material breach
occurs after the first five years of the agreement, the Annual Amount shall be
multiplied by five. Additionally, if a termination for a material breach occurs
prior to the earlier of (i) the end of the first five years of the agreement, or
(ii) the completion of an underwritten public offering of the Company's Shares
from which it realizes $15,000,000, then the Company shall be obligated, at the
employee's option, to purchase all of Mr. Giaimo's Shares at fair market value.

         The Company may terminate the agreement upon the death or disability of
Mr. Giaimo or for cause. If terminated for death, the Mr. Giaimo's estate shall
be entitled to receive all accrued compensation plus a severance amount equal to
one year's Base Compensation (as adjusted to the date of death). The decedent's
family will also be provided health insurance for one year from date of death.
If terminated for disability, Mr. Giaimo shall be entitled to receive all
accrued compensation plus a severance amount equal to his then current Base
Compensation for a period of five years, but reduced dollar for dollar by all
amounts received by the employee under disability insurance. If terminated for
cause, Mr. Giaimo shall be entitled to receive all accrued compensation.

EXECUTIVE EMPLOYMENT AGREEMENT. The Company and Ype Von Hengst entered into an
Employment Agreement effective as of November 9, 1998. The base salary under the
Employment Agreement is $125,000 per annum through December 31, 1998, $150,000
per annum from January 1, 1999 through December 31, 1999, and increased annually
at a minimum amount equal to the increase in the Consumer Price Index for the
Washington, D.C., Maryland, and Virginia metropolitan area beginning January 1,
2000 (the "Base Salary"). Benefits under the agreement include health and dental
insurance, life and disability insurance, and participation in stock options,
bonus plans and other benefit plans customarily made available to executive
employees of the Company.

         In consideration of Mr. Von Hengst entering into the agreement, the
Company extended a $100,000 non-recourse loan (the "Loan") to Mr. Von Hengst,
subject to his execution of a promissory note and secured by his 182,881 Shares
in the Company (the "Collateral"). Beginning December 31, 1999, Mr. Von Hengst
is also entitled to an annual bonus of an amount equal to $20,000 plus accrued
and unpaid interest on the Loan (the "Bonus"). The Bonus is not paid directly to
Mr. Von Hengst, but is applied to repay the outstanding principal and interest
under the Loan. The term of the Employment Agreement is from November 9, 1998 to
December 31, 2003.

         Under the Employment Agreement, Mr. Von Hengst agrees, except as
required by the performance of his duties, not to disclose or use any
Confidential Information of the Company or its affiliates, which is defined as
all information disclosed to him or known by him as a consequence of or through
his employment with the Company where such information is not generally known in
the trade or industry and where such information refers or relates in any manner
to the business activities of the Company. During the term of the Employment
Agreement and for a period of twelve consecutive months after the termination of
the Employment Agreement, Mr. Von Hengst agrees, except as required by the
performance of his duties, not to induce, attempt to induce, counsel, advise,
solicit or encourage any person to leave the employ of the Company or, with
respect to any person who had left the employ of the Company within the previous
six months, not to engage in any of the above activities in connection with such
former employee's acceptance of employment with any person or entity other than
the Company. For a period of twelve consecutive months after the termination of
the Employment Agreement for any reason other than a termination without cause,
Mr. Von Hengst agrees not to (i) engage in the "diner business" anywhere in the
United States; (ii) engage in competition with the Company within a 10 mile
radius of any Company owned or franchised facility or planned facility; or (iii)
directly or indirectly, either individually or in any other capacity, work for,
consult with or otherwise assist Movenpick, its parent corporation, affiliates
and subsidiaries, in the development of "diners."

         Mr. Von Hengst may terminate his Employment Agreement at any time upon
sixty days written notice ("Voluntary Resignation"). Upon receipt of such
notice, the Company may elect to relieve Mr. Von Hengst of any or all of his
duties or terminate him immediately. The Company may terminate the agreement for
cause (as that term is

