UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
33-76422
(Commission file number)
Linda's Diversified Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
22-3280395
(Incorporation or organization identification number)
11 Commerce Drive, Cranford, NJ 07016
(Address of principal executive offices)
(908) 276-2080
(Issuer's telephone number)
Linda's Flame Roasted Chicken Incorporated
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act during the past 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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: August 13, 1996
Class A Common Stock, $.001 par value: 2,065,000 shares
Class B Common Stock, $.001 par value: 800,000 shares
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
<PAGE>
PART I - FINANCIAL INFORMATION
--------------------------------------------------------
Item 1. Financial Statements
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents ............................................. $ 1,064,906 $ 558,013
Short term cash investments ...................................... -- 721,000
Inventories ...................................................... 13,953 19,078
Retail loans receivable .......................................... 383,160 --
Notes receivable, current portion ................................ 386,019 167,313
Prepaid expenses and other current assets ........................ 97,731 110,814
----------- -----------
Total Current Assets ................................... 1,945,769 1,576,218
----------- -----------
PROPERTY AND EQUIPMENT, NET ........................................... 744,412 967,217
----------- -----------
OTHER ASSETS:
Restricted cash .................................................. 162,500 --
Notes receivable, less current portion ........................... 106,080 113,204
Intangible assets, net ........................................... 48,718 50,101
Deposits and other assets ........................................ 75,088 34,439
----------- -----------
392,386 197,744
----------- -----------
$ 3,082,567 $ 2,741,179
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long term debt, current portion .................................. $ 48,997 $ 45,387
Accounts payable and accrued expenses ............................ 317,555 191,526
Accrued payroll and payroll taxes ................................ 56,318 41,831
Sales tax payable ................................................ 6,185 7,638
Deferred franchise fees .......................................... 100,000 75,000
----------- -----------
Total Current Liabilities .............................. 529,055 361,382
----------- -----------
LONG TERM LIABILITIES:
Long term debt, less current portion ............................. 29,084 54,635
Deferred rent .................................................... 43,543 63,123
----------- -----------
72,627 117,758
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value; 2,500,000
shares authorized; none issued ................................... -- --
Common stock, Class A, $.001 par value;
15,000,000 shares authorized; 2,065,000
shares issued and outstanding .................................... 2,065 1,265
Common stock, Class B, $.001 par value;
800,000 shares authorized; 800,000
shares issued and outstanding .................................... 800 800
Capital in excess of par value ...................................... 7,096,358 5,442,847
Accumulated deficit ................................................. (4,618,338) (3,182,873)
----------- -----------
Total Stockholders' Equity ................................ 2,480,885 2,262,039
----------- -----------
$ 3,082,567 $ 2,741,179
=========== ===========
See accompanying notes to consolidated financial statements
2
<PAGE>
</TABLE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---------------------- ---------------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales, net $ 611,037 $ 1,252,027 $ 319,677 $ 662,176
Franchise royalties 14,458 - 9,816 -
Franchise fee income 25,000 25,000 25,000 25,000
Contractor lead fees 14,500 - 14,500 -
Contract fee income 2,156 - 2,156 -
Loan origination fees 7,500 - 7,500 -
--------- ----------- --------- ---------
674,651 1,277,027
--------- ---------
COSTS AND EXPENSES:
Restaurant Operations:
Food and paper costs 250,553 545,725 128,566 282,909
Restaurant labor and related expenses 226,997 446,057 107,405 248,472
Operating expenses 51,187 104,948 25,240 50,881
Occupancy expenses 145,463 206,773 71,127 93,355
Depreciation and amortization 66,690 70,030 35,113 38,780
Preopening costs - 69,261 - 31,123
