UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1996 Commission File Number 0-27132
TERRACE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0594270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2699 Stirling Road, Suite C-405
Ft. Lauderdale, Florida 33312
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 894-6000
----------------------
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 and 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
Number of shares outstanding of each of the issuer's classes of common stock, as
of November 15, 1996 was 3,312,500.
<PAGE>
TERRACE HOLDINGS, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
INDEX
- ------------------------------------------------------------------------------
Page
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet as of September 30, 1996 [Unaudited].... 1
Statements of Operations for the three and nine months ended
September 30, 1996 and 1995 [Unaudited]............................ 2.....3
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 [Unaudited]............................ 4.....5
Notes to Financial Statements...................................... 6.....7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8.....9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 10
Exhibit 11......................................................... 11
Signatures......................................................... 12
. . . . . . . . . . .
<PAGE>
<TABLE>
Item 1.
TERRACE HOLDINGS, INC.
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
[UNAUDITED]
- ------------------------------------------------------------------------------
<S> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,795,277
Accounts Receivable 103,072
Inventory 42,670
Other Current Assets 19,298
-----------
Total Current Assets 1,960,317
Furniture, Fixtures and Equipment - At Cost [Net of
Accumulated Depreciation of $61,804] 403,870
Intangible Assets [Net of Accumulated Amortization of $259,875] 415,125
Other Assets 74,564
Total Assets $ 2,853,876
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 138,102
Accrued Expenses and Other Payables 2,906
Accrued Payroll and Payroll Taxes 28,067
Deferred Revenue 71,864
Due to Related Party 9,105
Net Liabilities of Discontinued Operations 4,429
-----------
Total Current Liabilities 254,473
Commitments and Contingencies --
Stockholders' Equity:
Common Stock - $.001 Par Value, 10,000,000 Shares
Authorized, 3,312,500 Issued and Outstanding 3,313
Additional Paid-in Capital 3,945,948
Retained Earnings [Deficit] (1,349,858)
Total Stockholders' Equity 2,599,403
Total Liabilities and Stockholders' Equity $ 2,853,876
===========
See Notes to Financial Statements.
</TABLE>
1
<PAGE>
<TABLE>
TERRACE HOLDINGS, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
<S> <C> <C> <C> <C>
[Consolidated][Combined][Consolidated][Combined]
Revenue $ 265,626 $ 137,686 $ 4,990,801 $ 2,421,115
Cost of Sales 148,136 80,511 3,634,322 1,477,198
----------- ----------- ----------- -----------
Gross Profit 117,490 57,175 1,356,479 943,917
----------- ----------- ----------- -----------
Operating Expenses:
Selling, General and Administrative
Expenses 325,537 50,614 1,440,526 248,427
Payroll and Related Expenses 200,346 101,811 748,355 325,241
----------- ----------- ----------- -----------
Total Operating Expenses 525,883 152,425 2,188,881 573,668
----------- ----------- ----------- -----------
[Loss] Income from Operations (408,393) (95,250) (832,402) 370,249
----------- ----------- ----------- -----------
Other Income [Expense]:
Other Income -- 557 -- 557
Interest Income 17,078 -- 78,849 --
Interest Expense (1,514) (8,366) (6,986) (15,590)
----------- ----------- ----------- -----------
Other Income [Expense] - Net 15,564 (7,809) 71,863 (15,033)
----------- ----------- ----------- -----------
[Loss] Income from Continuing
Operations Before Pro Forma
Income Taxes (392,829) (103,059) (760,539) 355,216
Pro Forma Income Taxes -- -- -- 117,773
----------- ----------- ----------- -----------
Net [Loss] Income from Continuing
Operations (392,829) (103,059) (760,539) 237,443
Discontinued Operations:
[Loss] from Operations of Discontinued
Division [Net of Income Taxes of $-0-](21,407) (56,509) (74,125) (173,342)
Loss on Disposal of Division, including
Provision of $29,500 for Operating
Losses during the Phase-Out Period
[Less Applicable Income Taxes of $-0-](129,826) -- (129,826) --
-------- --------- ----------- -----------
Net [Loss] Income $ (544,062)$ (159,568)$ (964,490)$ 64,101
=========== =========== =========== ===========
See Notes to Financial Statements.