                                       44

<PAGE>

defined in the Employment Agreement), upon the death or disability of Mr. Von
Hengst, or without cause. If the agreement is terminated by Voluntary
Resignation or for cause, (i) the Company's obligation to pay the Base Salary,
Bonus and medical benefits shall cease immediately on the date of termination;
and (ii) the principal balance under the Loan shall be extinguished, and all
right, title and interest in the Collateral shall vest immediately with the
Company. If the agreement is terminated for death (i) the Company's obligation
to pay the Base Salary, Bonus and medical benefits shall cease immediately on
the date of termination; and (ii) the principal balance under the Loan shall be
extinguished, and all right, title and interest in the Collateral shall vest
with Mr. Von Hengst (or his estate or heirs). If terminated for disability,
defined as the inability to perform the essential function of the job, with or
without accommodation, for at least 180 consecutive days, (i) Mr. Von Hengst's
right to the Base Salary and Bonus shall cease on the date of termination, (ii)
the Company shall make the medical benefits available to Mr. Von Hengst for a
period of eighteen months following termination, the costs of which shall be
paid by the Company for the first twelve months of such period; and (iii) the
principal balance under the Loan shall be extinguished, and all right, title and
interest in the Collateral shall vest with Mr. Von Hengst (or his estate or
heirs). If terminated without cause, (i) Mr. Von Hengst shall be entitled to the
Base Salary, Bonus, and medical benefits for a one year period commencing with
the date of termination; and (ii) the principal balance under the Loan shall be
extinguished, and all right, title and interest in the Collateral shall vest
with Mr. Von Hengst (or his estate or heirs).

         OFFICER EMPLOYMENT AGREEMENTS. The Company has an employment agreement
with Patrick Meskell through March 4, 2004. Although the agreement was not
amended, Mr. Meskell was promoted from Senior Vice President, Human Resources,
to Executive Vice President, Operations with an increase in his base salary to
$150,000, with future adjustments to his base salary to be determined by the
Board. In addition, he is entitled to (i) participate in bonus and stock option
plans made available to executive employees of the Company; (ii) receive a $500
per month car allowance, (iii) receive life insurance coverage of $500,000; (iv)
participate in group health and dental plans generally offered to employees of
the Company; (v) receive long term disability insurance coverage in amount of
approximately 60% of the employee's base salary per month, subject to a 90 day
initial waiting period; (vi) receive three weeks paid vacation that does not
accrue or carry over from one year to the next; and (vii) receive sick leave and
other benefits, in accordance with the Company's policies for its executives.
The employee has a confidentiality and non-competition agreement with the
Company.

         The agreement is terminable at any time by either party thereto.
However, if the Company terminates the agreement, the Company will pay the
employee all base salary earned but unpaid on the date of resignation plus three
months base salary. If the employee resigns and provides at least three months
notice, the Company will pay the employee all base salary earned but unpaid on
the date of resignation plus three months base salary payable after resignation
on the same schedule as the salary that was paid before resignation. If the
employee resigns without providing at least three months prior notice, (i) all
stock options and all stock purchase rights granted under the Stock Option Plan
to the employee (a) subsequent to March 1, 1999, (b) on December 15, 1997, and
(c) to Mr. Meskell on December 29, 1997 will be terminated on the date of
resignation; and (ii) the employee will sell and the Company will purchase all
Shares of the Company acquired by the employee pursuant to stock options or
stock purchase rights within six months prior to the date of resignation at a
purchase price equal to the price paid for the Shares.

NON-EMPLOYEE DIRECTOR COMPENSATION

         During the year ended December 31, 2001, each of the Company's
non-employee directors received an option to purchase 4,000 Shares on June 15,
2001 under the 1996 Non-Employee Director Stock Option Plan. Such options were
exercisable at a price equal to 100% of the fair market value on the date of
grant, and were to vest at any time, in whole or in part for period of ten years
beginning one year after the date of the grant. Pursuant to resolutions
unanimously approved by the Company's Board of Directors on December 19, 2001,
each non-employee director agreed to surrender for cancellation options for an
aggregate of 12,000 shares under the 1996 Non-Employee Director Stock Option
Plan, including the foregoing options, as follows: (i) an option for 4,000
shares, fully vested, exercisable at $1.00 per share and expiring on June 17,
2009; (ii) an option for 4,000 shares, fully vested, exercisable at $0.844 per
share and expiring on June 15, 2010; and (iii) an option for 4,000 shares,

