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                                   FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549


               [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

                   For the fiscal year ended December 31, 1996

                         Commission File Number 33-76422

                        LINDA'S DIVERSIFIED HOLDINGS INC.
             (Exact name of registrant as specified in its charter)

      Delaware                                                   22-3280395
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

11 Commerce Drive, Cranford, New Jersey                            07016
(Address of principal executive offices)                        (Zip Code)

       Registrant's telephone number, including area code: (908) 276-2080

        Securities registered pursuant to Section 12(b) of the Act: None

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


                               Title of Each Class
                      Class A Common Stock, $.001 par value
                           Redeemable Class A Warrants
                           Redeemable Class B Warrants
                           Redeemable Class C Warrants

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No
                                      ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of 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. [ ]

The registrant's revenues for its most recent fiscal year were $1,300,000.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  computed by  reference  to the last sale price of the  registrant's
Common Stock on March 5, 1997, is $5,018,625.

As of March 7,  1997,  the  registrant  had  2,065,000  shares of Class A Common
Stock,  $.001 par value per share,  and 800,000  shares of Class B Common Stock,
$.001 par value per share, outstanding.

Transitional Small Business Disclosure Format
Yes         No  X
               ---
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<PAGE>

                                     PART I
                                     ------

ITEM 1.  DESCRIPTION OF BUSINESS
         -----------------------

     Linda's  Diversified  Holdings Inc. (formerly Linda's Flame Roasted Chicken
Incorporated)  (the  "Company")  is a holding  company  consisting of restaurant
operations,  restaurant  franchising and home-equity loan  operations.  The loan
operations  are  conducted  through  National  Home  Guaranty  Inc.  ("NHG"),  a
wholly-owned subsidiary of the Company which commenced operations in April 1996,
providing both conventional and federally-guaranteed financing to homeowners and
lead-generation  services  for  contractors  with  respect  to home  improvement
services in the low-to-moderate income housing markets. The Company's restaurant
business,  operating under the name, Linda's  Rotisserie & Kitchen,  consists of
two company-owned and five (four at December 31, 1996) franchised  quick-service
restaurants.  The company  expects that its future results of operations will be
predominantly affected by the success or failure of NHG.


     The  Company  was  formed as a Delaware  corporation  in  February  1994 to
acquire all of the  outstanding  capital stock of four New Jersey  corporations,
formed at various times in 1991 and 1992 (collectively, the "Subsidiaries").  In
March 1994, all of the outstanding  stock of the  Subsidiaries was exchanged for
800,000  shares  of  newly-issued  Class B  Common  Stock  of the  Company  (the
"Reorganization")  and, as a result, the Subsidiaries became wholly-owned by the
Company.  The 800,000 shares are owned by the same  individuals  and in the same
proportions as the stock of the Subsidiaries  owned by them immediately prior to
the Reorganization.

     During the years  ended  December  31,  1994,  1995 and 1996,  the  Company
incurred   net   losses  of   approximately   $(1,203,000),   $(2,070,000)   and
$(3,117,000),   respectively.   The  Company  had  an  accumulated   deficit  of
approximately  $(6,300,000)  at  December  31,  1996.  In view of the  Company's
continuing   losses,   the  Company  is  limiting  its  expansion   entirely  to
diversifying  its  business  through  NHG.  However,  this  strategy  may not be
successful  and  such  losses  may  continue.  Moreover,  even if the  Company's
strategy of  diversification  through NHG is successful,  offsetting losses from
the Company's  corporate  overhead  could  materially  and adversely  affect the
ability of stockholders of the Company to realize any benefit from such success.
There  can be no  assurance  that  the  Company  will  ever  achieve  profitable
operations. The Company's prospects must be considered in light of the risks and
difficulties   frequently   encountered  in  the  highly  competitive  loan  and
restaurant businesses.


The Loan Business

     NHG, a New Jersey corporation,  provides  low-to-moderate income homeowners
with a single source for federally  guaranteed and conventional home improvement
credit and qualified  contractors to do the home improvement.  NHG also provides
second mortgage loans for other purposes. Low-to-moderate income homeowners have
traditionally   encountered  difficulties  obtaining  affordable  financing  and
securing the services of qualified contractors for home improvements.

     Since   commencing   business  in  April  1996,  NHG  has  originated  home
improvement   loans,   and  purchased  home   improvement  loan  contracts  from
contractors,  of between $6,300 and $40,000,  totalling  approximately $822,000.
Most of these loans have been  conventional  loans and substantially all of them
have been sold on a  service-released  nonrecourse  basis to third party lenders
without NHG having any continuing  obligations to service the loans. NHG intends
to continue to  originate,  purchase  and sell home  improvement  loans and loan
contracts and second mortgage loans for other purposes on this basis but NHG may
decide to retain and/or continue to service its loans.

     NHG has derived  revenue  from  administrative  fees paid by  participating
contractors  representing a percentage of each completed contract and by selling
loans at a premium  to  third-party  buyers.  NHG has also  derived  revenue  by
charging loan origination fees to borrowers.

     NHG's federally  guaranteed loan program is governed by the U.S. Department
of  Housing  and Urban  Development  ("HUD")  pursuant  to its Title I  Property
Improvement   Program  ("Title  I")  which  makes   federally   guaranteed  home
improvement  loans  available to  low-to-moderate  income  homeowners  ("Title I
Loans") in the amount of up to $25,000 for single-family homes and up to $60,000
for multi-family homes.


<PAGE>


            Other features of NHG's loan programs include:

         o    For  Title I Loans,  there is 90%  insurance  against  loss due to
              homeowner default;  for conventional loans, NHG is not insured but
              is usually secured as a second or third mortgagee.
         o    Title I Loans may be  unsecured up to $7,500;  NHG's  conventional
              loans are secured by a second or third  mortgage  except under the
              unsecured  loan program which has a maximum loan amount of $12,500
              and minimum credit rating of the borrower of A-.

         o    Title I Loans have fixed interest rates with repayment terms of up
              to 20 years; NHG's conventional  loans have  fixed-interest  rates
              with terms of up to 25 years.

         o    For Title I Loans of up to $25,000,  the homeowner is not required
              to have any equity in the home;  some of NHG's  conventional  loan
              programs  require  equity  in  the  home  and  appraisals  of  the
              property.

         o    Up to 100% of the renovations can be financed under both the Title
              I Loans and NHG's conventional loans.

         o    Under Title I Loans, the percentage of the homeowner's total fixed
              housing  expenses to gross income can be as high as 45%; for NHG's
              conventional loans, this percentage ranges from 45% to 50%.

     NHG  has  enrolled  home  improvement  contractors  who  meet  its  quality
standards  as  well  as  the  requirements   under  Title  I  (a  "Participating
Contractor"). Title I requires that, on the basis of experience and information,
NHG must  determine  that a  Participating  Contractor is reliable,  financially
responsible (with a minimum net worth), and qualified to satisfactorily  perform
its  contractual  obligations to homeowners and to comply with any  requirements
imposed  by  Title  I   regulations.   NHG  must   supervise  and  monitor  each
Participating Contractor's activities with respect to Title I insured contracts.
NHG mediates  complaints from homeowners  about  Participating  Contractors with
respect to all of its  loans.  In  addition,  with  respect to home  improvement
contracts  which NHG  purchases  from  Participating  Contractors,  NHG does not
advance funds to a Participating Contractor for its work until the homeowner has
signed  a  completion  certificate,  an  acknowledgement  that the work has been
completed to the homeowner's satisfaction;  however, with respect to loans which
NHG  originates  directly  with  the  homeowner,  NHG may  advance  funds to the
homeowner prior to completion of the home improvement. Furthermore, NHG requires
all Participating  Contractors to guaranty their work for a reasonable period of
time and to indemnify NHG against any claims by a homeowner referred by NHG that
relate to the quality of workmanship  and/or materials used by the Participating
Contractor.

     NHG markets the  availability  of its services to low and  moderate  income
homeowners  ("Prospects").  NHG pre-qualifies  each responding  Prospect for the
home  improvements  he or she desires  and can  afford.  NHG in turn refers each
Prospect to a  Participating  Contractor  that can provide the Prospect with the
desired  improvements.  Participating  Contractors  agree to pay NHG, as part of
such contractor's overhead expenses, a percentage of the final agreed upon total
contract  price  for  each  contract  entered  into  between  the  Participating
Contractor and the Prospect whether the Prospect pays for the home  improvements
in cash (including by obtaining direct financing from other sources) or finances
the work through NHG.

     If  a  Prospect   finances  home  improvement  work  through  NHG  with  an
installment  sale  contract  ("Contract"),  NHG  purchases  the Contract  from a
Participating  Contractor at a discount  upon the  completion of the job. If NHG
makes a direct loan (a "Loan") to a Prospect, the Loan may be disbursed prior to
completion  of the  work,  and the Loan may be for other  than home  improvement
purposes.  However,  prior to the  purchase  of a Contract or the release of any
Loan funds,  NHG sells the Contract or Loan to a third-party  lender, a practice
which NHG intends to, but may not, continue.

                                        2

<PAGE>



     Due to the referral relationship between NHG and Participating Contractors,
the Loan or Contract is subject to all claims and  defenses  that the  homeowner
has against a Participating Contractor but in an amount not exceeding the amount
paid by the homeowner under the Loan or Contract.

     NHG has hired various  personnel  with lending  experience as well as sales
and telemarketing  consultants.  NHG has nine full time employees engaged in the
following: three in management, one in underwriting, two in document processing,
one in investigations, one in data entry and one in administration. NHG also has
several part time employees who are customer service representatives.

     NHG has developed an advertising and marketing  program using a combination
of television and direct mail.  Additionally,  NHG will open in 1997 information
kiosks in area malls, designed to generate additional Prospects for its products
and services.  NHG directs its  marketing  activities  towards a homeowner  base
characterized  by (i) an average annual household income ranging from $25,000 to
$75,000; (ii) first time homebuyers or elderly homeowners; (iii) female heads of
household and (iv) homeowners  living in older homes in stable  communities with
no  immediate  plans of moving.  Many  homeowners  in its target  group may have
already been denied credit for insufficient income or other reasons.

     NHG is a  licensed  lender  in seven  states:  Massachusetts,  New  Jersey,
Delaware,  Maryland,  New  Hampshire,  Rhode  Island and  Connecticut.  NHG also
operates in Pennsylvania which does not require a license for NHG to conduct its
current  activities there of purchasing  Contracts but not originating Loans. In
addition,  NHG  operates in New York which does not require a license for NHG to
purchase Contracts and originate home improvement Loans.  However,  in order for
NHG to originate  second mortgage Loans in New York for purposes other than home
improvement and in  Pennsylvania  for home  improvement and other purposes,  NHG
will have to be licensed in such states.  A license  application  in New York is
pending.

     The  business  of NHG is  subject  to  compliance  with  federal  laws  and
regulations  relating to consumer lending,  including  compliance with the Equal
Credit  Opportunity  Act, the Consumer  Credit  Protection  Act, the Real Estate
Settlement  Procedures  Act and other federal laws and  regulations  relating to
consumer lending and mortgage activities. In addition, NHG is subject to various
state laws  applicable to licensed and  unlicensed  home  improvement  financing
agencies,  sales  finance  companies  and  second  mortgage  lenders  as well as
periodic  examinations  by HUD (for Title I Loans) and various  state  licensing
agencies.

Financings for Loan Business

     The Company  received net  proceeds of  approximately  $1,654,000  from its
private placement completed in May 1996 (the "Second Quarter Private Placement")
and net proceeds of approximately  $1,000,000 from the private  placement of its
Series A  Convertible  Preferred  Stock  completed in December 1996 (the "Fourth
Quarter Private Placement).  The Company may require additional financing within
the next  twelve  months  or  thereafter  and  there  can be no  assurance  that
additional financing will be available on acceptable terms or at all.

     Second Quarter Private Placement

     To finance  NHG,  the  Company  completed  in May 1996 the  Second  Quarter
Private  Placement of 40 units ("Units"),  each unit consisting of 20,000 shares
of the Company's  Class A Common Stock and Class C Warrants to purchase  Class A
Common  Stock,  for an  aggregate  offering  price of  $2,000,000.  The  Class C
Warrants were  exercisable  at $5.25 per warrant,  subject to  adjustment.  D.H.
Blair Investment Banking Corp.  ("Blair") acted as Placement Agent. A portion of
the net proceeds of the Second  Quarter  Private  Placement  was used to repay a
$500,000 advance which had been made by the Company to NHG.

                                        3

<PAGE>




     The Placement  Agent received (i) a placement fee equal to 10% of the gross
proceeds from the offering, (ii) a non-accountable expense allowance equal to 3%
of the gross  proceeds  from the  offering and (iii) a Unit  Purchase  Option to
purchase 14 Units at an exercise  price of $50,000 per Unit.  In  addition,  the
Placement Agent received a right of first refusal for certain Company financings
and  indemnification  for liabilities  arising out of the Second Quarter Private
Placement. The Placement Agent also received registration rights with respect to
the securities  underlying the Unit Purchase Options.  The Company agreed, under
certain circumstances,  to pay the Placement Agent a fee of 5% upon the exercise
of the Class C Warrants.

