Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended 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 Identification No.)
incorporation or organization)
2699 Stirling Road, Suite C-405, Ft. Lauderdale, Fl 33312
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 894-6000
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
August 15, 1996: 3,312,500
<PAGE>
TERRACE HOLDINGS, INC. AND SUBSIDIARIES
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INDEX
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Page
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet as of June 30, 1996 [Unaudited]......... 1
Statements of Operations for the three and six months ended
June 30, 1996 and 1995 [Unaudited]................................. 2
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 [Unaudited]................................. 3
Notes to Financial Statements...................................... 4.....5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 6.....7
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 8
Exhibit 11......................................................... 9
Signatures......................................................... 10
. . . . . . . . . . .
<PAGE>
<TABLE>
Item 1.
TERRACE HOLDINGS, INC.
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CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996.
[UNAUDITED]
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<S> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 2,365,857
Accounts Receivable 109,880
Inventory 44,038
Other Current Assets 27,573
-----------
Total Current Assets 2,547,348
Furniture, Fixtures and Equipment - At Cost [Net of
Accumulated Depreciation of $82,607] 512,754
Intangible Assets [Net of Accumulated Amortization of $259,875] 415,125
Other Assets 76,874
Total Assets $ 3,552,101
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 226,770
Accrued Expenses and Other Payables 5,182
Accrued Payroll and Payroll Taxes 61,501
Deferred Revenue 58,964
Due to Related Party 56,218
-----------
Total Current Liabilities 408,635
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] (805,795)
Total Stockholders' Equity 3,143,466
Total Liabilities and Stockholders' Equity $ 3,552,101
===========
See Notes to Financial Statements.
1
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<TABLE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF OPERATIONS
[UNAUDITED]
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Three months ended Six months ended
June 30, June 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>
Revenue $ 4,207,565 $ 2,086,087 $ 4,871,750 $ 2,361,814
Cost of Sales 3,263,248 1,382,013 3,561,363 1,454,988
----------- ----------- ----------- -----------
Gross Profit 944,317 704,074 1,310,387 906,826
----------- ----------- ----------- -----------
Operating Expenses:
Selling, General and Administrative
Expenses 718,170 145,415 1,172,162 268,571
Payroll and Related Expenses 309,076 190,642 615,100 283,813
----------- ----------- ----------- -----------
Total Operating Expenses 1,027,246 336,057 1,787,262 552,384
----------- ----------- ----------- -----------
[Loss] Income from Operations (82,929) 368,017 (476,875) 354,442
----------- ----------- ----------- -----------
Other Income [Expense]:
Interest Income 28,593 -- 61,920 --
Interest Expense (1,704) (8,778) (5,472) (13,000)
----------- ----------- ----------- -----------
Other Income [Expense] - Net 26,889 (8,778) 56,448 (13,000)
----------- ----------- ----------- -----------
[Loss] Income Before Pro Forma
Income Taxes (56,040) 359,239 (420,427) 341,442
Pro Forma Income Taxes -- 122,141 -- 116,412
----------- ----------- ----------- -----------
Net [Loss] Income $ (56,040)$ 237,098 $ (420,427)$ 225,030
=========== =========== =========== ===========
Income [Loss] Per Share $ (.02)$ .14 $ (.13)$ .13
=========== =========== =========== ===========
Average Number of Shares
Outstanding 3,312,500 1,675,000 3,312,500 1,675,000
=========== =========== =========== ===========
See Notes to Financial Statements.
</TABLE>
2
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<TABLE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF CASH FLOWS
[UNAUDITED]
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Six months ended
June 30,
1 9 9 6 1 9 9 5
------- -------
[Consolidated][Combined]
<S> <C> <C>
Net [Loss] Income $ (420,427)$ 341,442
----------- -----------
Adjustments to Reconcile Net [Loss] Income to Net Cash
[Used for] Provided by
Operating Activities:
Depreciation and Amortization 305,281 13,205
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (5,140) 955
Inventory (12,473) (1,202)
Other Current Assets (18,229) 1,431
Other Assets 24,598 41,860
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (71,558) 384,571
Payroll Taxes Payable 23,115 (14,630)
Deferred Revenue (105,096) (86,111)
----------- -----------
Total Adjustments 140,498 340,079
----------- -----------
Net Cash - Operating Activities (279,929) 681,521
----------- -----------
Investing Activities:
Acquisition of Intangible Assets (675,000) --
Acquisition of Assets (164,956) (104,307)
Deferred Costs -- (234,521)
----------- -----------
Net Cash - Investing Activities (839,956) (338,828)
----------- -----------
Financing Activities:
Proceeds from Demand Notes Payable -- 10,000
Payment of Demand Notes Payable (10,000) (130,000)
Proceeds from Demand Notes Payable - Stockholders
and Related Parties -- 127,501
Payment of Demand Notes Payable - Stockholders and Related Parties(106,267) --
Subchapter S Distributions -- (310,963)
Net Cash - Financing Activities (116,267) (303,462)
----------- -----------
Net [Decrease] Increase in Cash and Cash Equivalents (1,236,152) 39,231
Cash and Cash Equivalents - Beginning of Periods 3,602,009 69,780
----------- -----------
Cash and Cash Equivalents - End of Periods $ 2,365,857 $ 109,011
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 3,493 $ --
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 June 30, 1996 and
the results of its operations for the three and six month periods then ended and
its cash flows for the six 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 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.