                                       45

<PAGE>

exercisable at $0.40 per share beginning on June 15, 2002 and expiring on June
14, 2011. In addition, Mr. Kaplan and Mr. Steiner each also agreed to surrender
for cancellation an option under the Second Amended and Restated 1991 Stock
Option Plan for 5,000 shares, fully vested, exercisable at $4.05 per share and
expiring on December 30, 2005. The Board agreed to grant each non-employee
director new options under the 1996 Stock Option Plan on July 31, 2002,
exercisable for the same number of shares as those that were canceled, and
having the same vesting and termination terms as the canceled options, but which
will have exercise prices equal to the fair market value of the shares on July
31, 2002. Also pursuant to the foregoing resolutions, all non-employee
directors, except for Mr. Collier, each agreed to cancel the following options
for an aggregate of 2,000 shares under the 1996 Non-Employee Director Stock
Option Plan in exchange for new options under the 1996 Stock Option Plan with
similar vesting and exercise prices, but which do not expire until December 18,
2011: (i) a fully vested option for 1,000 shares exercisable at $0.8125 per
share and expiring December 31, 2001; and (ii) a fully vested option for 1,000
shares exercisable at $0.938 per share and expiring March 31, 2002. Mr. Collier
agreed to the cancellation of his option for 1,000 shares under the 1995
Non-Employee Director Stock Option Plan, fully vested and exercisable at $0.938
per share and expiring March 31, 2002, in exchange for a new option for 1,000
shares under the 1996 Stock Option Plan, fully vested on the date of grant,
exercisable at $0.938 per share and which expires on December 18, 2011.

           Other than the option grants and the reimbursement of certain
expenses, non-employee directors received no other compensation for service as
directors for the year ended December 30, 2001. Mr. Louis Neeb received $2,000
in 2001 as payment for consulting services.

                                       46

<PAGE>

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

         As of December 30, 2001, the Company had 11,761,004 Shares issued and
outstanding. The following table sets forth, to the Company's knowledge as of
December 30, 2001, the beneficial ownership of Shares by each person or entity
beneficially owning more than 5% of the Shares, each director, each nominee, and
certain executive officers, individually, and all directors and executive
officers as a group.

<TABLE>
<CAPTION>
                                                                        Amount and Nature of
            Name and Address (1) of Beneficial Owner                  Beneficial Ownership (2)      Percent (3)
            ----------------------------------------                  ------------------------      -----------
<S>                                                                   <C>                           <C>
Catherine Britton .................................................        2,463,612 (4)                20.94

Michael Collier ...................................................           79,926 (5)                   *

Robert T. Giaimo ..................................................          409,065 (6)                 3.48

Ype Von Hengst ....................................................          183,881 (7)                 1.56


Edward H. Kaplan ..................................................        1,002,000 (8)                 8.52

Patrick Meskell ...................................................           72,574 (9)                   *

Louis P. Neeb .....................................................           14,572 (10)                  *

Charles M. Steiner ................................................          566,729 (11)                4.82


All directors and executive officers as a group (8 persons)........        4,792,359 (12)               40.53


<FN>
"*" means less than 1%

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

(1)      The address for each beneficial owner listed above is Silver Diner,
         Inc., 11806 Rockville Pike, Rockville, Maryland 20852.

(2)      Unless otherwise stated in Notes 4 through 12 below, all references to
         options are to options exercisable currently and within 60 days of
         December 30, 2001.

(3)      Each percentage of beneficial ownership is calculated using a different
         denominator, consisting of the total number of Shares outstanding
         (11,761,004), increased by the number of options owned by the
         beneficial owner that are exercisable within 60 days. The denominator
         used to calculate the percentage of beneficial ownership of all
         directors and executive officers as a group is the sum of the total
         number of Shares outstanding (11,761,004) and all outstanding options
         held by directors and executive officers that are exercisable within 60
         days.
</FN>
</TABLE>

                                       47

<PAGE>

(4)      Includes: (a) 2,443,609 directly owned Shares; (b) options to purchase
         2,000 Shares granted under the 1996 Stock Option Plan, 1,000 of which
         have an exercise price of $0.8125 per share, and 1,000 of which have an
         exercise price of $0.938 per share; and (c) 20,003 shares assigned to
         Ms. Britton by Robert T. Giaimo which are subject to an option held by
         Mr. Clinton A. Clark at an exercise price of $3.60 per share through
         April 5, 2004. Does not include 409,065 shares beneficially owned by
         Mr. Giaimo, Ms. Britton's spouse. Ms. Britton disclaims beneficial
         ownership of the Shares beneficially owned by Mr. Giaimo.

(5)      Includes (a) 61,658 directly owned shares; (b) options to purchase
         17,268 shares granted under the 1991 Stock Option Plan at an exercise
         price of $.003 per share; and (c) options to purchase 1,000 shares
         granted under the 1996 Stock Option Plan at an exercise price of $0.938
         per share.