     Fourth Quarter Private Placement

     In December 1996, the Company sold in a private  offering 120,000 shares of
its  Series  A  Convertible   Preferred  Stock,   $.001  par  value  ("Series  A
Preferred"),  for the aggregate  purchase  price of  $1,200,000.  Blair acted as
Placement  Agent and received a 10% placement fee from the gross proceeds of the
Fourth  Quarter  Private  Placement,  a 3% expense  allowance,  a right of first
refusal for certain  Company  financings  and  indemnification  for  liabilities
arising out of the Fourth Quarter Private  Placement.  The Company  received net
proceeds of approximately  $1,000,000 from the Fourth Quarter Private Placement,
substantially all of which are expected to be used as working capital of NHG. As
a result  of the  issuance  of the  Series  A  Preferred  and the  anti-dilution
provisions  of the Class A, B and C Warrants,  the number of such  warrants were
increased and their exercise prices were reduced.

     The terms of the  Series A  Preferred  were set forth in a  Certificate  of
Designations  which  was  filed  with the  Secretary  of  State of the  State of
Delaware  immediately  prior to the  consummation  of the Fourth Quarter Private
Placement  (the  "Certificate  of  Designations").  A brief  summary  of certain
provisions of the Certificate of Designations follows.

     Liquidation  Preference.  In the event of any  liquidation or winding up of
the Company,  the holders of the Series A Preferred  will be entitled to receive
$10.00 per share plus any  accrued  dividends  before  any  distribution  to the
holders of the  Company's  Class A Common  Stock or Class B Common  Stock  (each
"Class A  Common  Stock"  and  "Class B  Common  Stock,"  collectively,  "Common
Stock").

     Dividend. A dividend is payable on the Series A Preferred equal to $.70 per
share per annum from the date of its issuance  ("Original Issue Date") until the
first  anniversary  of the Original Issue Date and,  thereafter,  at the rate of
$1.00 per share per annum,  payable  quarterly in arrears,  out of funds legally
available  therefor,  on the 15th day of March, June,  September and December of
each year commencing March 15, 1997.

     Conversion. Following the expiration of six months after the Original Issue
Date, each share of Series A Preferred will become convertible, at the option of
the  holder,  into the number of shares of Class A Common  Stock  determined  by
dividing $10.00 by a divisor equal to $2.75, subject to antidilution adjustments
as a result  of,  among  other  things,  a  subdivision  or  combination  of the
outstanding  Common  Stock,  a payment  by the  Company of a stock  dividend  to
holders of the Common  Stock and  issuances  of Common  Stock,  under  specified
circumstances, for less than the then current market price of the Class A Common
Stock, all as specified in the Certificate of Designations.

     Voting Rights. The holders of the Series A Preferred have no voting rights.
However,  so long as shares of Series A Preferred are  outstanding,  without the
approval of at least a majority of the outstanding shares of Series A Preferred,
the  Company  may not (a)  adversely  alter or change the  rights,  preferences,
privileges or restrictions of shares of Series A Preferred,  or (b) increase the
authorized  number of shares of Series A Preferred  or increase or decrease  the

                                        4

<PAGE>


par value of the Series A Preferred.  Furthermore,  in the event the Company has
failed to make any four quarterly  dividend  payments on the Series A Preferred,
the majority in interest of the holders of the Series A Preferred  will have the
right to elect a majority of the  members of the  Company's  Board of  Directors
until such dividends are paid in full.

     Redemption. The Series A Preferred is subject to redemption, in whole or in
part,  on any date  specified by the Company (the  "Redemption  Date") after the
fifth  anniversary  of the  Original  Issue  Date at a price per share  equal to
$10.00 plus accrued but unpaid  dividends,  provided  that, as of the Redemption
Date,  the  market  price of the Class A Common is at least  200% of the  market
price (as defined) of the Class A Common Stock at the Original  Issue Date. If a
dividend  payment on the Series A Preferred  is past due, the Company may redeem
not less than all of the Series A Preferred outstanding.

Risks of NHG's Business

     NHG  has  incurred  direct  expenses  of   approximately   $1,594,000  from
commencement  of  operations  in April  1996  through  December  31,  1996  with
negligible revenues. NHG is subject to all of the risks associated with start-up
businesses  including those associated with the highly  competitive home finance
business,  which is dominated by large  institutions.  There can be no assurance
that  profitability  will be achieved by NHG,  or if  achieved,  that it will be
sustained.

     NHG  sells its  Contracts  and Loans to third  party  lenders  prior to its
purchase of such Contracts from a Participating  Contractor upon completion of a
job or its funding of Loans. Therefore, NHG's ability to originate Loans and buy
Contracts on an ongoing  basis is  dependent  upon its ability to sell the Loans
and Contracts to such third-party  lenders,  primarily commercial banks, savings
and loan  associations and other large credit  companies,  on a timely basis and
upon terms  acceptable to NHG. While NHG has sold  substantially  all such Loans
and Contracts  written since inception of operations,  there may not continue to
be a sufficient  market for NHG's Loans and Contracts and NHG may not be able to
continue to sell the Loans and Contracts on a timely basis, on acceptable terms,
or at all. NHG's inability to sell the Loans and Contracts could have a material
adverse effect on the business and operations of NHG and the Company.

     A key  component  of  the  proposed  business  of  NHG  involves  providing
low-to-moderate  income homeowners with access to qualified  contractors who can
perform the needed  improvement  work on  acceptable  terms.  NHG  currently has
agreements  with eight  contractors  and is  continuing  to seek to expand  this
network.

     NHG faces  competition  from home  mortgage  lenders that offer Title I and
conventional home renovation loans. Many of these competitors have substantially
greater financial,  marketing and other resources than the Company. In addition,
homeowners  may  finance  renovations  by  obtaining  home  equity  lines,  home
improvement loans and second mortgages through banks,  savings  institutions and
mortgage companies.

     The success of NHG will depend,  to a large extent,  upon marketing efforts
that have required and will continue to require substantial  expenditures by the
Company,  primarily for the  production  and placement of television  and direct
mail.  The Company  may not have the  necessary  funds to sustain its  marketing
campaign.   The  Company's  marketing  activities  relating  to  its  restaurant
operations   have   achieved   limited   success.   Moreover,   NHG   targets  a
non-traditional  homeowner market and, although NHG has retained the services of
marketing  consultants,  the Company may not be able to gain  acceptance in such
market.

     The  business  of NHG is  subject  to  compliance  with  federal  laws  and
regulations  relating to consumer lending,  including  compliance with the Equal
Credit  Opportunity  Act, the Consumer  Credit  Protection  Act, the Real Estate
Settlement  Procedures  Act and other federal laws and  regulations  relating to
consumer lending  activities.  HUD regulations also require that NHG maintain at

                                        5

<PAGE>


least a $500,000  warehouse line of credit in order to originate  Title I Loans.
NHG has  obtained a  $3,000,000  line of credit  although NHG may not be able to
maintain  such  line  of  credit  and is not  certain  that  such  line  will be
sufficient  to meet its future  needs.  In  addition,  NHG is subject to various
state laws  applicable to licensed and  unlicensed  home  improvement  financing
agencies,  sales  finance  companies  and  second  mortgage  lenders  as well as
periodic  examinations  by HUD (for Title I Loans) and various  state  licensing
agencies.

     Although  NHG  does  not  advance  funds  on a  Contract  to  Participating
Contractors until the homeowner has signed a completion certificate and has also
verbally  verified  satisfaction  to NHG, NHG may make advances on Loans without
obtaining such completion certificate and verbal verification.  In either event,
NHG may be  subject  to  subsequent  claims by  Prospects  that a  Participating
Contractor  referred  by NHG did not perform  his work as agreed.  Although  NHG
requires all  Participating  Contractors to guaranty their work for a reasonable
period of time and to  indemnify  NHG  against  any claims  raised by a Prospect
referred by NHG that relate to the quality of workmanship  and/or materials used
by the Participating  Contractor,  a Participating  Contractor may not honor, or
NHG  may not be able  to  enforce  without  undue  expense,  any  guarantees  or
indemnifications.



The Restaurant Business

     The Company  currently  owns and  operates,  and is offering  franchises to
operate,  quick-service  restaurants  that  specialize  in preparing and serving
complete meals featuring  marinated flame roasted  rotisserie  chicken,  turkey,
meatloaf,  roast beef and a variety of side  dishes.  To date,  the  Company has
opened five Company-owned restaurants, all in New Jersey, of which two have been
closed and one has been sold as a franchise  operation.  In addition the Company
has sold an additional  seven franchises (six in New Jersey and one in New York)
five of which have been opened.

     The Company has been  exploring the  possibility  of selling its restaurant
business or entering into a strategic  alliance  with respect to its  restaurant
business. There can be no assurance that these efforts will be successful.

     The Linda's  Rotisserie & Kitchen  restaurants  serve homestyle meals while
offering the  convenience  and value of fast food. Side dishes include hot items
such as "smashed" potatoes, herbed stuffing, sweet potatoes, steamed vegetables,
warm  applesauce and creamed  spinach,  as well as cold items such as cold slaw,
fat-free potato salad,  Santa Fe pasta salad and cranberry relish. The Company's
menu also offers oven-roasted turkey, turkey specials such as meatloaf, stew and
chili,  potpies,  gourmet sandwiches,  soups,  salads,  cornbread,  desserts and
beverages.  While the Company's menu is standardized,  certain items are rotated
on a daily basis and seasonal specials are also available.

     The two Company-owned  restaurants are located in West Caldwell and Summit,
New Jersey.  The  Company-owned  and franchised  restaurants  range in size from
approximately  1,400  to  3,100  square  feet.  The  decor  of  each  restaurant
incorporates  pastel  colors,  light woods,  and  colorful  pictures in order to
provide  a  casual  atmosphere  appealing  to a  broad  base of  customers.  The
Company's  restaurant  design  is  intended  to  be  sufficiently   flexible  to
accommodate  a variety of  available  sites as well as a high volume of customer
traffic.  In addition,  the Company's open rotisserie ovens, with their roasting
chickens,  can be seen through each restaurant's  glass front windows to attract
walk-in traffic. The restaurants provide both eat-in and take-out services.


                                        6

<PAGE>



     Restaurant Design and Operations

     Layout and  Design.  The  exterior  of each  Company-owned  and  franchised
restaurant  is dominated by over 25 feet of glass  frontage,  through  which the
restaurant's  open-hearth  brick  rotisserie  oven  is in  prominent  view.  The
interior atmosphere of each restaurant is casual with decor and artifacts themed
around  chicken and  seasonal  promotions.  Earth tone  colors,  light woods and
colorful  pictures  give the  restaurant  a fresh,  clean and casual  atmosphere
appealing  to  a  broad  base  of  customers.  Each  restaurant  consists  of  a
kitchen/preparation area and ordering counter and seating capability for between
24 and 60 customers.  Included in the  preparation  area is the rotisserie  oven
with the  capacity to cook up to 56 chickens at the same time.  Each  restaurant
also has a  convection  cooking oven  that is used to roast  turkey  and  other
products  and can be used,  if  necessary,  to roast  additional  chickens.  The
Company's   restaurant   design  is  flexible   and  can  be  adapted  to  local
architectural styles and existing buildings.  However, to ensure compliance with
Company specifications and standards, restaurant and complete kitchen design and
plans for franchised restaurants are required to be approved by the Company. The
Westwood franchise is the Company's first free-standing  restaurant and is based
on a prototype  that the Company plans to use as a standard  design at other new
locations.

     Food Preparation and Service.  The Company's menu,  while  standardized and
focused  principally  on flame roasted  chicken and turkey,  offers a variety of
items and includes main and side dishes that may vary from day-to-day. Customers
are served  cafeteria-style and pay when their orders are completely filled. Hot
and cold side dishes are prominently  displayed so that the customer may see the
product,  sample it upon request and watch as a meal is served. Take-out food is
served in reusable  packages,  some of which  utilize the  Company's  registered
service mark and logo and servers  behind the counters wear  uniforms  featuring
the Company's logo. The Company provides generous portions at prices it believes
are competitive  with its  quick-service  restaurant  competitors and well below
prices of comparable menu items in traditional restaurants.

     Operations and  Management.  The Company's  restaurants  are operated seven
days a week generally  from 11:00 a.m. to 9:00 p.m. under uniform  standards set
forth in the Company's  confidential  operating and recipe manuals, that include
specifications relating to food quality,  procurement and preparation (including
exact recipes for all food products and marinades), restaurant design and decor,
hiring  and  training  of  employees,  cash  control  systems,   sanitation  and
day-to-day  operations.  The Company  requires  franchisees to maintain the same
uniform standards as Company-owned restaurants.

     Each existing  restaurant employs between 6 and 15 people daily,  generally
on a  staggered  basis  designed  to match  employee  work hours  with  customer
traffic.  Restaurant  personnel  consist of a restaurant  manager,  an assistant
restaurant manager, one to three full-time kitchen personnel and eight to twelve
part-time  employees  that  serve as  counter  personnel.  For  each  restaurant
position,  there  is  a  complete  job  description  and  policy,  training  and
procedures that are articulated in the Company's  operations manual.  Restaurant
managers are responsible for day-to-day  operations,  including food purchasing,
preparation  and quality,  inventory  control,  customer  relations,  restaurant
maintenance,  cost  control,  selecting and training new employees and personnel
relations.  The Company uses employee  incentives  to help promote  friendly and
efficient service.