Loan Operations:
Payroll and related expenses 215,546 - 157,053 -
Media and advertising costs 256,606 - 256,606 -
Operating expenses 144,591 - 122,515 -
Corporate and Franchising:
General and administrative 512,696 861,094 275,893 446,917
Restructuring charge 266,987 - 266,987 -
---------- ----------- ----------- ----------
2,137,316 2,303,888 1,446,505 1,192,437
---------- ----------- ----------- ----------
LOSS FROM OPERATIONS (1,462,665) (1,026,861) (1,067,856) (505,261)
OTHER INCOME (EXPENSE):
Interest and other income 35,307 77,700 21,323 36,346
Interest expense (8,107) (13,310) (3,789) (8,361)
---------- ---------- ----------- ----------
27,200 64,390 17,534 27,985
---------- ---------- ----------- ----------
NET LOSS $ (1,435,465) $ (962,471) $(1,050,322) $ (477,276)
============ ========== =========== ==========
NET LOSS PER SHARE $ (0.75) $ (0.60) $ (0.48) $ (0.30)
============ ========== ============ ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,907,000 1,615,000 2,199,000 1,615,000
============ ========== ============ ==========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1996 1995
------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash $ (1,435,465) $ (962,471)
flows from operating activities:
Depreciation and amortization
Restructuring charge 66,690 70,030
Changes in operating assets and liabilities: 266,987 -
Inventories
Prepaid expenses and other current assets 2,912 2,511
Restricted cash 13,083 70,700
Deposits and other assets (162,500) -
Accounts payable and accrued expenses (41,149) (26,098)
Accrued payroll and payroll taxes 116,029 (141,068)
Sales tax payable 14,487 25,273
Deferred franchise fees (1,453) 4,409
Deferred rent 25,000 -
8,262 9,065
Net cash flows used in operating activities ------------ ------------
(1,127,117) (947,649)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of cash investments 809,000 1,172,271
Acquisition of cash investments (88,000) (379,036)
Funds advanced under notes receivable (216,591) -
Proceeds from notes receivable 5,009 -
Proceeds from sale of retail loans receivable 14,244 -
Acquisition of property and equipment (124,618) (563,088)
------------ ------------
Net cash flows from investing activities 1,640 230,147
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from sale of common stock, net of expenses 1,654,311 -
Payments of long-term debt (21,941) (21,409)
------------ ------------
Net cash flows from (used in) financing activities 1,632,370 (21,409)
------------ ------------
NET CHANGE IN CASH AND EQUIVALENTS 506,893 (738,911)
CASH AND EQUIVALENTS, Beginning of period 558,013 2,126,646
------------ ------------
CASH AND EQUIVALENTS, End of period $ 1,064,906 $ 1,387,735
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 8,107 $ 13,310
============ ============
Noncash financing activity:
Discounted note payable issued as part of restaurant acquisition cost $ - $ 52,144
============= =============
Equipment obtained under capitalized leases payable $ - $ 46,037
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
(1) The consolidated balance sheet at the end of the preceding fiscal year has
been derived from the audited consolidated balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes. All other
financial statements are unaudited. All adjustments which are of a normal
and recurring nature and in the opinion of management necessary for a fair
presentation, have been included. The results of operations for interim
periods are not necessarily indicative of the operating results for the
full year. Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted in accordance with the published rules and regulations of the
Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for the most recent fiscal
year.
(2) On May 7, 1996, the Company completed a private placement for the sale of
40 units at $50,000 per unit. The net proceeds to the Company were
approximately $1,650,000. Each unit consists of 20,000 shares of Class A
common stock and 20,000 redeemable Class C warrants. Each Class C warrant
entitles the holder to purchase one share of Class A common stock at an
exercise price of $5.25. The Company will use these proceeds in connection
with the operations of its subsidiary, National Home Guaranty.
(3) On June 6, 1996, the Company signed an agreement with a franchisee and
received a $25,000 initial franchise fee. Under this agreement, the
franchisee has agreed to open and operate a Linda's Flame Roasted Chicken
restaurant in Belleville, New Jersey under the proprietary trademark, trade
names and standard operating procedures of the Company.