(6)      Includes 409,065 directly owned shares. Does not include any shares
         beneficially owned by Catherine Britton, Mr. Giaimo's spouse. Mr.
         Giaimo disclaims any beneficial ownership of shares beneficially owned
         by Catherine Britton

(7)      Includes 183,881 directly owned shares.

(8)      Includes: (a) 1,000,000 directly owned Shares; and (b) options to
         purchase 2,000 shares granted under the 1996 Stock Option Plan, 1000 of
         which have an exercise price of $0.8125 per share, and 1,000 of which
         have an exercise price of $0.938 per share.

(9)      Includes: (a) 47,570 directly owned Shares; and (b) options to purchase
         25,004 Shares granted under the Earned Ownership Plan at an exercise
         price of $.0003 per Share.

(10)     Includes: (a) options to purchase 12,572 shares granted under the 1991
         Stock Option Plan at the exercise price of $.003 per share; and (b)
         options to purchase 2,000 shares granted under the 1996 Stock Option
         Plan, 1,000 of which have an exercise price of $0.8125 per share, and
         1,000 of which have an exercise price of $0.938 per share.

(11)     Includes: (a) 564,729 Shares held of record by the Steiner Family
         Partnership (Mr. Steiner owns a 25% interest in and is the managing
         partner of The Steiner Family Partnership and, therefore, may be deemed
         to beneficially own all Shares held of record by such partnership.
         Except to the extent of his 25% ownership interest in The Steiner
         Family Partnership, Mr. Steiner disclaims beneficial ownership of such
         Shares); and (b) options to purchase 2,000 Shares under the 1996 Stock
         Option Plan, 1,000 of which have an exercise price of $0.8125 per
         share, and 1,000 of which have an exercise price of $0.938 per share.

(12)     The total Shares beneficially owned by all directors and executive
         officers as a group was calculated by taking the sum of all Shares
         beneficially-owned by each director and executive officer, as reflected
         in the table.

Item 13. Certain Relationships and Related Transactions.

         SILVER DINER POTOMAC MILLS, INC. Pursuant to lease agreements dated
October 14, 1991 and May 27, 1992, the Company leases the Silver Diner
restaurant in Potomac Mills, Virginia (the "Potomac Mills Restaurant") from
Silver Diner Potomac Mills, Inc ("SDPMI"), a corporation wholly owned by Robert
T. Giaimo, the Chairman and President of the Company. The leases require the
payment of an annual base rent, with annual adjustments based on the Consumer
Price Index, and the payment of percentage rent based on gross receipts. The
leases expire in late 2011. For the years ended December 30, 2001, December 31,
2000 and January 2, 2000, occupancy costs were $515,050, $356,000 and $360,000
respectively, under terms of the leases.

                                       48

<PAGE>

         ROBERT GIAIMO DEVELOPMENT, INC. On June 17, 1997, the Company purchased
from Robert Giaimo Development, Inc. ("RGDI"), a corporation wholly owned by
Robert T. Giaimo, the Chairman and President of the Company, an undivided 70%
interest in the parcel of land used as a parking lot for the Potomac Mills
Restaurant. The total purchase price of the land was $408,000, of which $267,000
was borrowed from a bank, secured by the land, bearing interest at the prime
rate (4.75% at December 31, 2001), and matures in June 2003.

         The Company assumed a management agreement entered into between RGDI
with SDPMI (the "Management Agreement"), which provides that the Company is the
exclusive manager of the Potomac Mills Restaurant, is entitled to receive all of
the net profits (as defined in the Management Agreement) from the Potomac Mills
Restaurant, and is responsible for paying all operating costs and expenses of
the restaurant, including rent. The Management Agreement is unlimited in
duration and can only be terminated by mutual agreement of the Company and
SDPMI, or following notice that the Company failed to meet its management
obligations and responsibilities. RGDI has granted the Company an option to
purchase the Potomac Mills Restaurant for an amount equal the fair market value,
on the date of purchase, as determined by an appraisal.

         LOAN TO YPE VON HENGST. In connection with his entering into an
employment agreement with the Company on November 9, 1998, Ype Von Hengst, a
Director and officer of the Company, received a $100,000 loan from the Company,
secured by his 182,881 Shares in the Company and bearing interest at 5.25%
annually. The loan and accrued interest is to be repaid annually by applying an
annual bonus received by Mr. Von Hengst beginning December 31, 1999. At December
30, 2001 $40,000 was outstanding.