     Each  restaurant is equipped  with a computer cash register  system that is
linked by modem to a central  computer  system at the Company's  headquarters so
that management can monitor restaurant  operations at any time of the day. These
registers permit the register operator to enter the menu items selected, but not
its price,  which is  automatically  entered and totalled by the  register.  The
Company  monitors  sales at all locations each day and is able to obtain general
sales,  inventory,  labor  cost and  customer  account  data  using  information
provided by the cash registers.  The Company handles  financial,  accounting and

                                        7

<PAGE>


management   controls  for  its  restaurants  through  the  use  of  centralized
accounting  systems and budgets.  The Company has procedures to protect  against
the internal mishandling of cash, including computerized cash registers, and, in
order to further minimize losses due to theft, the manager or assistant  manager
of each restaurant is required to deposit cash receipts at a bank or drop box at
least once per day.

     A complete  inventory of spare parts is maintained at each  restaurant  for
the roasting  ovens.  The Company  believes  that such spare parts are, and will
continue to be,  readily  available  from several  different  suppliers.  In the
event,  however,  that spare parts are not available,  the Company's restaurants
could be materially  adversely affected.  To date, however,  malfunctions of the
Company's  roasting  ovens have not had a material  adverse effect on restaurant
sales. The Company believes that its equipment is state of the art.

     Franchising

     The  Company  believes  that  franchised  restaurants  will  have a greater
potential for profitability  than Company-owned  restaurants  because it expects
that  franchisees  will be more directly and closely  involved in the day-to-day
operations of their  restaurants  than managers of Company-owned  stores.  There
can,  however,  be no  assurances as to when,  if ever,  the  Company's  current
franchisees that have yet to open their restaurants will do so, that the Company
will  attempt  to or be able to  sell  any  additional  franchises  or that  the
franchises will be successful and pay royalties to the Company.

     As of December 31, 1996, the Company's franchised  restaurants were located
in  the  following  New  Jersey  locations:   Colonia,   Westwood,  Oakland  and
Flemington.  Another franchised restaurant opened in South Orange, New Jersey in
March 1997 and two additional  restaurants,  in Dutchess  County,  New York, and
Belleville,  New Jersey,  are expected to open later in 1997. The restaurants in
Flemington and Dutchess County are part of a single area development  agreement,
entered into in March 1996,  pursuant to which up to 18  franchised  restaurants
may be developed by specified dates at selected shopping centers  throughout the
country. In March, 1997, the Company entered into a master license agreement for
development of a minimum of 20 restaurants in the Philippines by specified dates
within a ten year  period.  The Company  received  $120,000  upon signing of the
master  license  agreement and will receive a fee for each  restaurant  which is
opened and royalties on each restaurant's net sales.

     The  Company's  single  franchises  are  governed  by a form  of  franchise
agreement  developed  for the Company which  provides  for,  among other things,
payment by the franchisee of an initial franchise fee and a royalty fee based
on a  percentage  of the net sales of the  restaurant.  The  Company's  standard
initial  franchise  fee  is  $25,000.  In  addition,  a  franchisee  must  pay a
percentage  of  net  sales  to the  Company's  advertising  fund  and  spend  an
additional  percentage  of net  sales  for  local  advertising.  Each  franchise
agreement  specifies a territory within which the Company will not establish and
operate,  or grant other parties the right to establish  and operate,  a Linda's
Rotisserie & Kitchen  restaurant for a specified period of time. Each franchisee
will be  required  to operate its Linda's  Rotisserie  & Kitchen  restaurant  in
accordance  with the  franchise  agreement  and with the methods,  standards and
specifications set forth in the Company's confidential operating manual.

     The Company spent approximately  $201,000 on its franchising program during
its fiscal year ending December 31, 1996.

     Service Marks

     The Company owns its word mark "Linda's  Flame Roasted  Chicken" and a logo
which includes its word mark and a stylized  chicken.  The Company has a federal
registration  for its logo mark.  The Company  considers  its service  marks and
trademarks to be important to its business and intends to actively protect them.
The Company  plans to license the use of the federally  registered  logo mark to
franchisees in its franchising program.


                                        8

<PAGE>


     Suppliers

     The  Company  negotiates   directly  with  local  suppliers  for  all  food
ingredients,  beverage and poultry products utilized by its restaurants in order
to ensure uniform quality and adequate supply and to obtain competitive  prices.
The Company has  negotiated  with  poultry  suppliers  to provide  pre-marinated
chicken to each  store.  The  Company  believes  that  alternative  sources  for
poultry, groceries and produce are available from other suppliers if its current
suppliers are not able to provide adequate quantities of products or services at
competitive prices.

     To date, the Company has not been materially  adversely affected by changes
in the cost of chicken, shortages or interruptions in supplies of chicken, fresh
produce or other supplies or delays or stoppages in deliveries of supplies.


Risks of Restaurant Business

     The restaurant  industry,  and particularly the quick-service  segment,  is
intensely  competitive with respect to price,  service,  restaurant location and
food  quality.  There  are  numerous  well-established   competitors  possessing
substantially  greater  financial  and  other  resources  than the  Company  and
substantially longer operating histories.  The Company believes that it competes
with  other  takeout  food  service  companies,  fast-food  restaurants,  casual
full-service dine-in  restaurants,  delicatessens,  cafeteria-style  buffets and
prepared food stores as well as supermarkets and convenience stores. Competitors
also  include  national,  regional  and local pizza  restaurants,  chinese  food
restaurants  and other  providers of carry-out  food.  Other direct  competitors
include independent rotisserie chicken  establishments  operating in New Jersey,
and supermarkets who feature prepared foods to-go and rotisserie  chicken.  Many
of the Company's  competitors have achieved significant  national,  regional and
local brand name and product recognition and engage in extensive advertising and
promotional  programs,  both  generally and in response to efforts by additional
competitors to enter new markets or introduce new products. The Company believes
that  its  restaurants  compete  favorably  in  terms of  taste,  food  quality,
convenience, customer service and value, which the Company believes are the most
important  factors to its target  customers.  In  addition  to other  restaurant
companies,  the Company also competes with numerous other retail food businesses
for  suitable  locations  for its  restaurants  and with other  franchisors  for
qualified franchisees.


                                        9

<PAGE>



     In addition,  competition in the food service business is often affected by
other  factors,  over which the  Company  has no control  and which could have a
material  adverse  effect  on  its  business   including   changes  in  consumer
preferences,  national,  regional  and local  economic  conditions,  demographic
trends, traffic patterns, labor costs and the availability of supplies.

     While the Company is currently  offering  franchises,  only five franchised
restaurants  have opened.  Although the Company  provided  interim  construction
financing to its first  franchisee,  the Company does not have the  resources to
offer significant  financing  assistance to franchisees and, as a result, may be
at a competitive  disadvantage  relative to other  franchisors.  Compliance with
Federal and state franchise sales laws and state franchise  relationship laws is
costly and time consuming.  The Company's  franchisees may not be successful and
franchisees may not operate Linda's Rotisserie & Kitchen restaurants in a manner
consistent with the Company's methods, standards and specifications.

     Increases in the cost of chicken and fresh  produce could have a direct and
immediate effect on the Company's results of operations.  A substantial  portion
of the Company's  revenues and food costs are derived from the sale and purchase
of chicken.  The cost of fresh chicken fluctuates from time to time depending on
a variety  of  factors  beyond  the  control  of the  Company,  such as  weather
conditions and seasonal demand. Dependence on frequent deliveries of chicken and
fresh produce also subjects food service  businesses to the risk that  shortages
or interruptions in supply, caused by adverse weather or other conditions, could
adversely   affect  the   availability,   quality,   and  cost  of  ingredients.
Furthermore,  any delays or  stoppages  in such  deliveries  could  subject  the
Company's restaurants to shortages or interruptions which could adversely affect
restaurant sales. Additional factors such as inflation, increased utility, labor
and employee  benefit costs and the  availability  of qualified  management  and
hourly  employees are beyond the Company's  control and may in the future affect
the restaurant industry in general and the Company's restaurants in particular.

     The  Company  is  subject to various  federal,  state and local  laws,  and
regulations  affecting  its  restaurant  business,  including  state  and  local
licensing,  zoning,  land use,  construction and  environmental  regulations and
various health, sanitation, safety and fire standards affecting its restaurants.
The Company is also subject to the Fair Labor  Standards  Act and various  state
laws governing such matters as minimum wages,  overtime and working  conditions.
To date, the Company has not been  materially  burdened by such laws,  rules and
regulations  other than delays in obtaining  permits for the construction of one
of its restaurants  and believes it is currently in compliance,  in all material
respects, with applicable federal, state and local laws and regulations.

     The Company  has not made,  nor does it  anticipate  making,  any  material
capital  expenditures in order to comply with environmental  regulations.  There
can be no assurance,  however,  that new  environmental  regulations will not be
adopted which will require the Company to make material capital  expenditures to
comply therewith.


                                       10

<PAGE>



     The Company is subject to the Federal Trade  Commission's  Trade Regulation
Rule entitled "Disclosure  Requirements and Prohibitions  Concerning Franchising
and Business Opportunity Ventures" (the "FTC Franchise Rule") and state laws and
regulations  that  govern  the offer and sale of  franchises.  To offer and sell
franchises,  the Company is required by the FTC  Franchise  Rule to furnish each
prospective  franchisee with a current franchise  offering circular prior to the
sale of a franchise.  In addition, the laws of 16 states require a franchisor to
comply with registration or filing requirements prior to offering a franchise in
the  state and to  provide a  prospective  franchisee  with a current  franchise
offering  circular  complying  with the state's  laws,  prior to the sale of the
franchise.  The  Company  has  prepared a franchise  offering  circular  and has
complied with all  applicable  federal and state laws  regulating  the offer and
sale of franchises.

     The Company will be required to update its franchise  offering  circular to
reflect material changes, under applicable law, regarding its franchise offering
and to comply with changes in  disclosure  requirements.  The  occurrence of any
such  material  changes  may,  from time to time,  require  the  Company to stop
offering  and  selling  franchises  until its  franchise  offering  circular  is
updated.  The  Company's  franchising  program may be adversely  affected by its
failure to  register or file in certain  states  consistent  with its  expansion
plans,  because  compliance  with applicable law  necessitates  that the Company
cease  offering and selling  franchises  in certain  states until its  franchise
offering circular is updated or because of its inability to comply with existing
or future franchise laws.

     The Company will also be subject to a number of state laws and  regulations
that  regulate  certain   substantive   aspects  of  the   franchisor-franchisee
relationship,  including  those  governing the  termination  or non-renewal of a
franchise agreement (such as requirements that "good cause" exist as a basis for
such  termination  and that a franchisee be given advance notice of, and a right
to cure, a default prior to termination),  requirements that the franchisor deal
with its franchisees in good faith,  prohibitions  against interference with the
right of free association among franchisees and those regulating  discrimination
among  franchisees in charges,  royalties or fees.  Compliance  with federal and
state laws  regulating  franchising is costly and time consuming and the Company
may encounter  difficulties  or delays in this area and may require  significant
capital for franchising activities.

Insurance

     The  Company  carries  property,  liability,  business  interruption,   and
workers'  compensation  insurance policies,  which it believes are customary for
businesses of its size and type. The Company's  franchisees are also required to
maintain a certain  minimum  standard of insurance  pursuant to their  franchise
agreements,   including   commercial  general  liability   insurance,   workers'
compensation  insurance and all risk property and casualty  insurance,  with the
Company being named as an additional insured on appropriate policies.


Employees

     At March 24, 1997, the Company had 47 employees, consisting of 17 full-time
and 30 part-time (hourly) employees, two of whom are executive officers. Fifteen
of the Company's employees work at the Company's  headquarters in Cranford,  New
Jersey, including 10 employed with NHG; one full-time and one part-time employee
work at NHG's  Massachusetts  office  and the  remainder  work at one of the two
restaurants owned and operated by the Company.  None of the Company's  employees
are  represented  by any labor  union or  covered by any  collective  bargaining
contract. The Company believes its relationship with its employees is good.


                                       11

<PAGE>





ITEM 2.  DESCRIPTION OF PROPERTY
         -----------------------


     The  table  below  sets  forth  information  with  respect  to  each of the
Company's Properties:

                                                                  Lease Terms
                                                             -------------------
                                                             Expiration   Annual
Location                       Opening Date  Square Footage     Date      Rental
--------                       ------------  --------------  ----------   ------

11 Commerce Drive................  12/94         3,600          6/97     $54,000
Cranford, New Jersey 07016 (1)

771 Bloomfield Avenue............  10/91         2,900        10/2001    $73,000
West Caldwell, New Jersey (2)(4)

63 Union Place ..................   6/95         1,400         12/99     $18,000
Summit, New Jersey (3)(4)

951 East Street .................   5/96         2,000         12/98     $24,000
Tewksbury, Massachusetts (5)

(1)  Lease has a two-and-one-half-year term.

(2)  Lease has an initial ten-year term and two five-year renewal options.

(3)  Lease has an initial five-year term and four five-year renewal options.

