US 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 September 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: November
14, 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)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,015,713 $ 558,013
Short term cash investments - 721,000
Inventories 9,720 19,078
Retail loans receivable 35,349 -
Notes receivable, current portion 14,139 167,313
Prepaid expenses and other current assets 281,306 110,814
----------- ------------
Total Current Assets 1,356,227 1,576,218
----------- ------------
PROPERTY AND EQUIPMENT, NET 720,731 967,217
----------- ------------
OTHER ASSETS:
Restricted cash 162,500 -
Notes receivable, less current portion 123,626 113,204
Intangible assets, net 44,153 50,101
Deposits and other assets 93,476 34,439
----------- ------------
423,755 197,744
----------- ------------
$ 2,500,713 $ 2,741,179
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long term debt, current portion $ 51,156 $ 45,387
Accounts payable and accrued expenses 258,588 191,526
Accrued payroll and payroll taxes 27,495 41,831
Sales tax payable 5,596 7,638
Deferred franchise fees 90,000 75,000
----------- ------------
Total Current Liabilities 432,835 361,382
----------- ------------
LONG TERM LIABILITIES:
Long term debt, less current portion 15,449 54,635
Deferred rent 43,033 63,123
----------- ------------
58,482 117,758
----------- ------------
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 (5,089,827) (3,182,873)
----------- ------------
Total Stockholders' Equity 2,009,396 2,262,039
----------- ------------
$ 2,500,713 $ 2,741,179
=========== ============
See accompanying notes to consolidated financial statements.
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------ ------------------------------------------------
1996 1995 1996 1995
------------------ --------------- ------------------- --------------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales, net $ 886,308 $ 1,896,244 $ 275,271 $ 644,217
Franchise royalties 21,411 - 6,953 -
Franchise fee income 40,000 25,000 15,000 -
Contractor lead fees 17,250 - 2,750 -
Contract fee income 13,841 - 11,685 -
Loan origination fees 7,500 - - -
----------------- --------------- ------------------- --------------------
986,310 1,921,244 311,659 644,217
----------------- --------------- ------------------- --------------------
COSTS AND EXPENSES:
Restaurant Operations:
Food and paper costs 364,554 839,935 114,001 294,210
Restaurant labor and related expenses 307,155 718,123 80,158 272,066
Operating expenses 67,293 127,562 16,106 45,724
Occupancy expenses 185,560 332,359 40,097 125,586
Depreciation and amortization 98,439 114,007 31,749 43,977
Preopening costs - 69,261 - -
Loan Operations:
Payroll and related expenses 344,748 - 129,202 -
Media and advertising costs 338,512 - 81,906 -
Operating expenses 219,209 - 74,618 -
Corporate and Franchising:
General and administrative 743,773 1,255,511 231,077 371,307
Restructuring charge 266,987 95,000 - 95,000
------------------ ---------------- ------------------- --------------------
2,936,230 3,551,758 798,914 1,247,870
------------------ ---------------- ------------------- --------------------
LOSS FROM OPERATIONS (1,949,920) (1,630,514) (487,255) (603,653)
OTHER INCOME (EXPENSE):
Interest and other income 54,350 104,457 19,043 26,757
Interest expense (11,384) (20,102) (3,277) (6,792)
------------------ ---------------- ------------------- --------------------
42,966 84,355 15,766 19,965
------------------ ---------------- ------------------- --------------------
NET LOSS $ (1,906,954) $ (1,546,159) $ (471,489) $ (583,688)
================== ================ =================== ====================
NET LOSS PER SHARE $ (0.92) $ (0.96) $ (0.20) $ (0.36)
================== ================ =================== ====================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,076,333 1,615,000 2,415,000 1,615,000
================== ================ =================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,906,954) $(1,546,159)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 98,439 114,007
Restructuring charge 266,987 95,000
Changes in operating assets and liabilities:
Inventories 9,358 (846)
Prepaid expenses and other current assets (170,492) 17,335
Restricted cash (162,500) --
Deposits and other assets (53,089) (7,616)
Accounts payable and accrued expenses 67,062 9,678
Accrued payroll and payroll taxes (14,336) (3,827)
Sales tax payable (2,042) 3,199
Deferred franchise fees 15,000 --
Deferred rent (20,090) 17,323
----------- -----------
Net cash flows used in operating activities (1,872,657) (1,301,906)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of cash investments 721,000 2,357,295
Acquisition of cash investments -- (2,151,228)
Funds advanced under notes receivable (240,525) --
Funds advanced under retail loans receivable (506,459) --
Proceeds from notes receivable 383,277 --
Proceeds from sale of retail loans receivable 471,110 --
Acquisition of property and equipment (118,940) (740,470)
----------- -----------
Net cash flows from investing activities 709,463 (534,403)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from sale of common stock, net of expenses 1,654,311 --
Payments of long-term debt (33,417) (32,219)
----------- -----------
Net cash flows from (used in) financing activities 1,620,894 (32,219)
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 457,700 (1,868,528)
CASH AND EQUIVALENTS, Beginning of period 558,013 2,126,646
----------- -----------
CASH AND EQUIVALENTS, End of period $ 1,015,713 $ 258,118
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 11,384 $ 20,103
=========== ===========
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.
