<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
(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, 1998.
[ ] 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 Jusisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1351 N.W. 22nd Street, Pompano Beach, Florida 33069
- -------------------------------------------- -----------------------------
(Address of Principal Executive Office) (Zip Code)
(954) 917-7272
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
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(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 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court 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 5,270,348 shares of its common
stock issued and outstanding.
Transitional Small Business Disclosure Format:
Check one: Yes No
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This is page 1 of 12 sequentially numbered pages.
<PAGE>
TERRACE HOLDINGS, INC. AND SUBSIDIARIES
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FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended March 31, 1998
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INDEX
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet as of March 31, 1998 [Unaudited].......... 1
Statements of Operations for the three months ended
March 31, 1998 and 1997 [Unaudited].................................. 2
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 [Unaudited].................................. 3 & 4
Notes to Financial Statements........................................ 5 & 6
Item 2: Management's Discussion and Analysis........................... 7 & 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 9
Exhibit 11........................................................... 10
Signatures........................................................... 11
</TABLE>
. . . . . . . . . . .
2
<PAGE>
Item 1.
TERRACE HOLDINGS, INC.
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TERRACE HOLDINGS, INC
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED]
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<TABLE>
<CAPTION>
Assets:
<S> <C>
Current Assets:
Accounts Receivable (Less Allowance for Doubtful Accounts of $62,500) 2,313,851
Inventory 579,361
Restricted Cash 65,439
Due on Sale of Discontinued Operations 90,000
Other Current Assets 247,143
----------
Total Current Assets 3,295,794
Furniture, Fixtures and Equipment - At Cost [Net of
Accumulated Depreciation of $118,884] 1,054,589
Intangible Assets [Net of Accumulated Amortization of $141,422] 4,169,731
Net Assets of Discontinued Operations 7,494
Other Assets 15,178
----------
Total Assets $8,542,786
==========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $2,189,743
Accrued Expenses 588,732
Cash Overdrafts 440,818
Current Portion of Long Term Debt 97,940
Line of Credit 1,108,163
Provision for Phase-Out-Costs 20,000
Other Current Liabilities 113,435
----------
Total Current Liabilities 4,558,831
----------
Long-Term Debt 235,305
----------
Commitments and Contingencies --
----------
Total Liabilities 4,794,136
----------
Stockholders' Equity:
Convertible Preferred Stock $.001 Par Value, 10,000,000
Shares Authorized, 1,523,825 Shares Issued
and Outstanding 1,524
Common Stock - $.001 Par Value, 25,000,000 Shares
Authorized, 5,270,348 Issued and Outstanding 5,270
Additional Paid-in Capital 9,501,330
Retained Earnings [Deficit] (5,759,474)
----------
Total Stockholders' Equity 3,748,650
----------
Total Liabilities and Stockholders' Equity $8,542,786
==========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Revenue $6,955,120 $ 0
Cost of Sales 4,884,252 0
---------- ----------
Gross Profit 2,070,868 0
---------- ----------
Operating Expenses:
Selling, General and Administrative Expenses 1,864,706 164,469
Provisions for Doubtful Accounts 2,500 0
---------- ----------
Total Operating Expenses 1,867,206 164,469
---------- ----------
Income (Loss) from Operations 203,662 (164,469)
---------- ----------
Other Income [Expense]:
Interest Income 11,541
Interest Expense (77,182) 0
---------- ----------
Other [Expense] Income - Net (77,182) 11,541
---------- ----------
Income (Loss) from Continuing Operations 126,480 (152,928)
---------- ----------
Discontinued Operations:
Income (Loss) from Discontinued Operations 7,494 (248,476)
Net Income (Loss) $ 133,974 $ (401,404)
========== ==========
Income (Loss) Per Share of Common Stock
Income (Loss) from Continuing Operations $ .03 (.03)
Income (Loss) from Operations of Discontinued
Business Segments (Net of Income Tax of $ 0.) -0- (.06)
Basic Net Income (Loss) Per Share of Common Stock $ .03 $ (.09)
========== ==========
Diluted Net Income (Loss) Per Share of Common Stock $ .02 $ (.09)
========== ==========
Weighted Average Shares of Common Stock Outstanding 5,111,383 4,306,400
========== ==========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1 9 9 8 1 9 9 7
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<S> <C> <C>
Operating Activities:
Net Income $ 126,480 $(152,928)
--------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation, Amortization 99,407
Provision for Doubtful Accounts 2,500
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (444,853)
Inventory (298,903)
Other Current Assets (139,319)
Due from Related Party 122,752
Other Assets (35,601)
Increase [Decrease] in:
Accounts Payable 1,297,002
Accrued Expenses (189,625)
--------- ---------
Total Adjustments 413,360
--------- ---------
Net Cash - Operating Activities 539,840 (152,928)
--------- ---------
Investing Activities:
Acquisition of Assets (274,086)
Purchase of Business Net of Cash Acquired (340,814)
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Net Cash - Investing Activities (614,900)
--------- ---------
Financing Activities:
Restricted Cash 72,262
Proceeds from Notes Payable 132,464
Cash Overdrafts 68,367
Line of Credits (245,921)
Current Portion of Long Term Debt (64,430)
Proceeds from Warrants Exercised 156,250
Payments of Term Loan (16,667)
Payment of Demand Notes Payable (27,265)
--------- ---------
Net Cash- Financing Activities 75,060
Net [Decrease] Increase in Cash and Cash Equivalents 0 (152,928)
</TABLE>
5
<PAGE>
TERRACE HOLDINGS, INC.