(4)  Lease provides for additional  payment of common area  maintenance  charges
     and increases in real estate taxes.

(5)  Lease has a two-year, eight month term.

     In the opinion of the management of the Company,  the above named locations
are adequately covered by insurance.

     In  addition to the above  properties,  subsidiaries  of the Company  lease
three of its  franchised  locations for sublease to franchisees at the same rent
payable by the lessor.


ITEM 3.  LEGAL PROCEEDINGS
         -----------------

     The Company is not a party to any material legal proceedings.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

     No matters  were  submitted  to a vote of  security  holders of the Company
during the fourth quarter of its fiscal year ended December 31, 1996.


                                       12

<PAGE>

                                     PART II
                                     -------

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
         --------------------------------------------------------

     The Company's  Class A Common Stock is quoted on The Nasdaq SmallCap Market
under the symbol  LINCA.  There is no public  trading  market for the  Company's
Class B Common Stock. As of March 20, 1997, there were  approximately 53 holders
of record of the  Company's  Class A Common Stock and eight holders of record of
the Company's Class B Common Stock.  The following table sets forth the high and
low last sale  prices for the  Company's  Class A Common  Stock,  as reported by
NASDAQ, for the periods indicated.

Year Ended December 31, 1995:                             High         Low
                                                          ----         ---

     First quarter..................................     $4.50        $3.25
     Second quarter.................................     $5.25        $3.00
     Third quarter..................................     $7.25        $4.75
     Fourth quarter.................................     $5.63        $4.25

Year Ended December 31, 1996:

     First quarter..................................     $5.25        $4.25
     Second quarter.................................     $6.30        $4.63
     Third quarter..................................     $6.00        $5.50
     Fourth quarter.................................     $6.50        $3.38

The closing price of the Company's Common Stock on March 5, 1997 was $3.00

     The  Company has never paid any cash  dividends  on its Common  Stock.  The
Company anticipates that, in the future,  earnings, if any, will be retained for
use in its business or for other corporate  purposes,  and it is not anticipated
that cash  dividends  in respect  of the Class A Common  Stock or Class B Common
Stock will be paid.

     For recent sales by the Company of unregistered securities, see "Financings
for Loan Business" under "Item 1. Description of Business," above.

ITEM 6.  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 seven restaurants,  two of which are
Company-owned and operated, and five of which are franchised.  Additionally, the
Company has sold an additional two franchises,  one in New Jersey and one in New
York,  which  are  expected  to open  later in 1997.  The  loan  operations  are
conducted through 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.

                                       13

<PAGE>





     Restaurant Operations

     Gross  restaurant  sales for the year ended  December  31,  1996  decreased
$1,415,000  (54%) as compared to the year ended  December 31,  1995.  Comparable
store gross sales (for locations  opened at least one year)  decreased  $106,000
(9%).  The total sales  decreases  were due to the  Company  having four to five
Company-owned  locations in 1995  compared  with two to three such  locations in
1996 (two at December 31,  1996).  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.

     Food and paper costs collectively  increased as a percentage of gross sales
for the year ended  December 31, 1996 compared to 1995 to $473,000 (40% of gross
sales) from  $1,031,000  (39% of gross sales),  respectively  due essentially to
higher  poultry costs which were at a ten-year  high.  These higher costs offset
food cost reductions that the Company had achieved  through the expansion of its
menu to feature  oversized gourmet  sandwiches,  roast beef and turkey meat loaf
meals.

     The paper cost component of cost of sales  decreased due essentially 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 $385,000 (32% of gross
sales) for the year ended  December  31, 1996 as  compared  to $893,000  (34% of
gross sales) for 1995. This decrease,  as a percentage of gross sales, 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.

     Operating  expenses,  including such items as local promotion,  repairs and
maintenance and store supplies, amounted to $65,000 (5% of gross sales) for 1996
compared to $167,000 (6% of gross sales) for 1995.

     Occupancy costs,  including such fixed and recurring items as rent,  common
area  maintenance  charges and  utilities,  amounted  to $229,000  (19% of gross
sales) and $431,000  (16% of gross sales) for the years ended  December 31, 1996
and 1995,  respectively.  This  increase as a percentage  of gross 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 $131,000 (11% of gross sales)
for the year ended December 31, 1996 from $152,000 (6% of gross sales) for 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.

                                       14

<PAGE>




     The  restructuring  charges of $267,000  and  $114,000  for the years ended
December 31, 1996 and 1995, respectively represent the costs associated with the
Company's closing of its restaurants in Livingston and Edison, NJ.

     The impairment  loss of $335,000  consists of $72,000  related to equipment
and other expenses  associated with a proposed mobile  restaurant  concept which
the  Company  does not  expect to pursue,  and  $263,000  related  to  leasehold
improvements on and equipment in one of the Company's restaurants.

     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  December  31,  1996,  four
franchises were opened (A fifth opened in March 1997). 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 in September 1996. The fourth location opened in Oakland,
New Jersey in November 1996. The fifth location,  which opened in March 1997, is
located in South  Orange,  New Jersey.  Franchise  royalty  income,  amounted to
$30,000 for the year ended December 31, 1996.  There was no such revenue for the
year ended December 31, 1995.

     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
December 31, 1996, this fund had excess expenditures over revenues approximating
$14,000.

     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  $201,000  and  $221,000  for the years  ended  December  31,  1996 and 1995,
respectively.


     Loan Operations

     The Company's loan  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 conventional loans. NHG derives its revenue from
administrative  fees  received from  participating  contractors  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 December
31, 1996 totalled $57,000  including  $37,000 in completed  contract fee income,
and $8,000 in loan origination fees and $12,000 in loan participation  premiums.
The  Company  recognizes  contract  fee  income  when the  related  contract  is
completed by the contractor.

                                       15

<PAGE>


     NHG  experienced  charges of  $1,594,000  from  commencement  of operations
through  December 31, 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, totalled $555,000 (35% of total
expenses)  for  commencement  of  operations  through  December 31, 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  television  and  radio  commercials,
totalled  $764,000  (48% of total  expenses)  for the period ended  December 31,
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 one of the
largest expense items in future  operations and to have a significant  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, totalled $275,000 (17% of total expenses) for the period ended December
31, 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 $991,000  for the year
ended  December  31,  1996  from  $1,657,000  in 1995.  This is as a  result  of
continued  reductions  in  overhead  as a result of the  elimination  of several
corporate  positions.  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.

     Interest  income  decreased  to $68,000  from  $122,000 for the years ended
December 31, 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 its operations.


     Liquidity and Capital Resources

     Current assets at December 31, 1996 were $1,483,000  compared to $1,576,000
at December 31, 1995 and current  liabilities were $443,000 at December 31, 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  December  31,  1996,  consisted  of
obligations owed under capitalized leases for point-of-sale terminals at each of
the  restaurants  totalling  $36,000.  Additionally,  the Company  issued a note
payable,  with  a  remaining  balance  of  $19,000  at  December  31,  1996,  in
conjunction  with its  acquisition of the restaurant in Summit,  NJ. The Company
currently  has no  bank  borrowings.  For  dividends  payable  on the  Company's
outstanding  Series A Preferred,  see "Financings for Loan Business" under "Item
1. Description of Business," above.

                                       16

<PAGE>

     The Company requires  capital  principally to expand the operations of NHG.
The Company is not pursuing new franchisees for its restaurant business and does
not currently intend to open additional Company-owned restaurants. Funds will be
used primarily for NHG to continue to refine its marketing  programs,  buy media
time and expand  its  operations  into other  metropolitan  areas.  The  Company
expects that its future results will be predominantly affected by the success or
failure of NHG.

     The Company's franchising  operation currently has seven franchisees,  five
of which have stores which are currently  open, and two of which are expected to
open later in 1997.  Additionally,  in March 1997,  the Company  signed a master
license  agreement with a licensee for territory  rights to develop a minimum of
20 restaurants in the Philippines over a ten year term.

     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.

     The Company has been  exploring the  possibility  of selling its restaurant
business or entering into a strategic  alliance  with respect to its  restaurant
business. There can be no assurance that these efforts will be successful.


     Through the period ended December 31, 1996, NHG had closed loans  totalling
$822,000,  of which $779,000 had been sold to a third-party lender. Thus, retail
loans receivable  amounted to $43,000 at December 31, 1996. The Company sold all
such retail loans in January 1997.

     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,  experiences  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  is  reviewing  the   possibility  of  becoming  a  licensed  lender  in
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
any 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.  However, there can be no assurance of success. The Company expects that
additional  funding may 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

                                       17

<PAGE>


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  above under  "Description  of
Business" and from time to time in the Company's SEC reports,  including but not
limited to the Company's  Registration  Statement  filed on Form S-3 on July 24,
1996.

Charge to Income in the Event of Release of Escrow Shares

     In the event that any shares are released  from escrow to  stockholders  of
the Company who are officers,  directors or employees of, or consultants to, the
Company,  compensation expense will be recorded for financial reporting purposes
as required by GAAP. Therefore, in the event that the Company attains any of the
earnings  thresholds or the Company's Class A common stock meets certain minimum
bid prices  required for the release of the escrow shares,  such release will be
deemed as  additional  compensation  expense of the  Company.  Accordingly,  the
Company will, in the event of such release, recognize during the period in which
the earnings thresholds are met or are probable of being met or such minimum bid
prices  attained,  what will likely be a  substantial  charge  equal to the fair
market  value of the shares  released  from  escrow,  which charge will have the
effect of substantially increasing the Company's loss or reducing or eliminating
earnings,  if any, at such time.  Furthermore,  the release of the escrow shares
would have a dilutive effect on earnings per share or a corresponding  reduction
in loss per share,  as a result of the  increase in the number of shares  deemed
outstanding  for this  purpose.  Although  the  amount of  compensation  expense
recognized  by the Company  will not affect the  Company's  total  stockholders'
equity or its working  capital,  it may have a  depressive  effect on the market
price of the Company's securities.


Seasonality

     Both of the Company's businesses are affected by seasonality. The Company's
restaurants,  similar to the rest of the restaurant  industry,  has  experienced
lower  revenues in the months of January,  February and March due to the effects
of inclement weather in the Northeast.  Severe weather conditions had a material
adverse effect on traffic at the Company's  restaurants during the first quarter
of 1996.  In  addition,  the prices that the Company pay on certain  food items,
notably  produce,   can  and  have  varied  according  to  seasonal  demand  and
availability.  In addition, NHG experiences a decrease in potential revenues due
to a significant  slowdown in home improvement  requests in the Northeast during
the winter.


Impact of Inflation

     The  Company  believes  that  inflation  has not  materially  affected  its
operations  to  date.  Substantial  increases  in  costs  and  expenses  in  its
restaurants,  particularly  food and labor  expenses,  as a result of inflation,
could have an adverse  impact on the Company's  operating  results to the extent
that such increases cannot be passed along to customers.


ITEM 7.  FINANCIAL STATEMENTS
         --------------------

     See index to the Company's financial statements attached hereto.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         ---------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

     None.
                                       18

<PAGE>


                                    PART III
                                    --------

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         -------------------------------------------------------------
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
         -------------------------------------------------


Directors and Executive Officers

     The following table sets forth certain information concerning all directors
and  executive  officers of the  Company.  Directors  are elected at each annual
meeting of  stockholders,  or in the case of vacancy,  by the directors  then in
office,  to serve  until the next  annual  meeting  of the  stockholders  of the
Company and until their respective successors have been elected and qualified or
until their earlier  resignation or removal.  Executive  officers are elected by
the Board of Directors to serve at the pleasure of the Board.



     Name                        Age   Position with the Company
----------------                 ---   -------------------------

Peter Weissbrod (1)              40    President, Chief Executive Officer and
                                       Director

Stuart Fuchsman (1)              39    Vice President, Chief Operating Officer
                                       and Director

Richard Goldberger (1)(2)        67    Chairman of the Board of Directors

Lewis Levine (2)                 44    Director



William Ozzard                   81    Director

Ivan Szathmary                   60    Director


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

     (1)  Member of Executive Committee.
     (2)  Member of Audit Committee.

     Peter  Weissbrod  is the  founder  of the  Company  and has  served  as its
President,  Chief Executive Officer and a director since the Company's inception
in February 1991. Mr. Weissbrod is also the President of NHG. From February 1990
to December 1990, he served as a consultant to Charlie Brown's/Office Restaurant
Group, a division of Restaurant Associate Industries,  Inc. ("Charlie Brown's").
From May 1986 to February 1990, Mr.  Weissbrod  served as Vice President of Real
Estate of Charlie  Brown's,  where his  responsibilities  included  real  estate
leasing,  site selection and  construction  of new stores as well as remodelling
existing facilities.

                                       19

<PAGE>


     Stuart Fuchsman has served as Vice President, Chief Operating Officer and a
director of the Company since November  1992.  From August 1986 to October 1992,
he served as Project Manager of Central Jersey  Management  Group, a real estate
developer  in  New  Jersey.  His   responsibilities   included  supervising  the
construction  of  single  family  homes,  including  monitoring   subcontractors
activities and project costs.