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
(1) The consolidated balance sheet at the end of the preceeding 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) In August 1996, the Company effected a name change for its restaurant
operating entities from Linda's Flame Roasted Chicken to Linda's Rotisserie
& Kitchen to better reflect the Company's newly introduced expanded menu
offerings, including turkey meat loaf and roast beef meals.
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 significant 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.
In March 1996, the Company signed a multi-unit franchise development
agreement under which the franchisee will open up to 18 Linda's Rotisserie
& Kitchen restaurants, the first of which opened in Flemington, New Jersey
on September 28, 1996. Under this agreement, the Company receives initial
franchise fees with respect to each individual store, and recognizes such
income as each such store commences operations.
Cash Equivalents - The Company considers highly liquid debt instruments
-----------------
with maturities of three months or less to be cash equivalents.
Property and Equipment - Property and equipment are stated at cost. The
-----------------------
Company provides for depreciation under the straight-line method based upon
the estimated useful life of five to twelve years for equipment. Leasehold
improvements are amortized over the life of the lease.
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
September 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 Rotisserie & Kitchen (formerly
Linda's Flame Roasted Chicken), consist of five restaurants, two of which are
Company-owned and operated, and three of which are franchised. Additionally, the
Company has sold an additional four franchises, three in New Jersey and one in
New York, two of which are expected to open later in 1996. The loan operations
are conducted through National Home Guaranty ("NHG"), a wholly-owned subsidiary
which commenced operations 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 seven states including New Jersey,
Massachusetts, Rhode Island, Delaware, Maryland, New Hampshire and Connecticut,
and also operates in Pennsylvania and New York which do not require a special
license.
RESTAURANT OPERATIONS
- ---------------------
Gross restaurant sales for the nine months ended September 30, 1996 decreased
$1,194,000 (56%) as compared to the same period in 1995. Comparable store gross
sales (for locations opened at least one year) decreased $127,000 (17%). The
total sales decreases were due to the Company having five Company-owned
locations through the third quarter of 1995 compared with three and two such
locations through the second and third quarters of 1996, respectively. The
Company closed a restaurant in October 1995, franchised a second restaurant in
December 1995, and closed a third restaurant in June 1996. The Company closed
these stores to reduce its losses and preserve its working capital. The same
store sales decreases were due to the Company's prior year Buy 1 Get 1 Free
chicken meal promotion which ran for six weeks in August and September of 1995
which temporarily increased volume at all of the Company's locations in the
prior year. Additional decreases in sales were due to the increased saturation
of, and intense competition from, similar restaurant concepts throughout New
Jersey.
Gross restaurant sales for the three months ended September 30, 1996 decreased
$496,000 (63%) as compared to the same quarter of 1995. Comparable store gross
sales decreased $53,000 (19%).