         MICHAEL COLLIER AND UNIWEST GROUP, INC. AND AFFILIATES The Company has
from time to time entered into contracts with Michael Collier, a Director, and
with Uniwest Group, Inc., a construction company and certain of its affiliates,
of which Michael Collier is President and a stockholder. The company paid
$193,191 to Uniwest Construction for miscellaneous construction and renovation
of the existing diners. The Company paid Uniwest Management Inc., which manages
the real estate operations for the Merrifield diner, approximately $210,000 for
rent and real estate taxes. No consulting fees were paid to Mr. Collier in 2001.
At December 30, 2001, $11,796 is payable to the Director and affiliates of the
Director.

         In 1995, the Company entered into a ground lease with 2909 Gallows LC,
landlord, covering the Merrifield facility. The landlord is a partnership in
which Michael Collier owns a significant limited partnership interest. The lease
provides for minimum annual rent of $110,000 in 1998 with fixed escalations in
rent payments over the lease term through 2012.

         Uniwest Construction, Inc. acted as the general contractor for the
construction of the diner on the Merrifield property. Michael Collier was not a
director of the Company when the lease and construction contract were entered
into.

                                       49

<PAGE>

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..................................................................   18

Consolidated Financial Statements:

Consolidated Balance Sheets as of
December 30, 2001 and December 31, 2000..........................................................   20

Consolidated Statements of Operations for the
Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000......................   21

Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000......................   22

Consolidated Statements of Cash Flows for the
Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000......................   23

Notes to Consolidated Financial Statements.......................................................   25
</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
--------------    -----------------------

3.                Articles of incorporation and bylaws

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

3.2               Company's Bylaws incorporated by reference to Exhibit 3.3 of
                  the Company's Form S-4 (File No. 33-8844).

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

9.1               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 Company's Form 8-K dated
                  March 27, 1996.

                                       50

<PAGE>

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

9.3               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 Company'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 Company'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 Company'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 Company'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 Company's Form 8-K dated
                  March 27, 1996.

10.4.1            Amendment No. 2, effective as of July 1, 1997 to Lease
                  Agreement dated May 27, 1992 by and between Robert Giaimo
                  Development, Inc., as Landlord, and Silver Diner Potomac
                  Mills, Inc., as tenant, as amended.*

                  Towson, Maryland

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

10.5.1            Lease Termination Agreement between Towson Town Center
                  Associates (Landlord) and the

                                       51

<PAGE>

                  Company dated November 16, 2001 effective November 30, 2001.

                  Fair Lakes, Virginia (Fair Oaks)

10.6              Ground Lease Agreement between F.L. Promenade L.P. (Landlord)
                  and the Company (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 Company's Form 8-K dated March 27, 1996.

                  Tysons Corner, Virginia

10.7              Ground Lease between Lehndorff Tysons Joint Venture (Landlord)
                  and the Company (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 Company's Form 8-K dated
                  March 27, 1996.

                  Springfield, Virginia

10.8              Springfield Mall Lease between Franconia Associates (Landlord)
                  and the Company (Tenant) effective May 1, 1996 incorporated by
                  reference to Exhibit 10.08 of the Company'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 Company (Tenant)
                  incorporated by reference to Exhibit 10.09 of the Company'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 Company
                  (Buyer) incorporated by reference to Exhibit 10.10 of the
                  Company's Form 8-K dated March 27, 1996.

                  Clarendon, Virginia

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

                  Kendall, Florida

                                       52

<PAGE>

10.12             Purchase Agreement dated October 4, 1996 by and between
                  Documentation Corp. And Bersin Development Corp. (Sellers) and
                  the Company (Buyer). Exhibit 10.12 to the Company's Annual
                  Report on Form 10-K for the fiscal year ended December 29,
                  1996, is incorporated herein by reference.

                  Cherry Hill, New Jersey

10.13             Lease Agreement dated September 30, 1996 by and between Cherry
                  Hill Associates L.P. (Landlord) and the Company (Tenant).
                  Exhibit 10.13 to the Company's Annual Report on Form 10-K for
                  the fiscal year ended December 29, 1996 is incorporated herein
                  by reference.

                  Gaithersburg, Maryland

10.13.1           Composite of Lease dated November 2, 1999 by and between Lake
                  Forest Associates LLC (Landlord) and Silver Diner Development,
                  Inc. (Tenant), is incorporated by reference to Exhibit 10.13.1
                  of the Company's Annual Report on Form 10-K for the fiscal
                  year ended January 2, 2000.