     Richard  Goldberger  has served as the  Chairman of the Board of  Directors
since the  Company's  inception  in  February  1991.  Mr.  Goldberger  is also a
consultant  to NHG.  Since October 1989, he has also served as the President and
General Partner of  Mid-Investment  Company,  a diversified  real estate company
owned by him and members of his family.  From February  1953 to September  1989,
Mr.  Goldberger  was the Chief  Executive  Officer of Garden  State  Brickface &
Stucco  Company,  a concern which he founded and was owned by him and members of
his family.  Since 1990,  he has also served as a director of United Jersey Bank
Central N.A.

     Lewis Levine has served as a director of the Company since  February  1991.
From  February  1991 to  January  1996,  he also  served as Vice  President  and
Treasurer of the Company.  Since March 1992, he has also served as the President
of New England Brickmaster Windows and Exteriors, Inc., a firm owned by his wife
and Mildred  Goldberger.  From April 1979 to March 1992,  Mr.  Levine  served as
President  of New  England  Brickmaster,  Inc.,  a firm  owned  by him,  Richard
Goldberger and other members of Mr. Goldberger's family and which was liquidated
in March 1992.

     William Ozzard has served as a director of the Company since December 1994.
Since  1970,  he has been the  Senior  and  Managing  Partner of the law firm of
Ozzard Wharton.

     Ivan  Szathmary  was appointed to the Board in July 1995.  Since 1979,  Mr.
Szathmary has been a Senior Vice President of the Great Atlantic and Pacific Tea
Co., Inc.

     Richard  Goldberger  is the  father-in-law  of each of  Messrs.  Weissbrod,
Fuchsman  and Levine.  Linda  Weissbrod is the wife of Peter  Weissbrod  and the
daughter of Mr. Goldberger.

     Marc  Roberts was a member of the Board as of December  31,  1996,  but has
since resigned from such position.

     The  Executive  Committee  has all the power and  authority of the Board of
Directors in the management and affairs of the Company  between  meetings of the
Board of Directors,  to the extent permitted by law. The Audit Committee reviews
the engagements of the independent  accountants and reviews the  independence of
the accounting firm, among other matters.

     The following  individuals,  who are not executive officers or Directors of
the Company, make significant contributions to the business of the Company:

     Linda  Weissbrod  has served as Director of Marketing of the Company  since
October  1991 and served as a  Vice-President  of the Company  until 1994.  From
April  1990  until  August  1991,  she served as the  President  of  Handwriting
Research  Corp., a firm she founded,  of which she was the sole  shareholder and
which  specialized in analyzing  handwriting  samples of potential  employees of
various employers.

     Angelo Maione joined NHG in January 1996 as a senior lending  officer.  For
more than 10 years,  Mr.  Maione was  employed at United  Jersey Bank in various
capacities,  including as Deputy  Portfolio  Manager for the Home Equity Lending
Unit and as Manager of the Loan and Customer  Service Unit at United Jersey Bank
Central, N.A.

                                       20

<PAGE>

Limitation of Liability and Indemnification

     The Company's Certificate of Incorporation  eliminates or limits in certain
circumstances the liability of directors of the Company for monetary damages for
breach  of their  fiduciary  duty as  directors  and  provides,  generally,  for
indemnification by the Company to the fullest extent permitted by Delaware law.

     The  Company  believes  that it is the  position  of the  Commission  that,
insofar as any of the foregoing  provisions may be invoked to disclaim liability
for damages  arising under the Securities  Act, such provision is against public
policy as expressed in the Securities Act and is therefore unenforceable.

     The Company is currently a party to Indemnity  Agreements  with each of its
directors and executive officers.

Compliance with Section 16(a) of the Exchange Act

     The Company is not aware of any late flings with respect to 1996.


ITEM 10.  EXECUTIVE COMPENSATION
          ----------------------

Directors' Compensation

     The Company  pays all outside  directors  $100 for each board or  committee
meeting attended. Outside directors may also be reimbursed for expenses incurred
by them in their capacity as a member of the Board of Directors or any committee
thereof.  In 1996,  the  Company  granted  options to each of its three  outside
directors to purchase  15,000 shares of Class A Common Stock at prices per share
not less than the fair market value per share on the date of grant.  The options
are exercisable for three years commencing one year from the date of grant.

Executive Compensation

     The following table sets forth the compensation paid by the Company for the
past three fiscal years to Mr. Peter Weissbrod,  its Chief Executive Officer and
President,  and Stuart  Fuchsman,  its Chief  Operating  Officer  (each a "named
executive officer").  No other executive officer's annual compensation  exceeded
$100,000 for the fiscal year ended December 31, 1996.

 
                                       21

<PAGE>



                          Summary Compensation Table

                                      Annual                     Long Term
                                   Compensation   All Other     Compensation
                                   ------------                 ------------
Name and Principal Position    Year   Salary    Compensation  Stock Options (#)
---------------------------    ----   ------    ------------  -----------------
                             ---------------------------------------------------

Peter Weissbrod . . . . . .    1996  $128,846        -             15,000
  President and CEO
                               1995  $100,000        -            100,000

                               1994   $92,000        -               -

Stuart Fuchsman  . . . .. .
  Chief Operating Officer

                               1996  $117,461        -             15,000

                               1995   $90,000        -             30,000

                               1994   $65,769        -               -


                                       22

<PAGE>
                        Option Grants in Last Fiscal Year

     The  following  table sets forth  information  concerning  the stock option
grants made to the named  executive  officers for the fiscal year ended December
31, 1996. No stock appreciation  rights were granted to these individuals during
such year.

                                   Percent of
                                  Total Options
             Number of Securities  Granted to
              Underlying Options  Employees in   Exercise or Base  Expiration
      Name       Granted(#)(1)     Fiscal Year     Price ($/Sh)       Date
      ----       -------------    -----------      ------------      ------ 
Peter Weissbrod     15,000            6.2%            $6.00          7/2000

Stuart Fuchsman     15,000            6.2%            $6.00          7/2000

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

     (1) Options are non-qualified  options to purchase shares of Class A Common
Stock and are immediately exercisable.


                 Aggregate Option Exercises in Last Fiscal Year
                        and Fiscal Year-End Option Values

     The following table sets forth information  concerning option exercises and
the value of  unexercised  options for the fiscal year ended  December  31, 1996
with respect to the named executive officers.  No stock appreciation rights were
exercised or were outstanding during such year.

<TABLE>
<CAPTION>
                                                                       Value of Unexercised
                                      Number of Unexercised Options   In-the-Money Options at
                                        at December 31, 1996 (#)      December 31, 1996 ($)(1)
                                      -----------------------------   ------------------------
                   Shares
                 Acquired on   Value
    Name         Exercise(#)  Realized  Exercisable  Unexercisable    Exercisable  Unexercisable
    ----         -----------  --------  -----------  -------------    -----------  -------------
  
<S>              <C>          <C>       <C>          <C>              <C>          <C>

Peter Weissbrod        0         $0       115,000          0            $43,750         $0

Stuart Fuchsman        0         $0        45,000          0            $13,125         $0

</TABLE>

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

(1)  Based  on the  closing  price  of the  Company's  Class A  Common S tock at
     December 27, 1996 of $4-3/16 per share, less the exercise price payable for
     such shares.


Employment Agreements

     The Company has entered into employment  agreements  with Peter  Weissbrod,
its  Chief  Executive  Officer  and  President,  and  Stuart  Fuchsman,  as  its
Vice-President  and Chief Operating  Officer.  The agreements are for three year
terms which commenced on May 25, 1994. Messrs.  Weissbrod and Fuchsman receive a
salary of  $110,000  and $99,000 per annum,  respectively,  and are  entitled to
participate in employee  benefit plans. The agreements  contain  confidentiality
and non-competition provisions.

     The  Company  has the right to  terminate  either  agreement  for cause (as
defined therein) or as a result of the employee's death or permanent disability.
Except  in the  case of  termination  by the  Company  for  cause  or  voluntary
termination by the employee,  upon early  termination of their  agreements,  Mr.
Weissbrod  and Mr.  Fuchsman  are  entitled to receive  their salary plus fringe
benefits  for a period of up to 24 months from the date of  termination  and any
bonuses prorated through the date of termination.

                                       23
<PAGE>




1994 Stock Option Plan

     In  February  1994,  the Board of  Directors  and the  stockholders  of the
Company  adopted and approved the  Company's  1994 Stock Option Plan (the " 1994
Plan"). The 1994 Plan provides for the grant of incentive stock options ("ISOs")
within the  meaning of Section  422 of the  Internal  Revenue  Code of 1986,  as
amended (the  "Code"),  and  non-qualified  stock  options  ("NQSOs") to certain
employees of the Company.  The 1994 Plan further provides for the grant of NQSOs
to  directors,  agents  of, and  consultants  to,  the  Company,  whether or not
employees of the Company.  The purpose of the 1994 Plan is to attract and retain
employees,  agents,  consultants  and directors.  Options granted under the 1994
Plan may not be  exercisable  for terms in  excess of 10 years  from the date of
grant. In addition,  no options may be granted under the 1994 Plan later than 10
years after the 1994 Plan's  effective  date of February  17, 1994. A maximum of
130,000 shares of Class A Common Stock may be issued under the 1994 Plan.

1995 Stock Option Plan

     In  September  1995,  the  Board  of  Directors,   and   subsequently   the
stockholders  of the  Company,  adopted and approved  the  Company's  1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan provides for the grant of incentive
stock options ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and non-qualified stock options ("NQSOs")
to certain  employees  of the Company.  The 1995 Plan  further  provides for the
grant of NQSOs to directors, agents of, and consultants to, the Company, whether
or not employees of the Company.  The purpose of the 1995 Plan is to attract and
retain employees,  agents, consultants and directors.  Options granted under the
1995 Plan may not be  exercisable  for terms in excess of 10 years from the date
of grant. In addition,  no options may be granted under the 1995 Plan later than
10 years after the 1995 Plan's  effective  date of September 14, 1995. A maximum
of 600,000 shares of Class A Common Stock may be issued under the 1995 Plan.


                                       24

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

     The following table sets forth, as of March 20, 1997,  certain  information
as to the stock  ownership by (i) each  executive  officer of the Company,  (ii)
each director of the Company  (iii) all executive  officers and directors of the
Company  as a  group  and  (iv)  all  persons  known  by the  Company  to be the
beneficial  owner of more than five percent of the  outstanding  Common Stock of
the Company:

<TABLE>
<CAPTION>
                                  Common Stock  Percentage Ownership  Percent of Voting Power
Name and Address of Beneficial    Beneficially  of all Common Stock     of all Common Stock
  Owner of Member in Group(1)        Owned(2)        Outstanding           Outstanding
---------------------------------------------------------------------------------------------

<S>                              <C>                <C>                     <C>                    
Peter Weissbrod                  213,375(3)(4)(5)       7.16                  10.10

Stuart Fuchsman                  218,375(3)(4)(6)       7.32                  10.17

Linda Weissbrod                  133,375(3)(4)(7)       4.60                   9.06

Richard Goldberger                15,000(8)              *                      *

Mildred Goldberger               236,750(3)(4)(9)       8.15                  17.67

Lewis Levine                     113,375(3)(4)(13)      3.94                   8.80

Wendy Fuchsman                   113,375(3)(4)(13)      3.94                   8.80

Caryl Levine                     113,375(3)(4)(13)      3.94                   8.80

William Ozzard                    55,000(10)            1.89                    *

Ivan Szathmary                    49,000(11)            1.69                    *

All officers and directors
as a group (6 persons)(12)       664,125(3)(4)         21.17                  29.67
</TABLE>

------------------------
*Less than 1%

(1)  The address of each named stockholder is c/o Linda's  Diversified  Holdings
     Inc., 11 Commerce Drive, Cranford, New Jersey 07067.

(2)  All  shares  owned are Class B Common  Stock  unless  otherwise  indicated.
     Holders of Class B Common Stock have the right to cast six votes  (compared
     to one vote for the holders of Class A Common Stock) for each share held of
     record.

(3)  Includes the holder's  pro rata portion of the Escrow  Shares.  See "Escrow
     Shares."

(4)  The shares owned by each of Mr. and Mrs.  Weissbrod,  Mr. and Mrs. Fuchsman
     and Mr. and Mrs.  Levine do not  include  the shares or  warrants  owned by
     their respective  spouses,  beneficial  ownership of which is disclaimed by
     each of them. Mrs. Weissbrod, Mrs. Fuchsman and Mrs. Levine are sisters and
     the adult daughters of Mr. and Mrs. Goldberger.

(5)  Includes  115,000 shares of Class A Common Stock issuable upon the exercise
     of outstanding options.

(6)  Includes  45,000 shares of Class A Common Stock  issuable upon the exercise
     of outstanding options and 75,000 shares of Class A Common Stock underlying
     Class A Warrants. See "Certain Relationships and Related Transactions."

(7)  Includes  35,000 shares of Class A Common Stock  issuable upon the exercise
     of outstanding options.

                                       25

<PAGE>
(8)  Does not include the 196,750 shares of Class B Common Stock,  15,000 shares
     of Class A Common Stock issuable upon exercise of  outstanding  options and
     25,000  shares  of  Class A Common  Stock  underlying  outstanding  Class A
     Warrants,  owned by Mr. Goldberger's wife, Mildred  Goldberger,  beneficial
     ownership of which is disclaimed by Mr. Goldberger.  Includes 15,000 shares
     of Class A Common Stock issuable upon the exercise of outstanding options.

