U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ____________
Commission file number: 0-27132
Terrace Holdings, Inc.
(Exact Name of Small Business Issuer 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. Laud 33312
- ------------------------------------------ -------------------------
(Address of Principal Executive Office) (Zip Code)
(954) 894-6000
(Issuer's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes X No __________________
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan Yes_____________ No______________
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of the date of this report,
the issuer had 3,312,500 shares of its common stock issued and
outstanding.
Transitional Small Business Disclosure Format:
Check one: Yes__________ No X
<PAGE>
TERRACE HOLDINGS, INC. AND SUBSIDIARIES
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FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended March 31, 1996
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INDEX
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Page
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet as of March 31, 1996 [Unaudited]........ 1
Statements of Operations for the three months ended
March 31, 1996 and 1995 [Unaudited]................................ 2
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 [Unaudited]................................ 3
Notes to Financial Statements...................................... 4
Item 2: Management's Discussion and Analysis......................... 5.....6
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 7
Exhibit 11......................................................... 8
Signatures......................................................... 9
. . . . . . . . . . .
<PAGE>
Item 1.
TERRACE HOLDINGS, INC.
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CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996.
[UNAUDITED]
- ------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 3,899,416
Accounts Receivable 699,040
Inventory 231,839
Other Current Assets 475,735
-----------
Total Current Assets 5,306,030
Furniture, Fixtures and Equipment - At Cost [Net of
Accumulated Depreciation]
437,603
Intangible Assets 675,000
Other Assets 96,423
Total Assets $ 6,515,056
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 391,546
Accrued Expenses and Other Payables 6,431
Accrued Payroll and Payroll Taxes 73,903
Deferred Revenue 2,731,245
Notes Payable - Other 10,000
Due to Related Party 102,424
-----------
Total Current Liabilities 3,315,549
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] (749,754)
Total Stockholders' Equity 3,199,507
Total Liabilities and Stockholders' Equity $ 6,515,056
===========
See Notes to Financial Statements.
1
<PAGE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended
March 31,
1 9 9 6 1 9 9 5
------- -------
[Consolidated] [Combined]
<S> <C> <C>
Revenue $ 664,185 $ 275,727
Cost of Sales 298,115 72,975
---------- -----------
Gross Profit 366,070 202,752
---------- -----------
Operating Expenses:
Selling, General and Administrative Expenses 453,992 123,155
Payroll and Related Expenses 306,024 93,171
---------- -----------
Total Operating Expenses 760,016 216,326
---------- -----------
[Loss] from Operations (393,946) (13,574)
---------- -----------
Other Income [Expense]:
Interest Income 33,327 --
Interest Expense (3,768) (4,222)
---------- -----------
Other Income [Expense] - Net 29,559 (4,222)
---------- -----------
[Loss] Before Pro Forma Income Taxes (364,387) (17,796)
Pro Forma Income Taxes -- --
---------- -----------
Net [Loss] $ (364,387) $ (17,796)
========== ===========
[Loss] Per Share $ (.11) $ (.01)
========== ===========
See Notes to Financial Statements.
</TABLE>
2
<PAGE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Three months ended
March 31,
1 9 9 6 1 9 9 5
------- -------
[Consolidated] [Combined]
<S>
<C> <C>
Operating Activities:
Net [Loss] $ (364,387) $ (17,796)
---------- -----------
Adjustments to Reconcile Net [Loss] to
Net Cash Provided by Operating Activities:
Depreciation and Amortization (22,595) (3,501)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (594,300) (5,946)
Inventory (200,274) (72,014)
Other Current Assets (466,390) 29,573
Other Assets 6,917 --
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 94,467 (74,696)
Payroll Taxes Payable 35,517 (23,378)
Deferred Revenue 2,567,185 695,876
---------- -----------
Total Adjustments 1,420,527 545,914
---------- -----------
Net Cash - Operating Activities 1,056,140 528,118
---------- -----------
Investing Activities:
Acquisition of Assets (698,672) (73,313)
---------- -----------
Financing Activities:
Proceeds from Demand Notes Payable -- 42,222
Payment of Demand Notes Payable (60,061) (85,000)
Proceeds from Demand Notes Payable - Stockholders
and Related Parties -- 135,000
Subchapter S Distributions -- (128,730)
---------- -----------
Net Cash - Financing Activities (60,061) (36,508)
---------- -----------
Net Increase in Cash and Cash Equivalents 297,407 418,297
Cash and Cash Equivalents - Beginning of Periods 3,602,009 69,780
---------- -----------
Cash and Cash Equivalents - End of Periods $3,899,416 $ 488,077
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 4,559 $ --
Taxes $ -- $ --
See Notes to Financial Statements.
3
</TABLE>
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
[UNAUDITED]
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[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
301(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 March 31, 1996 and
the results of its operations for the three month period then ended and cash
flow for the three month period 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 include the
accounts of Terrace Holdings, Inc. and subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
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 Terrace Holdings, Inc. 10-KSB.
[2] [Loss] Per Share
[Loss] 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.
[3] Common Stock
At March 31, 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. The
amortization will begin in the second quarter to coincide with the Passover
season and continue over the life of the related contracts.
[5] Seasonality
The Company's holiday vacation is 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 will not occur until the next 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 $2,731,245 and $844,187 for the three months ended
March 31, 1996 and 1995, respectively.
[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.
. . . . . . . . . .
4
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Results of Operations - Terrace Holdings, Inc. (Passover Holiday Vacations)
Three months ended March 31, 1995 compared to three months ended March 31, 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.