(4) On June 29, 1996, the Company closed its restaurant in Livingston, New
Jersey. This site, originally opened in January 1995, was located in an
area which had become oversaturated with similar restaurants. As such, the
area was no longer considered to be an integral part of the Company's
future plans. Losses from this store closing, consisting substantially of
abandonment of leasehold improvements and the write-off of remaining store
equipment, are reported as a restructuring charge in the June 30, 1996
financial statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation - The consolidated financial statements include
the accounts of Linda's Diversified Holdings, Inc. and its wholly-owned
subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
Franchise Related Income and Deferred Franchise Fees - In connection with
its franchising operations, the Company receives initial franchise fees,
royalties and advertising fees from its franchisees. Initial fees are
recognized when the franchisee commences operations. Royalties and
advertising fees, as defined in the underlying franchise agreements, are
recognized in the period that the related franchise store revenue is
generated.
Restricted Cash - In connection with regulatory banking requirements in
certain states, National Home Guaranty is required to post mortgage surety
bonds which are collateralized by irrevocable letters of credit. The
collateralization underlying these bonds is shown as restricted cash in the
June 30, 1996 financial statements.
5
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
OVERVIEW
- --------
The Company is a holding corporation consisting of restaurant operations,
restaurant franchising, and home-equity loan operations. The restaurant
entities, operating under the name Linda's Flame Roasted Chicken, consist of
four restaurants, two of which are Company-owned and operated, and two of which
are franchised. Additionally, the Company has sold an additional five
franchises, four in New Jersey and one in New York, three of which are expected
to open later in 1996. The loan operations are conducted through National Home
Guaranty ("NHG"), a wholly-owned subsidiary created in April 1996, providing
both conventional and federally-guaranteed financing for homeowners and
lead-generation services for contractors with respect to home-improvement
services in the low-to-moderate income housing markets. In April 1996, NHG was
approved by the US Department of Housing and Urban Development to originate
federally-guaranteed Title I loans. NHG is currently a licensed lender in New
Jersey, Massachusetts and Rhode Island, operates in Pennsylvania which does not
require a special license, and further expects to expand into New York, New
Hampshire, Maryland and Delaware.
RESTAURANT OPERATIONS
- ---------------------
Gross restaurant sales for the six months ended June 30, 1996 decreased $699,000
(52%) as compared to the same period in 1995. Comparable store gross sales (for
locations opened at least one year) decreased $263,000 (34%). Comparable store
gross sales excluding the location closed in Livingston, NJ on June 29, 1996
decreased $74,000 (15%). The total sales decreases were due to the Company
having five Company-owned locations in 1995 compared with three such locations
in 1996 (two after June 29, 1996). The Company closed one location in October
1995, and franchised the other location in December 1995. The same store sales
decreases were due to increased saturation of, and intense competition from,
similar restaurant concepts throughout New Jersey.
Gross restaurant sales for the three months ended June 30, 1996 decreased
$382,000 (54%) as compared to the same quarter of 1995. Comparable store gross
sales decreased $130,000 (32%). Comparable store gross sales excluding
Livingston, NJ, which closed on June 29, 1996, decreased $39,000 (15%).
Food and paper costs collectively decreased, for the six months ended June 30,
1996 compared to the same period in 1995 to $251,000 (39% of gross sales) from
$546,000 (41% of gross sales), respectively. Similarly these costs decreased for
the three months ended June 30, 1996 and 1995 to $129,000 (39% of gross sales)
from $283,000 (40% of gross sales), respectively.
Food cost percentage decreases were attributable to several factors including,
the increased sales from the introduction of new oversized gourmet sandwiches
which have lower food costs than other meal items, and the re-engineering of the
Company's menu. Ongoing, the Company is introducing new items including roast
beef and turkey meat loaf meals, which the Company expects to help lower food
costs further.
Paper cost decreases were attributable to the Company's phase-out of some of its
higher-priced branded paper products. The Company has retained certain high
exposure branded components such as take-out container lids and carry-out bags
since these items carry high visibility within the take-out segment of the
business. The non-branded paper products retain the same quality level as the
branded products.
6
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
Restaurant labor and related expenses decreased to $107,000 (33% of gross sales)
for the quarter ended June 30, 1996 as compared to $248,000 (35% of gross sales)
for the second quarter of 1995. This decrease is due to the Company's added
focus on correlating hourly labor to projected sales. The Company expects its
labor efficiencies to be maintained and potentially improve with the closing of
its Livingston, New Jersey location which had its highest labor costs.