2
</TABLE>
<PAGE>
<TABLE>
TERRACE HOLDINGS, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Consolidated][Combined][Consolidated][Combined]
<S> <C> <C> <C> <C> <C>
Loss [Income] Per Share:
[Loss] Income from Continuing
Operations $ (.10)$ (.06)$ (.21)$ .14
[Loss] from Operations of Discontinued
Business Segment [Net of Income Tax] (.01) (.03) (.02) (.10)
[Loss] on Discontinued Business Segment (.04) -- (.03) --
------ ----------- ----------- -----------
Net [Loss] Income Per Share $ (.15)$ (.09)$ (.26)$ .04
=========== =========== =========== ===========
Weighted Average Common Shares
Outstanding 3,312,500 1,675,000 3,312,500 1,675,000
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
<TABLE>
TERRACE HOLDINGS, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Nine months ended
September 30,
1 9 9 6 1 9 9 5
------- -------
[Consolidated][Combined]
<S> <C> <C>
Operating Activities:
Net [Loss] Income $ (760,539)$ 355,216
----------- -----------
Adjustments to Reconcile Net [Loss] Income to Net Cash
[Used for] Provided by
Operating Activities:
Depreciation and Amortization 309,900 3,859
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (4,089) 6,801
Inventory (16,642) 9,876
Other Current Assets (11,462) (4,416)
Other Assets 19,383 43,310
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (114,428) 223,973
Accrued Payroll and Payroll Taxes Payable (4,437) (11,135)
Deferred Revenue (92,196) (75,829)
----------- -----------
Total Adjustments 86,029 196,439
----------- -----------
Net Cash - Operating Activities from Continuing Operations (674,510) 551,655
----------- -----------
Loss from Discontinued Operations:
Net [Loss] (203,951) (173,342)
Adjustments to Reconcile Net [Loss] from Discontinued
Operations to Net Cash [Used for] Operating Activities:
Depreciation and Amortization 13,720 19,004
Loss on Disposal of Assets 97,693 --
Net Change in Assets and Liabilities (29,668) 8,623
----------- -----------
Net Cash - Operating Activities from Discontinued Operations (122,206) (145,715)
--------- -----------
Net Cash - Operating Activities - Forward (796,716) 405,940
----------- -----------
Investing Activities:
Acquisition of Intangible Assets (675,000) --
Acquisition of Assets (177,091) (118,349)
Deferred Costs -- (373,850)
----------- -----------
Net Cash - Investing Activities - Forward $ (852,091)$ (492,199)
See Notes to Financial Statements.
4
</TABLE>
<PAGE>
<TABLE>
TERRACE HOLDINGS, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Nine months ended
September 30,
1 9 9 6 1 9 9 5
------- -------
(consolidated][Combined]
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (796,716)$ 405,940
----------- -----------
Net Cash - Investing Activities - Forwarded (852,091) (492,199)
----------- -----------
Financing Activities:
Proceeds from Demand Notes Payable -- 85,000
Payment of Demand Notes Payable (10,000) (130,000)
Proceeds from Bridge Loan -- 400,000
Proceeds from Demand Notes Payable - Stockholders
and Related Parties -- 135,894
Payment of Demand Notes Payable - Stockholders and Related Parties(153,380) --
Subchapter S Distributions -- (338,161)
Net Cash - Financing Activities (163,380) 152,733
----------- -----------
Net [Decrease] Increase in Cash and Cash Equivalents (1,812,187) 66,474
Cash and Cash Equivalents - Beginning of Periods 3,602,009 30,407
----------- -----------
Cash and Cash Equivalents - End of Periods $ 1,789,822 $ 96,881
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 2,269 $ --
Taxes $ -- $ --
See Notes to Financial Statements.