                  Virginia Beach, Virginia

10.13.2           Form of Lease dated August 11, 1999 between Interface
                  Properties, Inc. (Landlord) and Silver Diner Development, Inc.
                  (Tenant), is incorporated by reference to Exhibit 10.13.2 of
                  the Company's Annual Report on Form 10-K for the fiscal year
                  ended January 2, 2000.

                  Pentagon City, Virginia

10.13.3           Form of Deed of Lease dated September 22, 2000 between Street
                  Retail, Inc., as Landlord, and Silver Diner Development Inc.,
                  as Tenant (the "Deed of Lease"), is incorporated by reference
                  to Exhibit 10.13.3 of the Company's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 2000.

10.13.4           Form of Letter Agreement dated January 29, 2001 between Street
                  Retail, Inc. and Silver Diner Development Inc. amending the
                  Deed of Lease, is incorporated by reference to Exhibit 10.13.4
                  of the Company's Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2000.

10.13.5           Form of Lease Modification Agreement dated March 2, 2001
                  between Street Retail, Inc., as Landlord, and Silver Diner
                  Development Inc., as Tenant, is incorporated by reference to
                  Exhibit 10.13.5 of the Company's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 2000.

10.13.6           Form of Lease Termination Letter Agreement dated March 30,
                  2001 between Street Retail, Inc., as Landlord, and Silver
                  Diner Development Inc., as Tenant, is incorporated by
                  reference to Exhibit 10.13.6 of the Company's Annual Report on
                  Form 10-K for the fiscal year ended December 30, 2001.

                                       53

<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 Company'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 Company'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 Company'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 Company's
                  Form S-8 filed December 20, 1996.

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

10.19             Silver Diner, Inc. Stock Option Plan together with form of
                  Stock Option Agreement. Exhibit 10.19 to the Company's Annual
                  Report on Form 10-K for the fiscal year ended December 29,
                  1996, is incorporated herein by reference.

10.20             Silver Diner, Inc. Employee Stock Purchase Plan together with
                  form of Subscription Agreement and Notice of Withdrawal.
                  Exhibit 10.20 to the Company's Annual Report on Form 10-K for
                  the fiscal year ended December 29, 1996, is incorporated
                  herein by reference.

10.20.1           Form of Certificate and Agreement of Participation-Restaurant
                  Operating Partner Program, as approved by the Board on
                  December 15, 1998, incorporated by reference to Exhibit 10.31
                  to the Company's Annual Report on Form 10-K for the fiscal
                  year ended January 3, 1999.

10.20.2           Form of Addendum to a Certain Certificate and Agreement of
                  Participation in the Silver Diner, Inc. Restaurant Operating
                  Partner Program (Version for 1997 Certificates issued after
                  January 1, 1997), as approved by the Board on December 15,
                  1998, incorporated by reference to Exhibit 10.32 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 3, 1999.

10.20.3           Form of Addendum to a Certain Certificate and Agreement of
                  Participation in the Silver Diner, Inc. Restaurant Operating
                  Partner Program (Version for 1997 Certificates issued on
                  January 1, 1997), as approved by the Board on December 15,
                  1998, incorporated by reference to Exhibit 10.33 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 3, 1999.

10.20.4           Silver Diner, Inc. Stock Option Plan (as amended March 4,
                  1998), incorporated by reference to Exhibit 10.34 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 3, 1999.

                                       54

<PAGE>

10.20.5           Form of Stock Option Plan Agreement between Silver Diner, Inc.
                  and certain Executive Officers, Date of Grant: December 15,
                  1998, together with Performance Criteria for each of: Craig
                  Kendall; Patrick Meskell; Timothy Cusick; and Ype Von Hengst,
                  incorporated by reference to Exhibit 10.36 to the Company's
                  Annual Report on Form 10-K for the fiscal year ended January
                  3, 1999.

10.20.6           Stock Option Plan Agreement between Silver Diner, Inc. and
                  Robert T. Giaimo for grant of 400,000 Shares on December 15,
                  1998, incorporated by reference to Exhibit 10.37 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 3, 1999.

10.20.7           Form of Restated Stock Option Plan Agreement between Silver
                  Diner, Inc. and Certain Executive Officers Granting Shares on
                  December 29, 1997, incorporated by reference to Exhibit 10.38
                  to the Company's Annual Report on Form 10-K for the fiscal
                  year ended January 3, 1999.

10.20.8           1996 Non-Employee Director Stock Option Plan, as amended March
                  4, 1998, incorporated by reference to Exhibit 10.41 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 3, 1999.