Restaurant labor for the six months ended June 30, 1996 increased as a
percentage of sales from the same period of 1995 to 36% of gross sales from 34%
of gross sales. This was due essentially to the first quarter in which the
Northeast experienced extreme winter conditions, and the restaurants had to be
staffed for potential rather than actual sales, such sales having been
negatively impacted due to several snow storms.
Operating expenses, including such items as local promotion, repairs and
maintenance and store supplies, amounted to $51,000 (8% of gross sales) for the
first half of 1996 compared to $105,000 (8% of gross sales) for the first half
of 1995. Similarly, operating expenses for the three months ended June 30, 1996
and 1995 were $25,000 (8% of gross sales) and $51,000 (7% of gross sales),
respectively.
Occupancy costs, including such fixed and recurring items as rent, common area
maintenance charges and utilities, amounted to $145,000 (23% of gross sales) and
$207,000 (16% of gross sales) for the six months ended June 30, 1996 and June
30, 1995, respectively. This increase as a percentage of sales results from the
fixed nature of such expenses which will increase as a percentage of sales as
sales decrease.
Depreciation and amortization decreased to $67,000 (11% of gross sales) for the
six months ended June 30, 1996 from $70,000 (5% of gross sales) for the same
period in 1995. This decrease is attributable to the fact that the Company had
equipment and leasehold improvements at two additional locations in 1995, one
store of which was closed, and one of which was franchised. This expense will
decrease further with the closing of the Livingston, New Jersey location.
Preopening costs for the first half of 1995 of $69,000 represented expenses
related to the grand opening of the Company's restaurants in Livingston and
Summit, New Jersey in January 1995 and June 1995, respectively, including
various training, payroll, promotion and start-up costs. No preopening expenses
were incurred by the Company during 1996.
RESTAURANT FRANCHISING
- ----------------------
The Company's franchising operations are administered through its subsidiary,
Linda's Chicken International. As of June 30, 1996, two franchises were opened.
The first in Colonia, New Jersey, began operations in December 1995, and the
second, a free-standing prototype in Westwood, New Jersey, opened in April 1996.
Franchise royalty income, consisting of 5% of a franchisee's net sales, amounted
to $14,000 for the first half of 1996. There were no such revenues in the
comparable period of 1995. Initial franchise fee income of $25,000, collected at
the signing of a franchise agreement and recognized as income when a franchisee
opens its restaurant, was recognized in connection with the opening of the
location in Westwood.
The Company maintains an advertising fund to be used for regional advertising
expenditures which benefit all locations. Franchisees are required to contribute
1% of their net sales to this fund. As of June 30, 1996, this fund had excess
expenditures over receipts for the first half of 1996 amounting to $7,000, such
amount being included in general and administrative expenses in the Company's
statement of operations.
7
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
Expenses related to the franchising operation, consisting of such items as
franchise support personnel, legal fees and advertising, are included in general
and administrative expenses in the Company's financial statements, and amounted
to $110,000 and $126,000 for the six months ended June 30, 1996 and 1995,
respectively.
LOAN OPERATIONS
- ---------------
The Company's loan operations are conducted through its subsidiary, National
Home Guaranty ("NHG"). These operations include providing low-to-moderate income
homeowners with a single source for both home improvement loans (conventional
and federally-guaranteed) and qualified contractors. Initially, NHG intended to
provide essentially federally-guaranteed loans, but has expanded to now include
both federally-guaranteed and convential loans. NHG derives its revenue from
referral lead fees received from participating contractors, as well as
administrative fees representing a percentage of each completed contract. The
Company additionally can derive revenue from loan participation by means of
receiving a premium from a third-party buyer of such loans, or loan origination
fees from a borrower. Though the Company received loan origination fee income
during the quarter ended June 30, 1996, it does not intend to customarily charge
borrowers such fees for loans in the future.
NHG first began receiving revenue in May 1996 which resulted from the Company's
test marketing efforts. Gross revenue for the period ended June 30, 1996
totalled $24,000 including $15,000 in contractor lead fees, $2,000 in completed
contract fee income, and $7,000 in loan origination fees. The Company recognizes
income from lead fees at the time the lead is provided to the contractor, and
contract fee income when the related contract is completed.