5
<PAGE>
</TABLE>
TERRACE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
[1] Basis of Reporting
The accompanying unaudited consolidated and combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, such statements include all adjustments
[consisting only of normal recurring items] which are considered necessary for a
fair presentation of the financial position of the Company at September 30, 1996
and the results of its operations for the three and nine month periods then
ended and its cash flows for the nine month periods then ended. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
The accompanying unaudited consolidated financial statements for the periods
ending in 1996 include the accounts of Terrace Holdings, Inc. and subsidiaries.
The combined financial statements for 1995 included the same entities on a
combined basis. All significant intercompany balances and transactions have been
eliminated in consolidation and combination.
In July 1996, the Company disposed of all of the operating assets of its
subsidiary, Prime Concern Kosher Foods, Inc. [doing business as "The Deli
Maven"]. Management believed that in order to fully realize both revenue and net
income potential, the physical size of The Deli Maven had to be increased.
Management could not increase the physical size of The Deli Maven and,
accordingly, closed the operation. The disposal is reflected as discontinued
operations in the accompanying financial statements. Net Assets of the
discontinued subsidiary are presented separately in the accompanying balance
sheet.
It is suggested that these financial statements be read in conjunction with the
financial statements and notes for the period ended December 31, 1995 included
in the Company's annual report on Form 10- KSB.
[2] [Loss] Income Per Share
[Loss] income per share of common stock is based on weighted average number of
common shares outstanding for each period presented. Common stock equivalents
are included if dilutive. Historical earnings per share for the periods ending
in 1995 are not indicative of the capital structure of the Company upon
completion of the business combinations which were completed in December 1995.
Therefore, 1,675,000 shares have been used in the computation for such periods.
[3] Common Stock
At September 30, 1996, 3,312,500 shares of the Company's common stock were
issued and outstanding.
[4] Intangible Assets
In January 1996, the Company entered into an assignment agreement to operate
Passover vacations at hotels located in Miami, Florida, Rye Town, New York and
Tamiment, Pennsylvania. The Company paid $675,000 for these agreements.
Amortization is computed over the term of the agreements [four years for the
hotels located in Miami and Ryetown and one year for the hotel in Taminent]
using the straight-line method. Amortization expense amounted to $259,875 for
the nine month period ending September 30, 1996.
6
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
- ------------------------------------------------------------------------------
[5] Seasonality
The Company's holiday vacation operations are limited to Passover, which, in
date occurrence, approximates Easter. While the Passover vacation operations
generate revenue and income and require year-round management activity, the
concentrations of revenues and expenses occur during the second quarter.
[6] Deferred Revenue
Deferred revenue consists of deposits collected for future vacations at the
Kosher holiday vacation venue and deposits on hand for future catering events.
Deferred revenue totaled $71,864 at September 30, 1996.
[7] Inventories
Inventories consist of food and beverages for the Kosher holiday vacation
venues, restaurant and catering operations and are stated at the lower of cost
[determined by the first-in, first-out method] or market.
. . . . . . . . . .
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
[Rounded to Thousands of Dollars]
- ------------------------------------------------------------------------------
Results of Operations - Terrace Holdings, Inc. [Passover Holiday Vacations]
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995.
In addition to being a holding company, the Registrant directly operates the
Passover holiday vacation segment of its business. Through Passover 1995, the
Registrant operated one Passover vacation venue at the Bonaventure Resort & Spa
in Fort Lauderdale, Florida. In January, 1996, the Registrant purchased
additional Passover holiday contracts for three other venues.
Revenues for the nine months ended September 30, 1996 were $3,750,000 or 111.6%
higher than the $1,772,000 recorded in the comparable period of 1995. The
substantial increase in revenue resulted from the addition of three Passover
holiday contracts. Cost of revenues increased by 155% from $1,229,000 in 1995 to
$3,135,000 in 1996. This increase is due to the three additional venues. The
gross profit percentage decreased to 16% from 31% at September 30, 1995 mainly
because increased costs associated with the new venues. Management currently
believes that it can realize maximum profitability potential from these venues
by next year, although no assurance can be given.