Food and paper costs collectively decreased, for the nine months ended September
30, 1996 compared to the same period in 1995 to $365,000 (39% of gross sales)
from $840,000 (40% of gross sales), respectively. These costs increased,
however, for the three months ended September 30, 1996 and 1995 to $114,000 (39%
of gross sales) from $294,000 (37% of gross sales), respectively, due
essentially to higher poultry costs which were at a ten-year high.
Year to date food cost percentage decreases were attributable to several factors
including, the increased sales from Company's new oversized gourmet sandwiches
which have lower food costs than other meal items, and the re-engineering of the
Company's menu. The Company has also introduced new items including roast beef
and turkey meat loaf meals, which the Company expects to help lower food costs
further.
- 6 -
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
Year to date 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.
Restaurant labor and related expenses decreased to $80,000 (28% of gross sales)
for the quarter ended September 30, 1996 as compared to $272,000 (35% of gross
sales) for the third quarter of 1995. This decrease is due to the closing, in
June 1996, of the Company's Livingston, New Jersey location which had its
highest labor costs, as well as the Company's continued focus on correlating
hourly labor to projected sales. Restaurant labor for the nine months ended
September 30, 1996 decreased from the same period of 1995 to $307,000 (33% of
gross sales from $718,000 (34% of gross sales). This smaller decrease as
compared to the decrease in the current quarter was impacted by the first
quarter of 1996 in which the Northeast experienced extreme winter conditions
during which 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 $16,000 (6% of gross sales) for the
third quarter of 1996 compared to $46,000 (6% of gross sales) for the third
quarter of 1995. Similarly, operating expenses for the nine months ended
September 30, 1996 and 1995 were $67,000 (7% of gross sales) and $128,000 (6% of
gross sales), respectively.
Occupancy costs, including such fixed and recurring items as rent, common area
maintenance charges and utilities, amounted to $40,000 (14% of gross sales) and
$126,000 (16% of gross sales) for the quarters ended September 30, 1996 and
1995, respectively. This percentage decrease is due primarily to the closing of
the Company's store in Livingston, NJ which had high occupancy costs relative to
its sales. Year to date occupancy costs were $186,000 (20% of gross sales) and
$332,000 (16% of gross sales) for the nine months ended September 30, 1996 and
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 $98,000 (11% of gross sales) for the
nine months ended September 30, 1996 from $114,000 (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. For the quarter
ended September 30, 1996, these expenses decreased to $32,000 (11% of gross
sales) from $44,000 (6% of gross sales) for the same quarter of 1995.
Preopening costs for 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 September 30, 1996, three franchises were
opened. The first in Colonia, New Jersey, began operations in December 1995. The
second, a free-standing prototype in Westwood, New Jersey, opened in April 1996.
The third location opened in Flemington, New Jersey on September 28, 1996.
Franchise royalty income, amounted to $21,000 for the nine months ended
September 30, 1996. There was no such revenue in the comparable period of 1995.
- 7 -
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
The Company maintains an advertising fund to be used for regional advertising
expenditures which benefit all locations. Franchisees are required to contribute
a percentage of their net sales to this fund. The Company also contributes to
the fund promotional rebates received from suppliers. As of September 30, 1996,
this fund had excess revenue over expenditures for the first nine months of 1996
approximating $12,000.
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 $143,000 and $175,000 for the nine months ended September 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.
NHG first began receiving revenue in May 1996 which resulted from the Company's
test marketing efforts. Gross revenue for the period ended September 30, 1996
totalled $39,000 including $17,000 in contractor lead fees, $14,000 in completed
contract fee income, and $8,000 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 $286,000 during the third quarter of 1996, and
$902,000 from commencement of operations through September 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, totalling $345,000 (38% of
total expenses) for commencement of operations through September 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, totalled
$339,000 (38% of total expenses) for the period ended September 30, 1996. Due to
initially disappointing results from its test advertising campaign, NHG worked
with media consultants on redesigning and refocusing its commercials to better
attract its target markets. These new commercials continue to be tested in NHG's
core markets. The Company expects media costs to be the single largest expense
item in future operations and to have a significant impact on the generation of
future revenues.