NHG experienced charges of $536,000 during the second quarter of 1996, and
$617,000 for the period of inception through June 30, 1996, as described below,
relating to the test marketing and other start-up costs associated with the
commencement of its operations.
Payroll and related expenses, consisting of management, customer service
representatives, credit analysts and processors, amounted to $216,000 (35% of
total expenses) for the period of inception through June 30, 1996. While
management labor is a fixed expense, NHG has the ability to correlate the amount
of its other operations personnel to the loan request volume it receives. All
customer service representatives are paid hourly, and some are part-time
employees.
Media and advertising costs, consisting of media time bought on television and
radio, as well as the production and distribution of direct mail advertising,
and the production of both the television and radio commercials, amounted to
$257,000 (42% of total expenses) for the period ended June 30, 1996. Based on
initially disappointing results from its test advertising campaign, NHG is
currently working with media consultants on redesigning and refocusing its
commercials to better attract its target markets. The Company expects media
costs to be the single largest expense item in future operations, as well as
having the most impact on the generation of future revenues.
Operating expenses, consisting of expenses necessary to operate the Company's
main office in New Jersey and its branch office in Massachusetts, as well as
legal and consulting fees and expenses related to obtaining licenses and
permits, amounted to $145,000 (23% of total expenses) for the period ended June
30, 1996. Typically, most of these expenses are of a fixed and recurring nature
and will decrease as a percentage of revenue as revenue increases.
8
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
CORPORATE
- ---------
General and administrative expenses decreased to $513,000 for the first half of
1996 from $861,000 in the comparable period of 1995. This is as a result of
continued reductions in overhead as a result of the elimination of several
corporate positions. Similarly, general and administrative expenses decreased to
$276,000 for the quarter ended June 30, 1996 from $447,000 in the same quarter
of 1995. While the Company anticipates that cost containment will continue to
take place in this expense category, general and administrative expenses will
continue to represent a large percentage of revenues until the Company's
subsidiaries can develop enough gross revenue volume sufficient to absorb these
costs.
The restructuring charge of $267,000 represents the costs, as more fully
described in Note 4, associated with the Company's closing of its restaurant in
Livingston, NJ on June 29, 1996.
Interest income decreased to $35,000 from $78,000 for the first half of 1996 and
1995, respectively, and decreased to $21,000 from $36,000 for the quarter ended
June 30, 1996 and 1995, respectively. Investment earnings are principally from
the Company's investments in short-term United States government-backed
obligations. This source of income has decreased as the Company has expended
funds which were invested in 1995 on the expansion of its operations.
Liquidity and Capital Resources
- -------------------------------
Current assets at June 30, 1996 were $1,946,000 compared to $1,576,000 at
December 31, 1995 and current liabilities were $529,000 at June 30, 1996
compared to $361,000 at December 31, 1995. The Company's restaurants sell to
consumers in what are substantially all cash transactions. Any credit and debit
card business transacted is electronically credited to the Company's accounts
within 48 hours. The Company's debt at June 30, 1996, consisted of obligations
owed under capitalized leases for point-of-sale terminals at each of the
restaurants totalling $50,000. Additionally, the Company issued a note payable,
with a remaining balance of $28,000 at June 30, 1996, in conjunction with its
acquisition of the restaurant in Summit, NJ. The Company currently has no bank
borrowings.
The Company requires capital principally to expand the operations of NHG and to
develop new franchisees for its existing franchising program. The capital
required for a new site which is to be franchised is the responsibility of a
potential franchisee who is required to provide the funds to build-out a site.
The Company is aggressively pursuing franchisees to provide for future expansion
of the Company's restaurant business and the increasing of market share, and
does not currently intend to open additional Company-owned restaurants. In
addition to allowing for expansion with minimal Company capital, franchising
also provides a weekly flow of income into the Company via management royalties,
as well as allowing for the offsetting of regional advertising expenses, through
required franchisee contributions to a regional advertising fund. Funds for NHG
will be used primarily to redesign and refocus its commercials and buy various
media time, as well as expand its operations into the New York metropolitan
area.