10.20.9           1996 Employee Stock Purchase Plan, as amended, is incorporated
                  by reference to Exhibit 10.20.9 of the Company's Annual Report
                  on Form 10-K for the fiscal year ended January 2, 2000.

10.20.10          1996 Non-Employee Director Stock Option Plan (as amended March
                  4, 1998 and March 18, 1999) is incorporated by reference to
                  Exhibit 10.20.10 of the Company's Annual Report on Form 10-K
                  for the fiscal year ended January 2, 2000.

10.20.11          Form of Performance Criteria (for January 2, 1999-December 31,
                  1999), as amended by the Compensation Committee on December 8,
                  1999, for options granted December 15,1998 to each of: Craig
                  Kendall; Patrick Meskell; Timothy Cusick; and Ype Von Hengst,
                  is incorporated by reference to Exhibit 10.20.11 of the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 2, 2000.

10.20.12          Form of Performance Criteria (for January 1, 2000-December 31,
                  2000), as adopted by the Compensation Committee on December 8,
                  1999, for options granted December 15,1998 to each of: Craig
                  Kendall; Patrick Meskell; Timothy Cusick; and Ype Von Hengst,
                  is incorporated by reference to Exhibit 10.20.12 of the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 2, 2000.

Material Contracts--Agreements with Executive Officers/Directors

10.22             Letter Agreement dated December 4, 1996 between the Company
                  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 Company's Form 8-K dated
                  March 27, 1996.

10.22.1           Letter Agreement dated March 4, 1999 between the Company and
                  Patrick Meskell, is incorporated by reference to Exhibit
                  10.22.1 of the Company's Annual Report on Form 10-K for the
                  fiscal year ended January 2, 2000.

10.23             Founder's Employment Agreement dated August 28, 1995 by and
                  between the Company and

                                       55

<PAGE>

                  Robert T. Giaimo incorporated by reference to Exhibit 10.20 of
                  the Company's Form 8-K dated March 27, 1996.

10.24             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 Company's Form 8-K dated
                  March 27, 1996.

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

10.25.1           Letter Agreement dated March 4, 1999 between the Company and
                  Craig Kendall, is incorporated by reference to Exhibit 10.25.1
                  of the Company's Annual Report on Form 10-K for the fiscal
                  year ended January 2, 2000.

10.25.2           Letter Agreement dated March 4, 1999 between the Company and
                  Timothy Cusick, is incorporated by reference to Exhibit
                  10.25.2 of the Company's Annual Report on Form 10-K for the
                  fiscal year ended January 2, 2000.

10.25.3           Employment Agreement dated November 9, 1998, between Silver
                  Diner, Inc. and Ype Von Hengst, including Promissory Note in
                  principal amount of $100,000, incorporated by reference to
                  Exhibit 10.39 of the Company's Annual Report on Form 10-K for
                  the fiscal year ended January 3, 1999.

10.25.4           Letter Agreement dated November 9, 1998 between Robert T.
                  Giaimo and Silver Diner, Inc. Re: Founder's Employment
                  Agreement, incorporated by reference to Exhibit 10.40 of the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  January 3, 1999.

10.25.5           Form of Letter Agreement dated March 17, 2000 between Silver
                  Diner, Inc. and Jon Abbott in connection with the employment
                  of Jon Abbott is incorporated by reference to Exhibit 10.25.5
                  of the Company's Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2000.

10.25.6           Form of Stock Purchase Agreement dated March 2000 between
                  Silver Diner, Inc. and Jon Abbott is incorporated by reference
                  to Exhibit 10.25.6 of the Company's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 2000.

10.25.7           Form of Stock Option Plan Agreement dated March 24, 2000
                  between Silver Diner, Inc. and Jon Abbott in connection with
                  the grant of option for 100,000 shares is incorporated by
                  reference to Exhibit 10.25.7 of the Company's Annual Report on
                  Form 10-K for the fiscal year ended December 31, 2000.

10.25.8           Form of Promissory Note dated March 2000 in the amount of
                  $32,500, from Jon Abbott in favor of the Company is
                  incorporated by reference to Exhibit 10.25.8 of the Company's
                  Annual Report on Form 10-K for the fiscal year ended December
                  31, 2000.

                                       56

<PAGE>

Material Contracts--Miscellaneous

10.26             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 incorporated by reference to Exhibit
                  10.36 of the Company's Form 8-K dated March 27, 1996.