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] Income [Loss] Per Share
Income [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. 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 June 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 three and six month periods ending June 30, 1996.
[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.
4
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TERRACE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
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[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 $58,964 at June 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.
. . . . . . . . . .
5
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Results of Operations - Terrace Holdings, Inc. [Passover Holiday Vacations]
Six months ended June 30, 1996 compared to six months ended June 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 six months ended June 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 153.2% from $1,226,535 in 1995 to
$3,105,270 in 1996. This increase is due to the three additional venues. The
gross profit percentage decreased to 17% from 31% at June 30, 1995 mainly
because increased costs associated with the new venues. Management believes that
it can realize maximum profitability potential from these venues by next year.
Selling, general and administrative expenses increased by 768.1% from $90,802 in
1995 to $788,205 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 $259,875, as well as other costs associated with the new
venues, such as travel expense associated with new locations. Operating expenses
also increased due to increased professional fees. As a result of the above, the
net loss for the six months ending June 30, 1996 was $287,296 as compared to net
income of $437,721 for the corresponding period of 1995.
Results of Operations - A & E Management Corp.
Six months ended June 30, 1996 compared to six months ended June 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 $565,000 for the six months ending June 30, 1996
compared to approximately $511,000 for the six months ending June 30, 1995.
Net loss for the six months ended June 30, 1996 was approximately $6,000 as
compared to net income of approximately $21,000 for the six months ended June
30, 1995. This decrease was primarily due to an overall increase in general and
administrative expenses such as a payroll and related taxes.
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.
Net loss for the six months ended June 30, 1996 was $52,000 as compared to a net
loss of $117,000 for the six months ended June 30, 1995. This loss is
attributable primarily to start up costs and expenses as a result of
renovations.
6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Results of Operations - Prime Concern Kosher Foods, Inc. and The Lasko
Companies, Inc.
[Continued]
Six months ended June 30, 1996 compared to six months ended June 30, 1995.
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 second quarter of 1996, food costs as a percentage of gross sales decreased
to approximately 48% which Management believes is in line with delicatessen
industry standards.
Management believed that in order to fully realize both revenue and net income
potential, the physical size of The Deli Maven must increase. Management could
not increase the physical size of The Deli Maven and accordingly closed the
operation in July 1996, which may result in a charge to operations in the third
quarter.
Results of Operations - Terrace Holdings, Inc. [Consolidated]
Six months ended June 30, 1996 compared to six months ended June 30, 1995.
The Registrant's consolidated net loss for the six months ended June 30, 1996
was approximately $420,000 compared with its combined net income of
approximately $341,000 for the six months ended June 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 300.6% from $292,573
in 1995 to $1,172,163 in 1996 primarily due to increases in professional fees,
payroll and related expenses and costs associated with the purchases of the new
holiday venues.
Liquidity and Capital Resources
At June 30, 1996, the Registrant had cash of approximately $2,300,000 and
working capital of approximately $2,100,000, 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.
7
<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.
8
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<TABLE>
TERRACE HOLDINGS, INC.
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EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
- ------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 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>
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
=========== =========== =========== ===========
Income [Loss] for Fully Diluted
Calculations $ (56,040)$ 237,098 $ (420,427)$ 225,030
=========== =========== =========== ===========
Fully Diluted Income [Loss] Per
Common Share $ (.02)$ .14 $ (.13)$ .13
=========== =========== =========== ===========
</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.
9
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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
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this schedule contains summary financial 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> jun-30-1996
<CASH> 2,365,857
<SECURITIES> 0
<RECEIVABLES> 109,880
<ALLOWANCES> 0
<INVENTORY> 44,038
<CURRENT-ASSETS> 2,547,348
<PP&E> 595,361
<DEPRECIATION> 82,607
<TOTAL-ASSETS> 3,552,101
<CURRENT-LIABILITIES> 408,635
<BONDS> 0
0
0
<COMMON> 3,313
<OTHER-SE> 3,140,153
<TOTAL-LIABILITY-AND-EQUITY> 3,552,101
<SALES> 4,207,565
<TOTAL-REVENUES> 4,207,565
<CGS> 3,263,248
<TOTAL-COSTS> 1,027,246
<OTHER-EXPENSES> (28,593)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,704
<INCOME-PRETAX> (56,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (56,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,040)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