The Company's franchising operation currently has seven franchisees, two of
which have stores which are currently open, and three of which are expected to
open later in 1996. Because of the increased emphasis on the Company's
franchising program, the Company expects that its future results will be more
significantly affected by the success or failure of its franchising program.
Additionally, the Company expects that future results will be significantly
affected by the success or failure of NHG.
9
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
The Company provided temporary construction financing to a franchisee for the
construction of the free-standing restaurant in Westwood, NJ under a promissory
note dated August 29, 1995, and advanced approximately $375,000 in funds as of
June 30, 1996 at a variable rate equal to a 90 day certificate of deposit rate
plus 1%. The franchisee has received a commitment letter from a third party
lender providing for funds equal to the amount that the Company lent the
franchisee. This third party financing is expected to close in August 1996.
Accordingly, the Company expects repayment of these funds in August 1996.
Through June 30, 1996, NHG had closed loans totalling $397,000, of which $14,000
had been sold to a third-party lender. Thus, retail loans receivable amounted to
$383,000 at June 30, 1996. The Company sold all such retail loans in July 1996.
The Company anticipates that the current trend of losses will continue for the
foreseeable future, and will attempt to continue to reduce expenses, both
operationally, and through reductions in overhead relating to the Company's
corporate office. Additionally, the Company has diversified its operations with
the creation of NHG. As described further in Note 2, on May 7, 1996, the Company
completed a private placement for the sale of 40 units, including 800,000 shares
of Class A stock and 800,000 Class C warrants, at $50,000 per unit generating
net proceeds to the Company of approximately $1,650,000.
In the event the Company's operations continue to generate losses at
approximately the current rate, the Company believes that its existing cash and
investments, inclusive of the funding of its retail loans receivable and receipt
of take-out financing from its franchisee note receivable, will be sufficient to
satisfy its cash requirements for the next 12 months.
Forward-Looking Information May Prove Inaccurate
- ------------------------------------------------
This report contains forward-looking statements and information that are based
on management's beliefs as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"anticipate", "believe", "estimate", "expect" and similar expressions are
intended to identify forward-looking statements. Such statements involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: business conditions and growth
in the industry, general economic conditions, product development, competition,
government regulations, rising costs for food and paper supplies, the risk of
franchising, and all the risks associated with start-up businesses as it relates
to the activities of NHG, and the risk factors listed from time to time in the
Company's SEC reports, included but not limited to the Company's Registration
Statement filed on Form S-3 on July 24, 1996.
Part II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
10
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
Item 4. Submission of Matters to a Vote of Security Holders
The Company had its annual meeting of shareholders on June 26, 1996. The
following were the vote totals for matters submitted for vote at this
meeting:
1. The change of name to Linda's Diversified Holdings, Inc.
--------------------------------------------------------
For 5,849,676
Against 2,800
Withheld 9,050
2. The approval of the 1995 Stock Option Plan
------------------------------------------
For 5,096,661
Against 111,750
Withheld 12,850
Non-Voting 640,265
3. Ratification of the Company's independent certified public accountants
----------------------------------------------------------------------
For 5,839,526
Against 1,300
Withheld 20,700
4. The results of the election of directors were:
---------------------------------------------
Votes Received Votes Withheld
-------------- --------------
Peter Weissbrod 5,856,426 5,100
Stuart Fuchsman 5,856,426 5,100
Richard Goldberger 5,856,426 5,100
Lewis Levine 5,856,426 5,100
Marc Roberts 5,855,426 6,100
William Ozzard 5,855,426 6,100
Ivan Szathmary 5,855,426 6,100
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:Exhibit 27 (Financial Data Schedule for Second Quarter of 1996)
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Linda's Diversified Holdings, Inc.
(Registrant)
August 13, 1996 /s/ Peter Weissbrod
--------------------------------------------
Peter Weissbrod, President
(Principal Executive Officer)
August 13, 1996 /s/ Gregory Finkelstein
--------------------------------------------
Gregory Finkelstein, Treasurer
(Principal Financial and Accounting Officer)
12
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