Selling, general and administrative expenses increased by 926% from $122,000 in
1995 to $1,252,000 in 1996. The increase is due primarily to the costs related
to the purchase of the additional holiday venues. These costs include a charge
to amortization expense of $260,000, as well as other costs associated with the
new venues, such as travel expense associated with new locations. Operating
expenses also increased due to professional fees associated with Terrace
Holdings expansion into the public marketplace. The companies aggressive
attempts at possible acquisition candidates has also increased the associated
fees even though the benefits have not yet been realized. As a result of the
above, the net loss for the nine months ending September 30, 1996 was $567,000
as compared to net income of $277,000 for the corresponding period of 1995.
Results of Operations - A & E Management Corp.
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995.
The Registrant's operations at The Club at Emerald Hills in Hollywood, Florida
are derived from its operations of the Reflections Restaurant and catering
private functions. During 1996, the golf club where the restaurant and catering
facility are located changed its membership policies resulting in a slightly
higher number of golfers and, thus, people using the Registrant's food and
beverage operations there. This translated into slightly higher revenues in the
restaurant of approximately $666,000 for the nine months ending September 30,
1996 compared to approximately $649,000 for the nine months ending September 30,
1995.
Net loss for the nine months ended September 30, 1996 was approximately $38,000
as compared to net loss of approximately $61,462 for the nine months ended
September 30, 1995. This decrease in loss was primarily due to an overall
decrease in cost of sales.
Results of Operations - The Lasko Companies, Inc.
The Lasko Companies, Inc. commenced generating revenues with the opening of the
Terrace Oceanside Restaurant on October 23, 1995. Some significant period of
time will be necessary before pre-operating expenses and costs are recovered, if
at all, and any income is generated.
Net loss for the nine months ended September 30, 1996 was $95,000 as compared to
a net loss of $3,000 for the nine months ended September 30, 1995. This
increased loss is attributable primarily to start up cost associated with the
normal course of business. The Company currently feels that the cost it has
incurred associated with its initial start up will be non-recurring and that the
Company will be able to realize its maximum profitability in the coming season,
although no assurance can be given.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Results of Operations - Terrace Holdings, Inc. [Consolidated]
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995.
The Registrant's consolidated net loss for the nine months ended September 30,
1996 was approximately $964,000 compared with its combined net income of
approximately $64,000 for the nine months ended September 30, 1995. This
substantial decrease is due to the following factors. In 1996, the Company
purchased additional Passover holiday contracts, which resulted in a net loss of
$434,000. Selling, General and Administrative Expenses increased by 481% from
$248,000 in 1995 to $1,440,000 in 1996 primarily due to increases in
professional fees, payroll and related expenses and costs associated with the
purchases of the new holiday venues.
Discontinued Operations - Prime Concern Kosher Foods, Inc.
On March 1, 1995, Prime Concern Kosher Foods, Inc. commenced operations of The
Deli Maven. The Deli Maven remained opened until July 5, 1995 at which time it
temporarily suspended operations in order to renovate its facilities. The Deli
Maven reopened on August 28, 1995 under the Registrant's management, and the
Registrant acquired The Deli Maven in December, 1995.
In July 1996, the Company disposed of all of the operating assets of its
subsidiary, Prime Concern Kosher Foods, Inc. [trading as "The Deli Maven"].
Management believed that in order to fully realize both revenue and net income
potential, the physical size of The Deli Maven had to be increased. Management
could not increase the physical size of The Deli Maven and accordingly closed
the operation. The disposal is reflected as discontinued operations in the
accompanying financial statements. Net Assets of the discontinued subsidiary are
presented separately in the accompanying balance sheet.
Liquidity and Capital Resources
At September 30, 1996, the Registrant had cash of approximately $1,795,000 and
working capital of approximately $1,706,000, substantially all of which was a
result of the proceeds received from the Registrant's public offering of its
securities. Prior to its public offering, the Registrant, and its subsidiaries,
relied principally on certain bridge and related party loans and internally
generated funds to fund its working capital expenditures.