(9)  Includes 25,000 shares of Class A Common Stock  underlying Class A Warrants
     and  15,000  shares  of Class A Common  Stock  issuable  upon  exercise  of
     outstanding options.

(10) Consists of 10,000  issued shares of Class A Common Stock and 45,000 shares
     of Class A Common Stock underlying outstanding options and warrants.

(11) Consists of 11,000  issued shares of Class A Common Stock and 37,000 shares
     of Class A Common Stock underlying outstanding options and warrants.

(12) The percent of ownership and voting power of all  outstanding  Common Stock
     held by the  group  and their  spouses  listed  in the table is 38.54%  and
     71.45% respectively.

(13) Includes  15,000 shares of Class A Common Stock  issuable upon the exercise
     of outstanding options.


Escrow Shares

     The present holders of the Company's 800,000  outstanding shares of Class B
Common  Stock have placed an  aggregate  of 450,000 of their  shares into escrow
(the "Escrow  Shares").  Such  stockholders  continue to vote the Escrow Shares;
however, the Escrow Shares are not assignable or transferable. The Escrow Shares
will be released  to the holders on a pro rata basis,  if, and only if, at least
one of the following conditions is met:

          (i) The Minimum  Pretax Income is at least  $5,000,000  for the fiscal
     year ending December 31, 1997.

          (ii) The Bid Price of the Class A Common  Stock  averages in excess of
     $17.50  per share for 30  consecutive  business  days  during  the 18 month
     period commencing November 25, 1995.

          (iii) The Company is acquired  by or merged  into  another  entity for
     which stockholders of the Company receive per share  consideration equal to
     the level set forth in (ii) above.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

                                      NONE


ITEM 13.  EXHIBIT INDEX
          -------------

Exhibit No.    Description of Exhibit
-----------    ----------------------

2.1            Exchange of Shares  Agreement,  dated  February  14, 1994 between
               Registrant  and  Mildred  Goldberger,   Peter  Weissbrod,   Linda
               Weissbrod,  Stuart Fuchsman,  Wendy Fuchsman, Lewis Levine, Caryl
               Levine, and Martha Rivera.***

3.1            Certificate of Incorporation of the Registrant and all amendments
               thereof  including the  Certificate of  Designations  relating to
               Series A Preferred.*

                                       26

<PAGE>
3.2            By-Laws of the Company.***

4.1            Form of Warrant Agreement.***

4.2            Form of Specimen Class A Common Stock Certificate.***

4.3            Form of Specimen Redeemable Class A Warrant Certificate.***

4.4            Form of Specimen Redeemable Class B Warrant Certificate.***

4.5            Class C Warrant Agreement****

4.6            Form of Specimen Redeemable Class C Warrant Certificate.****

10.1           1994 Stock Option Plan.***

10.2           Employment   Agreement   between   the   Registrant   and   Peter
               Weissbrod.***

10.3           Employment   Agreement   between   the   Registrant   and  Stuart
               Fuchsman.***

10.4           Lease,  dated  July  17,  1991,  between  M.S.M.  Associates  and
               Springfield  Rotisserie,  Inc., of the premises at 771 Bloomfield
               Avenue, West Caldwell, New Jersey.***

10.5           Lease,  dated  February 11,  1992,  between  Raritan  Enterprises
               Partners and Linda's Chicken of Woodbridge, Inc., of the premises
               at Bradlees  Shopping Center on 1555 St. George Avenue,  Township
               of Woodbridge, New Jersey.***

10.6           Lease,  dated  September 23, 1992,  between Leslie S. Turchin and
               Linda's  Chicken of Edison,  Inc.  of the  premises at Tops Plaza
               Shopping Center, Route 27, Edison, New Jersey.***

10.7           Form of Stock Escrow Agreement.***

10.8           Lease,  dated December 5, 1994, between Eaton Corporation and the
               Registrant,  of the premises at 11 Commerce Drive,  Cranford, New
               Jersey.**

10.9           Lease,  dated December 17, 1994,  between Bassett  Associates and
               Linda's Flame Roasted Chicken,  Inc., of the premises at 63 Union
               Place, Summit, New Jersey.**

10.10          Lease, dated August 24, 1994, between The Prospect Realty Company
               and Linda's Chicken of Livingston, Inc., of premises at 504 South
               Livingston Avenue, Livingston, New Jersey.**

10.11          Lease, dated October 17, 1994, between Fremartin Realty, Inc. and
               Linda's  Chicken  of  Westwood,  Inc.,  of  the  premises  at 499
               Broadway, Westwood, New Jersey.**

10.13          Registrant's  Information  for  Prospective  Franchisees,   dated
               August 19, 1994.**





                                      27

<PAGE>
10.14          Form of  Indemnity  Agreement,  between the  Registrant  and each
               executive officer and director of the Company.**

10.15          1995 Stock Option Plan.****

10.16          Agreement  of Sale,  dated  December 20,  1995,  between  Linda's
               Chicken of Woodbridge and Kareem International****

10.17          Form of Sublease  Agreement between Linda's Chicken of Woodbridge
               and Kareem International****

10.18          Sublease  Agreement,  dated  August  29,  1995,  between  Linda's
               Chicken of  Westwood,  Inc. and Rita's  Enterprises,  Inc. of the
               premises at 499 Broadway, Westwood, New Jersey****

11.1           Calculation of Loss Per Share of Common Stock. See Consolidated 
               Financial Statements.*

21.1           Subsidiaries    of   the   Registrant    (including    state   of
               incorporation).****

23.1           Consent of Rothstein, Kass & Company, P.C.*

27             Financial Data Schedule*

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

        * Filed herewith.
 
       ** Incorporated  by reference to the  Registrant's  Annual Report on Form
          10-KSB as amended on Form 10-KSB/A for the fiscal year ended  December
          31, 1994.

      *** Incorporated by reference to the Registrant's  registration  statement
          on Form SB-2  (Registration  No.  33-76422),  Part II, Item. 27, filed
          with the SEC on May 25, 1994.

     **** Incorporated  by reference to the  Registrant's  Annual Report on Form
          10-KSB for the fiscal year ended December 31, 1995.

     No reports on Form 8-K were filed by the registrant during the last quarter
of the period covered by this Report, ended December 31, 1996.


                                       28

<PAGE>
                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Linda's Diversified Holdings, Inc.
  and Subsidiaries
(Formerly Linda's Flame Roasted Chicken Incorporated)
Cranford, New Jersey


     We have audited the  accompanying  consolidated  balance  sheets of Linda's
Diversified  Holdings,  Inc. and  Subsidiaries  (Formerly  Linda's Flame Roasted
Chicken  Incorporated),  as of  December  31,  1996 and  1995,  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years  ended  December  31,  1996 and  1995.  These  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  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Linda's
Diversified  Holdings,  Inc. and  Subsidiaries  as of December 31, 1996, and the
results of their  operations  and their cash flows for the years ended  December
31, 1996 and 1995 in conformity with generally accepted accounting principles.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming the Company will continue as a going  concern.  As discussed in Note 14
to the consolidated  financial  statements,  the Company has suffered  recurring
losses from  operations  and has an  accumulated  deficit at December  31, 1996.
Management's  plans in regard to these  matters are also  described  in Note 14.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.  The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 6, 1997




                                      F-1
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                                               December 31,
                                                      --------------------------
        ASSETS                                           1996           1995
                                                      -----------    -----------
CURRENT ASSETS:
     Cash and cash equivalents                        $ 1,331,582   $   558,013
     Short term cash investments                             --         721,000
     Inventories                                           15,065        19,078
     Retail loans receivable                               42,691           --
     Notes receivable, current portion                     10,000       167,313
     Prepaid expenses and other current assets             84,049       110,814
                                                      -----------   -----------
               Total Current Assets                     1,483,387     1,576,218
                                                      -----------   -----------

PROPERTY AND EQUIPMENT                                    432,289       967,217
                                                      -----------   -----------
OTHER ASSETS:
     Restricted cash                                      162,500           --
     Notes receivable, less current portion               150,155       113,204
     Intangible assets                                     39,299        50,101
     Deposits and other assets                             19,923        34,439
                                                      -----------   -----------
                                                          371,877       197,744
                                                      -----------   -----------

                                                      $ 2,287,553   $ 2,741,179
                                                      ===========   ===========

     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Long term debt, current portion                  $    51,926   $    45,387
     Accounts payable and accrued expenses                295,119       191,526
     Accrued payroll and payroll taxes                      5,969        41,831
     Sales tax payable                                      4,866         7,638
     Deferred franchise fees                               85,000        75,000
                                                      -----------   -----------
               Total Current Liabilities                  442,880       361,382
                                                      -----------   -----------
LONG TERM LIABILITIES:
     Long term debt, less current portion                   2,709        54,635
     Deferred rent                                         42,519        63,123
                                                      -----------   -----------
                                                           45,228       117,758
                                                      -----------   -----------
COMMITMENTS

STOCKHOLDERS' EQUITY:
     Preferred stock, Series A, $.001 par value;
        2,500,000 shares authorized; 120,000
        shares issued and outstanding                         120          --
     Common stock, Class A, $.001 par value;
        15,000,000 shares authorized; 2,065,000
        and 1,265,000 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                     8,096,818     5,442,847
     Accumulated deficit                               (6,300,358)   (3,182,873)
                                                      -----------   -----------
               Total Stockholders' Equity               1,799,445     2,262,039
                                                      -----------   -----------

                                                      $ 2,287,553   $ 2,741,179
                                                      ===========   ===========

          See accompanying notes to consolidated financial statements.

                                       F-2    
<PAGE>


               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF OPERATIONS



                                                          Years Ended
                                                          December 31,
                                                          -----------
                                                       1996           1995
                                                    -----------    -----------

REVENUES:
     Restaurant sales, net                          $ 1,148,064    $ 2,366,015
     Franchise royalties                                 30,123            709
     Franchise fee income                                65,000         20,000
     Contract fee income                                 36,596           --
     Loan origination fees                                8,340           --
     Loan participation premiums                         11,877           --
                                                    -----------    -----------
                                                      1,300,000      2,386,724
                                                    -----------    -----------


COSTS AND EXPENSES:
   Restaurant Operations:
        Food and paper costs                            473,355      1,030,633
        Restaurant labor and related expenses           384,946        893,231
        Operating expenses                               65,009        166,879
        Occupancy expenses                              228,800        430,565
        Depreciation and amortization                   131,355        152,001
        Impairment loss                                 335,061           --
        Restructuring charge                            266,987        113,877
        Preopening costs                                   --           69,261
   Loan Operations:
        Payroll and related expenses                    555,282           --
        Media and advertising costs                     763,944           --
        Operating expenses                              275,267           --
   Corporate and Franchising:
        General and administrative                      991,231      1,656,812

                                                    -----------    -----------
                                                      4,471,237      4,513,259
                                                    -----------    -----------


LOSS FROM OPERATIONS                                 (3,171,237)    (2,126,535)

OTHER INCOME (EXPENSE):
     Interest and other income                           67,921        121,850
     Loss on sale of assets                                 --         (41,110)
     Interest expense                                   (14,169)       (23,899)
                                                     -----------    -----------
                                                         53,752         56,841
                                                     -----------    -----------


NET LOSS                                            $(3,117,485)   $(2,069,694)
                                                    ===========    ===========


NET LOSS PER COMMON SHARE                           $     (1.44)   $     (1.28)
                                                     ===========    ===========


WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING                            2,164,479      1,615,000
                                                    ============   ============


See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>

               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY








<TABLE>
<CAPTION>


                                         Class A                 Class B              Series A           
                                      Common Stock            Common Stock         Preferred Stock       Capital in
                                     --------------          -----------             -----------         Excess of    Accumulated
                                 Shares       Amount      Shares      Amount      Shares    Amount       Par Value      Deficit
                               ----------   ---------   ---------   ---------    -------   --------     -----------    -----------

<S>                               <C>          <C>          <C>         <C>         <C>       <C>           <C>            <C>

BALANCES,
   January 1, 1995            1,265,000   $     1,265      800,000   $    800      --     $     --     $ 5,442,847    $(1,113,179)


Net loss                          --             --           --         --        --           --            --       (2,069,694)

BALANCES,
                           ------------   -----------   ----------   --------   -------   ----------   -----------    -----------
   December 31, 1995          1,265,000         1,265      800,000        800      --           --       5,442,847     (3,182,873)


Proceeds from sale
  of common stock,
  net of expenses               800,000           800         --         --        --           --       1,653,511           --

Proceeds from sale
  of preferred stock,   
  net of expenses                  --            --           --         --     120,000          120     1,000,460           --

Net loss                           --            --           --         --        --           --            --       (3,117,485)

BALANCES,
                           ------------   -----------   ----------   --------   -------   ----------   -----------    -----------
   December 31, 1996          2,065,000   $     2,065      800,000   $    800   120,000   $      120   $ 8,096,818    $(6,300,358)
                           ============   ===========   ==========   ========   =======   ==========   ===========    ===========
</TABLE>