- 8 -
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
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, totalling $219,000 (24% of total expenses) for the period ended
September 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.
CORPORATE
- ---------
General and administrative expenses decreased to $744,000 for the first nine
months of 1996 from $1,256,000 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 $231,000 for the quarter ended September 30, 1996 from $371,000 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 gross revenue volume sufficient to absorb
these costs.
The restructuring charge of $267,000 represents the costs associated with the
Company's closing of its restaurant in Livingston, NJ on June 29, 1996.
Interest income decreased to $54,000 from $104,000 for the nine months ended
September 30, 1996 and 1995, respectively, and decreased to $19,000 from $27,000
for the quarters ended September 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 September 30, 1996 were $1,356,000 compared to $1,576,000 at
December 31, 1995 and current liabilities were $433,000 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 September 30, 1996, consisted of
obligations owed under capitalized leases for point-of-sale terminals at each of
the restaurants totalling $44,000. Additionally, the Company issued a note
payable, with a remaining balance of $23,000 at September 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 restaurant franchising program. The
capital required for a new restaurant site which is to be franchised is the
responsibility of a potential franchisee who is required to provide the funds
necessary 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 due to limited cash resources, 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 continue to refocus its commercials and buy media time, as
well as further expand its operations into other metropolitan areas.
- 9 -
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
The Company's franchising operation currently has seven franchisees, three of
which have stores which are currently open, and two 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.
The Company had 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 to this franchisee
approximately $375,000. This loan was repaid in full in September 1996.
Through the test period ended September 30, 1996, NHG had closed loans totalling
$506,000, of which $471,000 had been sold to a third-party lender. Thus, retail
loans receivable amounted to $35,000 at September 30, 1996. The Company sold all
such retail loans in October 1996.
The Company anticipates that the current trend of losses will continue through,
at least, the first quarter of 1997. NHG, whose business is based upon the home
improvement industry, is expected to experience a decrease in potential revenues
during the winter months due to a significant slowdown in home improvement
requests and contractor ability to complete projects during adverse winter
weather in the Northeast, the primary area where NHG currently lends. In order
to offset the seasonal decreases expected in its business in the future, the
Company has applied to become a licensed lender in Florida. The Company is also
initiating lending activities in other southeastern states to improve its
ability to generate loan volume during the winter. License application processes
are lengthy, however, and there is no assurance as to when the Company will
actually obtain the requisite licenses in Florida or any other state. In order
to improve its liquidity and provide additional working capital during the
start-up phase of NHG's business, the Company requires, and is actively seeking
additional financing through a private placement of debt or equity. Based on
initial contacts, the Company believes that such financing can be secured.
However, there can be no assurance of success. The Company believes that
additional funding will be required for it to meet its cash requirements for the
next twelve 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.
- 10 -
<PAGE>
LINDA'S DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: Exhibit 27 (Financial Data Schedule for Third 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.
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)
November 13, 1996 /s/ Peter Weissbrod
--------------------------------------------
Peter Weissbrod, President
(Principal Executive Officer)
November 13, 1996 /s/ Gregory Finkelstein
--------------------------------------------
Gregory Finkelstein, Treasurer
(Principal Financial and Accounting Officer)
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE
BALANCE SHEET FOR THE PERIOD THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,015,713
<SECURITIES> 0
<RECEIVABLES> 49,488
<ALLOWANCES> 0
<INVENTORY> 9,720
<CURRENT-ASSETS> 1,356,227
<PP&E> 923,265
<DEPRECIATION> 202,534
<TOTAL-ASSETS> 2,500,713
<CURRENT-LIABILITIES> 432,835
<BONDS> 0
0
0
<COMMON> 2,865
<OTHER-SE> 7,096,358
<TOTAL-LIABILITY-AND-EQUITY> 2,500,713
<SALES> 886,308
<TOTAL-REVENUES> 986,310
<CGS> 364,554
<TOTAL-COSTS> 2,936,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,384
<INCOME-PRETAX> (1,906,954)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,906,954)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,906,954)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> (.92)
</TABLE>