Seasonality
The Registrant's sales in its restaurant operations in South Florida are
expected to be seasonal, with the third quarter being substantially lower than
the other quarters of the year, due to weather and the dining habits of the
Registrant's guests. Additionally, the seasonal nature of Passover holiday will
also continue to affect that aspect of the Registrant's business.
9
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(i) Articles of Incorporation *
(3)(ii) By-laws *
(4) Instruments defining the rights of holders *
(10) Material Contracts **
(11) Statement Re: Computation of per Share Earnings
See Exhibit 11 filed herewith.
- -------------------------------------
* Incorporated by this reference to the Registrant's registration statement
# 33-96892-A. ** All material contracts presently in full force and
effect and heretofore filed with the Commission are hereby incorporated
by this reference to Registrant's registration statement #33-96892-A,
and to its Form 10-KSB, which was filed with the
Commission April 15,1996.
(b) Reports on Form 8-K
The Registrant filed Current Reports on Form 8-K dated January 12, 1996
and January 31, 1996 for the purpose of reporting its purchase from
International Tours and Catering by Ambassador, Inc., the rights to operate
three Passover vacation venues.
10
<PAGE>
<TABLE>
TERRACE HOLDINGS, INC.
- ------------------------------------------------------------------------------
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
- ------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Consolidated][Combined][Consolidated][Combined]
<C> <C> <C> <C>
Fully Diluted:*
Average Shares Outstanding
Disregarding Potentially Dilutive
Common Stock Purchased Warrants 3,312,500 1,675,000 3,312,500 1,675,000
Assuming Conversion of Warrants [1] -- -- -- --
---------- ----------- ----------- -----------
Common Shares Outstanding 3,312,500 1,675,000 3,312,500 1,675,000
=========== =========== =========== ===========
[Loss] Income from Continuing
Operations for Fully Diluted
Calculations $ (392,829)$ (103,059)$ (760,539)$ 237,443
=========== =========== =========== ===========
[Loss] from Discontinued Operations
for Fully Diluted Calculations $ (151,233)$ (56,509)$ (203,951)$ (173,342)
=========== =========== =========== ===========
Fully Diluted [Loss] Income Per
Common Share from Continuing
Operations $ (.10)$ (.06)$ (.21)$ .14
=========== =========== =========== ===========
Fully Diluted Loss Per Common Share
from Discontinued Operations $ (.05)$ (.03)$ (.05)$ (.10)
=========== =========== =========== ===========
Fully Diluted Net [Loss] Income Per
Common Share $ (.15)$ (.09)$ (.26)$ .04
=========== =========== =========== ===========
</TABLE>
[1] Class A and Class B warrants are excluded from the calculation as they do
not become exercisable until December 5, 1996. However, if effect was given to
the exercise of all such warrants, common shares outstanding would have been
increased by 1,981,250.
* This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083, although not required by Footnote 2 to Paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
11
<PAGE>
SIGNATURES
- ------------------------------------------------------------------------------
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TERRACE HOLDINGS, INC.
(Registrant)
Dated: November 19, 1996 By:Samuel H. Lasko, President and Principal
Financial Officer
------------------------------------------
Samuel H. Lasko,
President and Principal Financial Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-END> sep-30-1996
<CASH> 1,795,277
<SECURITIES> 0
<RECEIVABLES> 103,072
<ALLOWANCES> 0
<INVENTORY> 42,670
<CURRENT-ASSETS> 1,960,317
<PP&E> 465,674
<DEPRECIATION> 61,804
<TOTAL-ASSETS> 2,853,876
<CURRENT-LIABILITIES> 254,473
<BONDS> 0
0
0
<COMMON> 3,313
<OTHER-SE> 2,568,090
<TOTAL-LIABILITY-AND-EQUITY> 2,853,876
<SALES> 265,626
<TOTAL-REVENUES> 265,626
<CGS> 148,136
<TOTAL-COSTS> 525,883
<OTHER-EXPENSES> (17,078)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,514
<INCOME-PRETAX> (392,829)
<INCOME-TAX> 0
<INCOME-CONTINUING> (392,829)
<DISCONTINUED> (151,233)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (544,062)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