See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                      Years Ended
                                                                                      December 31,
                                                                                     -----------
                                                                                 1996           1995
                                                                                -----------    -----------
<S>                                                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                       $(3,117,485)   $(2,069,694)
 Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation and amortization                                                   131,355        152,001
    Restructuring charge                                                            266,987        113,877
    Impairment loss                                                                 335,061           --
    Changes in operating assets and liabilities:
     Decrease on interest accrued on investments                                       --           31,022
     Decrease in inventories                                                          4,013          2,926
     Decrease in prepaid expenses and other current assets                           26,765         48,792
     Increase in restricted cash                                                   (162,500)          --
     Decrease (increase) in deposits and other assets                                23,132        (17,114)
     Increase (decrease) in accounts payable and accrued expenses                   103,593       (111,959)
     Increase (decrease) in accrued payroll and payroll taxes                       (35,862)         4,043
     Decrease in sales tax payable                                                   (2,772)        (1,889)
     Increase in deferred franchise fees                                             10,000         75,000
     Increase (decrease) in deferred rent                                           (20,604)        18,546
                                                                                -----------    -----------
               Net cash used in operating activities                             (2,438,317)    (1,754,449)
                                                                                -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from redemption of cash investments                                       721,000      2,929,000
 Acquisition of cash investments                                                       --       (1,978,912)
 Funds advanced under notes receivable                                             (262,915)      (155,517)
 Proceeds from notes receivable                                                     383,277           --
 Disbursements for retail loans receivable                                         (822,166)          --
 Proceeds from sale of retail loans receivable                                      779,475           --
 Proceeds from sale of assets                                                          --           77,832
 Acquisition of property and equipment                                             (187,673)      (641,740)
 Acquisition of intangible assets                                                    (8,616)       (27,447)
                                                                                -----------    -----------
                   Net cash provided by investing activities                        602,382        203,216
                                                                                -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from sale of preferred stock, net of expenses                           1,000,580           --
 Proceeds from sale of common stock, net of expenses                              1,654,311           --
 Payments of long-term debt                                                         (45,387)       (58,510)
                                                                                -----------    -----------
                   Net cash provided by (used in) financing activities            2,609,504        (58,510)
                                                                                -----------    -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                             773,569     (1,609,743)

CASH AND CASH EQUIVALENTS, Beginning of year                                        558,013      2,126,646
                                                                                -----------    -----------
CASH AND CASH EQUIVALENTS, End of year                                          $ 1,331,582    $   558,013
                                                                                ===========    ===========
SUPPLEMENTAL INFORMATION:
 Interest paid                                                                  $    14,169    $    23,598
                                                                                ===========    ===========
 Income taxes paid                                                              $      --      $      --
                                                                                ===========    ===========
Noncash financing activity:
 Discounted note payable issued as part of restaurant acquisition cost          $      --      $    52,144
                                                                                ===========    ===========
 Equipment obtained under capitalized leases payable                            $      --      $    46,037
                                                                                ===========    ===========
 Notes receivable in exchange for sale of assets                                $      --      $   136,580
                                                                                ===========    ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -  Organization and Nature of Operations:
          --------------------------------------

          Linda's  Diversified  Holdings,  Inc.  (formerly Linda's Flame Roasted
          Chicken,  Inc.) and subsidiaries  (the "Company") is a holding company
          consisting of restaurant operations,  restaurant franchising, and loan
          operations.  The Company has seven quick-service restaurants operating
          under the name Linda's  Rotisserie & Kitchen,  (two  company-owned and
          five  franchised all of which are located in New Jersey).  The Company
          through its wholly-owned subsidiary,  National Home Guaranty, provides
          financing for homeowners and lead-generation  services for contractors
          with  respect  to  home-improvement  services  in the  low-to-moderate
          income housing markets.

NOTE 2 - Summary of Significant Accounting Policies:
         ------------------------------------------

          Principles of  Consolidation - The consolidated  financial  statements
          include the  accounts of Linda's  Diversified  Holdings,  Inc. and its
          nine   wholly-owned   subsidiaries.   All   significant   intercompany
          transactions and balances have been eliminated in consolidation.

          Cash Equivalents - The Company  considers  financial  instruments with
          maturities of three months or less to be cash equivalents. The Company
          maintains  its cash in deposit  accounts,  which at times,  may exceed
          federal  insured  limits.  The Company has not  incurred any losses in
          such accounts and believes it is not exposed to any significant credit
          risk on cash and cash equivalents.

          Restricted Cash - In connection with regulatory  banking  requirements
          in certain  states,  the Company is required to post  mortgage  surety
          bonds which are  collateralized by irrevocable  letters of credit. The
          collateralization  underlying  these  letters  of  credit  is shown as
          restricted cash at December 31, 1996.

          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 revenues and expenses during the reporting period.
          Actual results could differ from those estimates.

          Fair Value of Financial  Instruments - The fair value of the Company's
          assets and liabilities  which qualify as financial  instruments  under
          Statement  of  Financial  Accounting  Standards  No.  107  (SFAS  107)
          approximates  the  carrying  amounts  presented  in  the  consolidated
          balance sheets.

          Inventories - Inventories  are stated at the lower of cost,  using the
          first-in  first-out method, or market,  and consist of food, paper and
          janitorial supplies used in the Company's company-owned restaurants.

          Property and  Equipment - Property and  equipment  are stated at cost.
          The Company  provides  for  depreciation  and  amortization  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.

          Intangible Assets - Intangible assets consist of organization and logo
          costs, net of amortization,  computed using the  straight-line  method
          over three to five years.

          Retail  Loans  Receivable  -  National  Home  Guaranty  provides  both
          federally- guaranteed and conventional loans to low-to-moderate income
          homeowners.  These loans are subsequently sold at a premium to various
          third-party lending institutions.

                                      F - 6
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 -  Summary of Significant Accounting Policies (continued):
          ------------------------------------------------------

          Preopening Costs - Preopening costs, which represent costs relating to
          the  opening  of  new  company-owned  restaurants,  including  various
          training, payroll, and promotion costs, are charged to operations when
          incurred.

          Impairment of Long-Lived  Assets - The Company  periodically  assesses
          the  recoverability  of the carrying  amounts of long-lived  assets. A
          loss is recognized  when expected  undiscounted  future cash flows are
          less than the carrying  amount of the asset. An impairment loss is the
          difference  by which the carrying  amount of an asset exceeds its fair
          value.

          Income  Taxes - The  Company  complies  with  Statement  of  Financial
          Accounting  Standards  No.  109 (SFAS  109),  "Accounting  for  Income
          Taxes." which  requires an asset and  liability  approach to financial
          reporting for income taxes. Deferred income tax assets and liabilities
          are computed annually for differences  between financial statement and
          tax bases of assets and  liabilities,  which will result in taxable or
          deductible amounts in the future,  based on enacted tax laws and rates
          applicable  to the periods in which the  differences  are  expected to
          effect taxable  income.  Valuation  allowances are  established,  when
          necessary,  to reduce  the  deferred  income  tax assets to the amount
          expected to be realized.

          Loss per Common  Share - Loss per share of common  stock is based upon
          the weighted  average number of shares  outstanding,  including common
          share  equivalents  (stock options and warrants),  during each period,
          and excludes the 450,000 escrow shares.

          Leases  -  Substantially  all of the  Company's  restaurant  operating
          leases provide for rent  increases over the lease terms.  Rent expense
          is  adjusted  to  the  straight-line   basis,  where  applicable,   in
          accordance with the provisions of SFAS 13. The difference between rent
          reflected  in  operating   expenses   and  rent   actually   paid  was
          approximately $7,000 and $18,000 for the years ended December 31, 1996
          and 1995, respectively.

          Advertising Costs - The Company expenses  production and other related
          costs of advertising on the first date the advertisement  takes place.
          Advertising   costs  for  the  year  ended   December  31,  1996  were
          approximately  $764,000  relating to loan  operations  and recorded as
          media and  advertisement  costs.  Advertising costs for the year ended
          December 31, 1995 were  approximately  $143,000 relating to restaurant
          operations and recorded in general and administrative expenses.

          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 are recognized in the period that the
          related  franchise  store  revenue is  generated.  The  franchisee  is
          obligated to pay a percentage of net sales to the Company as royalties
          and contribute an additional percentage to a regional advertising fund
          maintained by the Company.

          Loan Operations Revenue  Recognition - The Company recognizes contract
          fee income when the related  contract is completed by the  contractor.
          In  addition,   the  Company   receives   interest   income  and  loan
          participation  premiums  upon  the sale of its  loans  to  third-party
          lending institutions.


                                      F - 7
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -  Property and Equipment:
          -----------------------

          Property and equipment consist of the following:
                                                            December 31,
                                               ---------------------------------
                                                    1996              1995
                                               ---------------    --------------

              Leasehold improvements              $   218,044       $   609,346
              Furniture and equipment                 340,241           424,293
              Capitalized lease equipment              48,945            87,122
                                               ---------------    --------------
                                                      607,230         1,120,761
              Less: Accumulated depreciation
                            and amortization          174,941           153,544
                                               ===============    ==============
                                                  $   432,289       $   967,217
                                               ===============    ==============

          Depreciation  and  amortization  expense for the years ending December
          31, 1996 and 1995 was $113,790 and $136,337,  respectively,  including
          $12,877  and  $18,091  relating  to  capital  leases in 1996 and 1995,
          respectively.

          The Company  recorded an  impairment  loss of  approximately  $335,000
          representing a writedown on leasehold  improvements and equipment from
          one  of  the  Company's   restaurants  and  other  related  restaurant
          equipment of approximately  $389,000 and accumulated  depreciation and
          amortization of approximately $56,000.

NOTE 4 -  Intangible Assets:
          ------------------

          Intangible assets consist of the following:
                                                            December 31,
                                                -------------------------------
                                                     1996             1995
                                                ---------------    ------------
              Logo and design costs                    $77,548         $68,932
              Organization costs                                         5,818
                                                ---------------    ------------
                                                        77,548          74,750
              Less: Accumulated amortization            38,249          24,649
                                                ===============    ============
                                                       $39,299         $50,101
                                                ===============    ============

          Amortization  expense for the years ending  December 31, 1996 and 1995
          was $17,565 and $15,664, respectively.

NOTE 5 -  Notes Receivable:
          -----------------

          Between  August 1995 and April  1996,  the  Company  provided  interim
          construction   financing  to  a  franchisee  totalling   approximately
          $375,000.  The  Company  was  repaid  in full  on  these  advances  in
          September 1996.

          In connection with the sale of assets of a former  Company-owned store
          in December 1995, the Company  received a note which was  restructured
          in December 1996. The new note for $140,155, which includes additional
          advances  made  to this  franchisee,  bears  interest  at  9.75%,  and
          provides  for an initial  principal  payment of  $10,000,  followed by
          monthly  installments  of  interest-only  through  January  1998,  and
          monthly principal installments of $1,702 plus interest through January
          2001, and a final payment in February 2001 of approximately  $114,000.
          This note is additionally  personally  guaranteed by the owners of the
          franchisee.

          In September 1996, the Company  advanced $20,000 to a franchisee which
          is to be repaid in 60  monthly  installments  beginning  in  September
          1997.
                                      F - 8
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -  Long-Term Debt:
          ---------------

          Long-term debt consists of the following:   

                                                              December 31,
                                                      --------------------------
                                                           1996           1995
                                                      -------------   ---------

          Note payable at 10% imputed interest,
               due in quarterly installments through
               December 1997                            $  18,800    $   35,819
                                                                       

          Note payable at 8.55% interest, in monthly
               installments through January 1996,
               collateralized by certain equipment                          393

          Capitalized lease obligations                    40,481        79,639
                                                      -----------    ----------

          Total future aggregate payments                  59,281       115,851
          Less: Amount representing interest                4,646        15,829
                                                      -----------    -----------
                                                           54,635       100,022
          Less: current portion                            51,926        45,387
                                                      -----------    ----------
                                                       $    2,709     $  54,635
                                                      ============  ============


          Aggregate future principal payments are as follows:

              Year Ending December 31,
              ------------------------
                         1997                                         $  51,926
                         1998                                             2,709
                                                                   ------------
                                                                      $  54,635
                                                                   ============

          The Company, through its home-equity loan subsidiary, has a $3,000,000
          open  warehouse  line  of  credit  to  be  used  exclusively  for  the
          disbursement  of retail  loans.  Borrowings  will bear interest at the
          bank's  prime  rate plus 1%.  At  December  31,  1996,  there  were no
          outstanding borrowings.

NOTE 7 -  Related Party Transaction:
          --------------------------

          National  Home  Guaranty has several  approved  contractors  which are
          recommended to homeowners.  One such contractor's principal owner is a
          director of the Company.  The Company  received from this  contractor,
          contract  fee  income  of  approximately  $21,000  for the year  ended
          December 31, 1996.

NOTE 8 -  Restructuring Charges:
          ----------------------

          For the years ended December 31, 1996 and 1995,  the Company  recorded
          in  connection   with  the  closings  of  one  restaurant  each  year,
          restructuring   charges  of   approximately   $267,000  and  $114,000,
          respectively.   The  principal  items  included  in  the  charges  are
          abandonment of leasehold improvements, property and equipment, and the
          reversal of deferred rent liabilities.