Inasmuch as Passover is a spring holiday, substantially all of the revenues
derived from the operation of a Passover holiday vacation venue occur in the
second quarter ending June 30. For March 31, 1996, the Passover vacation
deferred revenue was approximately $2,677,000 versus approximately $818,600 or
approximately $1,858,400 (227%) more in 1996 than in 1995. Net losses for the
three month periods ended March 31, 1996 and 1995 were approximately $316,000
and $65,200, respectively. The greater loss is due to higher expenses incurred
in operating four venues rather than one venue. See, however, Results of
Operations - Terrace Holdings, Inc. (Consolidated) below.
Since the Registrant's Passover vacation venue at the Bonaventure Resort & Spa
in Fort Lauderdale, Florida has operated at capacity since 1992, additional
revenues with respect to this vacation venue, if any, can only be generated if
such capacity is maintained and prices are increased. Additional cost
containment programs, such as the use of bid purchasing for food, further
reductions in advertising expense and entertainment costs may also lower
expenses thereby resulting in additional net income to this operation.
Management believes that the Registrant's acquisition in January, 1996, of its
additional Passover holiday contracts for the Fontainebleau Hilton, in Miami
Beach, Florida, the Rye Town Hilton in Rye, New York, and the Tamiment Resort in
Tamiment, Pennsylvania, will increase its 1996 revenues by up to approximately
$1,800,000. Based on the Registrant's experience at the Bonaventure Resort &
Spa, Management believes the profit resulting from this increase in revenues may
be approximately $185,000. However, Management acknowledges that operating these
additional vacation venues has increased its expenses in 1996 by approximately
$95,000 as a result of various start up costs attributable primarily to
additional advertising for promotion of the new venues and other expenditures
necessary to properly conduct operations at the new venues.
Results of Operations - A & E Management Corp.
Three months ended March 31, 1996 compared to three months ended March 31, 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 $253,000 for the first quarter of 1996 compared to
approximately $247,000 for the first quarter of 1995.
5
<PAGE>
Results of Operations - Prime Concern Kosher Foods, Inc. and The Lasko
Companies, 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. The Lasko Companies, Inc.
commenced generating revenues with the opening of the Terrace Oceanside
Restaurant on October 23, 1995. In both of these operations, some significant
period of time will be necessary before pre-operating expenses and costs are
recovered, if at all, and any income is generated.
At March 31, 1996, Prime Concern Kosher Foods, Inc. had realized a loss
of approximately $10,300.This loss is attributable primarily to start up
costs and expenses as a result of renovations.
Because of its being closed for renovations and reopened at the height of the
"busy" season in South Florida, The Deli Maven did not minimize its food costs
in relation to sales as it might have by being in operation over the course of
an entire year. Average food costs during fiscal 1995 were approximately 80% of
gross sales. However, indicative of what Management expects to be the norm, in
the first quarter of 1996, food costs as a percentage of gross sales decreased
to approximately 44% which Management believes is in line with delicatessen
industry standards. For the first months of 1996, The Deli Maven realized a 70%
increase in gross sales as compared to the last two months of operation at the
end of 1995.
Management believes that in order to fully realize both revenue and net income
potential, the physical size of The Deli Maven must increase. Management
recognizes that increasing the physical size of The Deli Maven would involve
further renovations or possibly a move to a new location.
Results of Operations - Terrace Holdings, Inc. (Consolidated)
Three months ended March 31, 1996 to three months ended March 31, 1995
The Registrant's consolidated net loss for the quarter ended March 31, 1996 was
approximately $364,000 compared with its combined net loss of approximately
$17,800 for the quarter ended March 31, 1995. This was due principally to
consolidated Selling, General and Administrative Expenses increasing from
approximately $123,200 for the three months ended March 31, 1995 to
approximately $454,000 for the three months ended March 31, 1996 without an
attendant increase in consolidated gross revenues. All of the revenues derived
from the operation of the Passover holiday venues will be recognized in the
second quarter ending June 30, 1996.
Liquidity and Capital Resources
At March 31, 1996, the Registrant had cash of approximately $3,900,000 and
working capital of approximately $1,990,000, 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.
6
<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.
7
<PAGE>
TERRACE HOLDINGS, INC.
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EXHIBIT 11
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March 31,
1 9 9 6 1 9 9 5
Fully Diluted:
Average Shares Outstanding Disregarding Potentially Dilutive
Common Stock Purchased Warrants 3,312,500 1,675,000
Assuming Conversion of Warrants [1] -- --
---------- -----------
Common Shares Outstanding 3,312,500 1,675,000
========== ===========
[Loss] for Fully Diluted Calculations $ (364,387) $ (17,796)
========== ===========
Fully Diluted [Loss] Per Common Share $ (.11) $ (.01)
========== ===========
[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.
8
<PAGE>
SIGNATURES
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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: _______________________
By:/s/ Samuel H. Lasko, President and Principal Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,899,416
<SECURITIES> 0
<RECEIVABLES> 699,040
<ALLOWANCES> 0
<INVENTORY> 231,839
<CURRENT-ASSETS> 5,306,030
<PP&E> 437,603
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,515,056
<CURRENT-LIABILITIES> 3,315,549
<BONDS> 0
0
0
<COMMON> 3,313
<OTHER-SE> 3,196,194
<TOTAL-LIABILITY-AND-EQUITY> 6,515,056
<SALES> 664,185
<TOTAL-REVENUES> 664,185
<CGS> 298,115
<TOTAL-COSTS> 760,016
<OTHER-EXPENSES> (33,327)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3768
<INCOME-PRETAX> (364,387)
<INCOME-TAX> 0
<INCOME-CONTINUING> (364,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (364,387)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