10.27             Amendment No. 1 to the Stock Escrow Agreement dated as of
                  March 26, 1996 among the Company, 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 Company to Continental
                  Stock Transfer & Trust Company, incorporated by reference to
                  Exhibit 10.37 of the Company's Form 8-K dated March 27, 1996.

10.28             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 Company's Form 8-K dated
                  March 27, 1996.

10.29             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 Company's Form 8-K dated March 27, 1996.

10.30             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 Company's Form 8-K dated March 27, 1996.

10.31             Agreement dated February 29, 2000 between Silver Diner
                  Development, Inc. (Owner) and Uniwest Construction, Inc.
                  (Contractor) for Silver Diner at Lakeforest Mall (Project), is
                  incorporated by reference to Exhibit 10.31 of the Company's
                  Annual Report on Form 10-K for the fiscal year ended January
                  2, 2000.

10.32             Letter Agreement dated January 7, 2000 between Uniwest and
                  Silver Diner Development, Inc. regarding Silver Diner at
                  Columbus Square East, Virginia Beach, Virginia, together with
                  Agreement dated December 1, 1999 between the parties, is
                  incorporated by reference to Exhibit 10.32 of the Company's
                  Annual Report on Form 10-K for the fiscal year ended January
                  2, 2000.

10.33             Form of Amended and Restated Loan Agreement dated May 10,
                  2000, between Branch Banking and Trust Company, Silver Diner,
                  Inc. for itself and on behalf of its affiliates Silver Diner
                  Development, Inc., Silver Diner Potomac Mills, Inc. and Silver
                  Diner Limited Partnership is incorporated by reference to
                  Exhibit 10.33 of the Company's Annual Report on Form 10-K for
                  the fiscal year ended December 30, 2000.

10.33.1           Form of Promissory Note (Year 2000) dated May 10, 2001, from
                  Silver Diner, Inc. in favor of Branch Banking and Trust
                  Company in the principal amount of $3,000,000 is incorporated
                  by reference to Exhibit 10.33.1 of the Company's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 2000.

                                       57

<PAGE>

10.33.2           Form of Allonge to Promissory Note (Year 2000) effective as of
                  January 19, 2001, from Silver Diner, Inc. in favor of Branch
                  Banking and Trust Company is incorporated by reference to
                  Exhibit 10.33.2 of the Company's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 2000.

10.33.3           Form of Promissory Note (Year 2001) dated January 19, 2001,
                  from Silver Diner, Inc. in favor of Branch Banking and Trust
                  Company in the principal amount of $1,200,000 is incorporated
                  by reference to Exhibit 10.33.3 of the Company's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 2000.

10.33.4           Form of Promissory Note dated April 20, 2001, from Silver
                  Diner, Inc. in favor of Branch Banking and Trust Company in
                  the principal amount of $300,000.*

10.33.5           Form of Promissory Note dated January 15, 2002, from Silver
                  Diner, Inc. in favor of Branch Banking and Trust Company in
                  the principal amount of $500,000.*

10.34             Form of Memorandum of Agreement between Silver Diner
                  Development, Inc. and Three J.B. Inc. dated March 9,2001, as
                  amended by Addendums thereto dated March 9,2001 and March 9,
                  2001 is incorporated by reference to Exhibit 10.34 of the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  December 31, 2000.

21.               Subsidiaries of the Company. (a) Silver Diner Development,
                  Inc., a Virginia Corporation.

22.               Accountants Consent

23.1              Consent of Reznick Fedder & Silverman P.C.

(b)               Reports on Form 8-K

                  Report on Form 8-K for the registration of 100,000 Shares
                  under the Company's Associate Ownership and Profit Sharing
                  Plan (File No. 333-96399).

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

                                       58

<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
                                           April 1, 2002


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
in the capacities and on the dates indicated.

Signatures                      Title                             Date

/s/ Robert T. Giaimo            President, Chief Executive        April 1, 2002
----------------------
Robert T. Giaimo                Officer and Director


/s/ Catherine Britton           Director                          April 1, 2002
----------------------
Catherine Britton

/s/ Ype Von Hengst              Director                          April 1, 2002
----------------------
Ype Von Hengst

/s/ Edward H. Kaplan            Director                          April 1, 2002
----------------------
Edward H. Kaplan

/s/ Michael Collier             Director                          April 1, 2002
----------------------
Michael Collier

/s/ Louis P. Neeb               Director                          April 1, 2002
----------------------
Louis P. Neeb

/s/ Charles Steiner             Director                          April 1, 2002
----------------------
Charles Steiner

                                       59