                                      F - 9
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 -  Income Taxes:
          -------------

          At December 31, 1996,  the Company had federal and state net operating
          loss   carryforwards  of  approximately   $6,000,000  and  $6,500,000,
          respectively, expiring between 2002 and 2011.

          The  deferred  tax  asset  listed  below  represents  the tax  benefit
          resulting from the  utilization  of net operating loss  carryforwards.
          The  valuation  allowance  represents  the portion of the deferred tax
          asset,  the benefits of which more than likely will not be realized by
          the Company.  As a result,  the Company's  effective income tax credit
          differs from the  statutory  tax credit that would have been  recorded
          without such valuation allowance.
                                                            December 31,
                                                  ------------------------------
                                                       1996            1995
                                                  ---------------  -------------

         Net operating loss carryforward             $1,485,000      $ 782,000
         Valuation allowance on deferred tax asset   (1,485,000)      (782,000)
                                                    ------------   ------------
                                                    $     -         $    -
                                                    ===========    =============

NOTE 10 - Commitments:

          Leases - The Company has operating leases on all of its locations with
          terms  expiring  between  1997 and  2015.  Substantially  all of these
          leases require the Company to pay for common area maintenance  charges
          and  increases  in real  estate  taxes,  and include  various  renewal
          options.  The Company has further  entered into sublease  arrangements
          with three franchisees with terms similar to those underlying leases.

         Future aggregate minimum rental payments are as follows:

                                                  Minimum        Sublease
         Year Ending December 31,   Total         Rentals        Income
         ------------------------   -----         -------        ------

                1997               142,000        301,000        (159,000)
                1998               117,000        277,000        (160,000)
                1999                99,000        259,000        (160,000)
                2000                80,000        244,000        (164,000)
                2001                67,000        241,000        (174,000)
                Thereafter            -         1,226,000      (1,226,000)
                                  ----------------------------------------
                                   505,000      2,548,000      (2,043,000)
                                  ========================================

          Rent  expense,  including  common  area  maintenance  charges and real
          estate taxes, net of sublease income,  was approximately  $229,000 and
          $324,000  for  1996 and  1995,  respectively,  of which  approximately
          $10,000 was included in preopening costs in 1995.

          Employment  Contracts - The Company has employment contracts extending
          through May 1997 with its Chief Executive  Officer and Chief Operating
          Officer  providing  for  annual  salaries  of  $110,000  and  $99,000,
          respectively.  These contracts also provide for periodic  increases as
          approved by the Board of Directors.

                                      F-10
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - Stockholders' Equity:
          ---------------------

          In June 1994, the Company  completed its initial  public  offering for
          the sale of 1,100,000 units at $5.00 per unit. The net proceeds to the
          Company were approximately $4,359,000. Each unit consists of one share
          of Class A common  stock,  one  redeemable  Class A  warrant,  and one
          redeemable  Class B warrant.  Each Class A warrant entitles the holder
          to purchase  one share of Class A common stock and one Class B warrant
          at an exercise price of $6.25,  and each Class B warrant  entitles the
          holder to  purchase  one share of Class A common  stock at an exercise
          price of $8.50.

          In July 1994,  the Company sold an  additional  165,000 units at $5.00
          per unit upon exercise of the underwriter's over-allotment option. The
          net proceeds to the Company were approximately  $705,000. In addition,
          the  Company  has  agreed  to sell to the  underwriter  and a  finder,
          options to purchase an aggregate of 110,000 units at an exercise price
          of $6.00  per  unit,  expiring  in May 1999.

          In connection with the offering,  450,000 shares (the "Escrow Shares")
          of the  800,000  shares  of Class B  common  stock  owned  by  certain
          original  stockholders  are held in escrow and subject to contribution
          to the Company, without consideration,  if the Company does not attain
          certain  earnings  levels or the market price of the Company's Class A
          common stock does not attain certain  targets by December 31, 1997. In
          the event of the  release  of the  Escrow  Shares,  the  Company  will
          recognize  compensation  to the extent of the  aggregate  fair  market
          value of the shares  released to  officers,  directors,  employees  or
          consultants of the Company.

          In May 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
          $1,654,511.  Each unit  consists  of  20,000  shares of Class A common
          stock and 20,000  redeemable  Class C  warrants.  Each Class A warrant
          entitles  the holder to purchase  one share of Class A common stock at
          an exercise price of $5.25.

          In December  1996, the Company  completed a private  placement for the
          sale of 120,000  shares of Series A  preferred  stock at $10 per share
          with a liquidating  preference  of $10 per share.  The net proceeds to
          the Company  were  $1,000,580.  Each share  provides for a dividend of
          $.70 per  annum  for the  first  twelve  months,  and  $1.00 per annum
          thereafter,  such dividends being payable on the 15th of March,  June,
          September and December.  The shares are each further  convertible into
          3.64 Class A common shares after six months.

          The Class A, Class B and Class C warrants,  and certain Unit  Purchase
          and  Private   Placement   Options,   are  subject  to   anti-dilution
          adjustments.  As a result  of the  securities  issued  in the  private
          placements,  the number of these outstanding securities have increased
          and the exercise prices have been adjusted.

NOTE 12 - Stock Options:
          --------------

          In February 1994, the Board of Directors  approved the adoption of the
          1994  stock  option  plan  (the  "Plan").  The plan  provides  for the
          granting  of an  aggregate  of 130,000  incentive  stock  options  and
          non-qualified  stock options to  directors,  agents,  consultants  and
          employees  of the  Company.  The  options  are  exercisable  at prices
          between $4.00 and $6.125 per share. The plan further provides that the
          maximum term of a stock option may not exceed 10 years, and the period
          that the stock option may be  exersisable  will be  determined  by the
          Board of Directors.  At December 31, 1996,  options to purchase 59,800
          shares of Class A common  stock are  outstanding,  none of which  have
          been exercised.

                                     F-11
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - Stock Options (continued):
          -------------------------

          During 1995, the Board of Directors  approved the adoption of the 1995
          stock option plan (the "Plan").  The plan provides for the granting of
          an  aggregate of 600,000  incentive  stock  options and  non-qualified
          stock options to directors,  agents,  consultants and employees of the
          Company.  The  options are  exercisable  at prices  between  $3.75 and
          $6.00.  The plan  further  provides  that the maximum  term of a stock
          option may not exceed 10 years,  and the period that the stock  option
          may be  exercisable  will be determined by the Board of Directors.  At
          December  31,  1996,  options to  purchase  384,035  shares of Class A
          common stock are outstanding, none of which have been exercised.

          The activity in the plans are as follows:

                                            Exercise price per share
                                            ------------------------
                                        Number of               Weighted
                                         Options      Range      Average
                                        --------------------------------
           Balance outstanding, 
               January 1, 1995            23,000    $4.25-$5.00    $4.61
           Granted                       200,500     3.75-6.125     4.07
           Forfeited                      (2,100)       6.125       6.13
                                         -------------------------------
           Balance outstanding, 
               December 31, 1995         221,400     3.75-6.125     4.11
           Granted                       240,035     4.31-6.00      5.87
           Forfeited                     (17,600)    4.25-6.125     4.85
                                         -------------------------------
           Balance outstanding, 
               December 31, 1996         443,835     3.75-6.125     5.02
                                         ===============================

          The  Company  has adopted  the  disclosure  requirements  of SFAS 123,
          "Accounting   for   Stock-Based   Compensation."    Accordingly,    no
          compensation  cost has been  recognized  for the  Company's  two stock
          option plans. Had compensation cost for the Company's two stock option
          plans  been  determined  based on the fair  value at the grant date of
          awards in 1996 and 1995  consistent  with  provisions of SFAS 123, the
          Company's  consolidated  net loss and loss per common share would have
          increased to the proforma amounts indicated below:

                                                    1996             1995
                                                    ----             ----
           Net loss applicable to common 
               stockholders, as reported       $(3,117,485)      $(2,069,694)
           Net loss applicable to common 
                   stockholders, proforma       (3,415,242)       (2,115,312)
           Loss per common share, as reported        (1.44)            (1.28)
           Loss per common share, proforma           (1.57)            (1.31)


          Because  the SFAS 123  method of  accounting  has not been  applied to
          options  granted  prior to  January 1, 1995,  the  resulting  proforma
          compensation  cost may not be representative of that to be expected in
          future years.

          The fair value of each option  grant is estimated on the date of grant
          using  the  Black-Scholes  option  pricing  model  with the  following
          weighted  average  assumptions  used  for  grants  in  1996  and  1995
          respectively:  risk-free  interest  rates of 6.0 percent;  no dividend
          yields of expected  lives of 3 years;  and expected  volatility  of 55
          percent.
                                     F - 12
<PAGE>
               LINDA'S DIVERSIFIED HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - Segment Reporting:
          -----------------

          The  Company's  two  business   operating   segments  are   restaurant
          operations  and  franchising  and  loan  operations  (which  commenced
          operations in April 1996).  The following  financial data is presented
          for the business  segments of the Company for the year ended  December
          31, 1996.  Operating  loss by segment is total revenue less  operating
          expenses. In computing operating loss by business segment, none of the
          following   items  have  been  added  or  deducted:   interest  income
          (expense),  income  taxes and unusual  items.  Identifiable  assets by
          business  segment are those assets used in Company  operations in each
          segment.  The  corporate  assets are  included in the  restaurant  and
          franchising  operations.  Capital expenditures include acquisitions of
          property and equipment.
                                      Restaurant and
                                       Franchising             Loan
                                        Operations           Operations
                                      --------------        -------------
         Total revenue                 $ 1,243,187          $   56,813 (1)
         Operating loss                 (1,618,832)         (1,552,405)
         Identifiable assets               890,053           1,397,500
         Depreciation and amortization     116,780              14,575
         Capital expenditures               96,138              91,535


          (1) Total loan operations  revenue consists of $36,596 of contract fee
          income,   $8,340  of  loan   origination  fees  and  $11,877  of  loan
          participation premiums.  $21,000 of contract fee income (57%) was from
          one customer, and 100% of the loan participation premiums was from one
          third-party lending institution.

NOTE 14 - Continuing Operations:
          ---------------------

          Management's  plans in  regard  to the  losses  incurred  include  the
          following  strategies  focusing  primarily on increasing the volume of
          business at its  subsidiary,  National  Home  Guaranty:  (1) obtaining
          additional   equity-based  financing  through  public  and/or  private
          offerings,  (2)  broadening  the types of  marketing  sources  used to
          obtain loan prospects. The Company expects to begin to use information
          kiosks  placed in malls as well as booths at  consumer  home  shows as
          additional  means  of  marketing  to its  target  audience,  (3)  seek
          strategic  alliances  with retail  home-improvement  stores to provide
          financing  for  consumers  who  are  doing  projects  themselves,  (4)
          pursuing  the direct loan market  emphasizing  debt-consolidation  for
          debt-laden   consumers.   The  accompanying   consolidated   financial
          statements have been prepared  assuming that the Company will continue
          as a going concern.  The Company has suffered  losses from  operations
          and an  accumulated  deficit of  $6,300,358  at December 31, 1996 that
          raise  doubt  about  the  Company's  ability  to  continue  as a going
          concern.  The financial statements do not include any adjustments that
          might result from the outcome of this uncertainty.

NOTE 15 - Subsequent Event:
          ----------------

          In March 1997, the Company  signed a master  license  agreement with a
          licensee and received a $120,000  license fee.  Under this  agreement,
          the licensee has acquired  territory rights to develop a minimum of 20
          restaurants in the Philippines over a ten year term. These restaurants
          will operate under the proprietary trademark, trade names and standard
          operating  procedures  of the Company,  and will utilize the Company's
          former operating name, Linda's Flame Roasted Chicken. The Company will
          receive  additional  fees upon the  opening  of each  restaurant,  and
          monthly  royalties  based upon a percentage of each  restaurant's  net
          sales.
                                     F - 13
<PAGE>
                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date:   April 14, 1997             LINDA'S DIVERSIFIED HOLDINGS INC.
                                   (Registrant)
                              By:  /s/
                                   ---------------------------------------------
                                   Peter Weissbrod
                                   President


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


Date:  April 14, 1997       /s/
                            ----------------------------------------------------
                            Peter Weissbrod, President, Chief Executive Officer
                            and Director
                            (Principal Executive and Financial Officer)

Date:  April 14, 1997       /s/
                            ----------------------------------------------------
                            Stuart Fuchsman, Vice President, Chief Operating
                            Officer and Director

Date:  April 14, 1997       /s/
                            ----------------------------------------------------
                            Richard Goldberger, Chairman of the Board of
                            Directors

Date:  April 14, 1997       /s/
                            ----------------------------------------------------
                            Lewis Levine, Director

Date:                
                            ----------------------------------------------------
                            William Ozzard, Director

Date:                
                            ----------------------------------------------------
                            Ivan Szathmary, Director



<PAGE>

                                  EXHIBIT INDEX

               (Only the Exhibits filed herewith are listed below)


No.               Description
---               -----------

3.1               Certificate of Incorporation of the Registrant and all
                  amendments thereof (including the Certificate of
                  Designations relating to Series A Preferred).

23.1              Consent of Rothstein, Kass & Company, P.C.

27                Financial Data Schedule