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STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Discontinued Operations:
Income from Discontinued Operations 7,494 (248,476)
Adjustments to Reconcile Income to Net Cash
Provided by Discontinued Operations: Depreciation 9,614 52,968
-------- ----------
Changes In Net Assets & Liabilities- Discontinued Operations
Current Assets 2,585 (946,882)
Current Liabilities (23,950) 1,038,190
-------- ----------
Investing Activities- Discontinued Operations
Acquisition of Assets (2,703) (59,837)
-------- ----------
Financing Activities - Discontinued Operations
Payment of Demand Notes Payable (19,408)
Net Cash- Discontinued Operations (6,960) (336,373)
Cash and Cash Equivalent Beginning of Period (6,960) 1,570,907
-------- ----------
Cash and Cash Equivalent End of Period 0 1,234,534
======== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 77,182 $ 36,719
Taxes $ $ 33,426
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the three months ended March 31, 1998, the Company issued 138,948
shares of common stock in connection with the acquisition of Fresh Inc.
See Notes to Financial Statements.
6
<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
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 in
order to make the financial statements not misleading. 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, 1997 included
in the Terrace Holdings, Inc. 10-KSB.
[2] Income Per Share
Income per share of common stock is based on weighted average number of common
shares outstanding for each period presented. Potential common shares are
included if dilutive. Income from diluted calculations takes into effect the
common shares issued in connection with the private placement the Company
commenced in July 1997. The Company has 5,270,348 (5,111,383 on a weighted
average basis) shares outstanding as well as 1,523,825 shares of Preferred Stock
(convertible into two shares of common for each share of preferred) totaling
8,159,033 shares of Diluted Common Shares outstanding. The proceeds from the
private placement were used in the purchase of A-One-A Produce. The Preferred
Stock converts in July 1998 to the Company's Common Stock.
[3] Common Stock
At March 31, 1998, 5,270,348 shares of the Company's Common Stock were issued
and outstanding.
7
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
- --------------------------------------------------------------------------------
[4] Inventories
Inventories consist of produce, grocery dry goods and dairy for its food service
distributor and its vegetable precut subsidiaries and are stated at the lower of
cost [determined by the first-in, first-out method] or market.
[5] Commitments
Effective September 1, 1995, the Company entered into 5-year employment
agreements with two executives, through August 31, 2000 for an aggregate base
salary of $165,000 for the first two years, $220,000 for the third year,
$265,000 for the fourth year and $300,000 in the fifth year.
The employment agreements were amended on February 14, 1997. The amendment
eliminates options in such agreements in consideration of the issuance of
warrants to purchase 1,500,000 shares of the Company's common stock in
connection with a business acquisition. Additionally, the agreements were
amended to provide that certain other benefits are made available to the
executives. As of January 1, 1998, one of such agreements was surrendered in
connection with the sales by the Company of two of its Hospitality subsidiaries.
[6] Incorporation of New Subsidiaries
On June 4, 1997 the Company incorporated Terrace Fresh Inc. as a wholly-owned
subsidiary to operate the business of A-One-A's affiliate, Fresh. The
Registrant consummated its purchase of Fresh, Inc. on February 2, 1998,
effective as of January 1, 1998. In consideration for the purchase, the
Company paid $105,000 in cash and issued 138,948 shares of common stock valued
at $270,000.
The acquisition of Fresh Inc. will be accounted for as a purchase, effective
January 1, 1998. The operations of Fresh Inc. are included in the Company's
results of operations from that date.
The goodwill recorded for the acquisition is to be amortized over 20 years using
the straight-line method.
[7] No Comparable Results for First Quarter 1997
In November 1997, the Company's management decided to dispose of certain of its
subsidiaries: including its Restaurant, Catering and Hospitalilty businesses.
These operations were discontinued as of year end and therefore there are no
comparable results for the first quarter of 1997.
. . . . . . . . . .
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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In November of 1997, the Registrant determined to focus its resources on its
distribution and processing operations. The Registrant's continuing operations
distribute produce, dairy, frozen and dry grocery items to food service
customers in the South Florida area. In addition, the Registrant's newly
acquired subsidiary, Fresh, Inc. operates a "value added" precut produce
operation which sells prepared, ready to use products to the food service
sector. In December, 1997, the Registrant purchased a customer list and certain
inventory for retail distributors and has since consolidated all of its
distribution operations into its warehouse facility in Pompano Beach, Florida.
The Registrant intends to continue its growth as a distributor and value added
processing company. The Registrant's consolidated net profit for the quarter
ended March 31, 1998 was approximately $129,000. The income for the period was
a result of the Registrant's continuing operations performance. Revenues from
the Registrant's continuning operations for the period were approximately
$6,955,000.
A-One-A Produce and Provisions, Inc. ("A-One-A") is the Registrant's largest
operating subsidiary with regard to sales volume. A-One-A operates its
distribution facility out of a 55,000 sq. ft. facility in Pompano, Beach,
Florida. A-One-A provides its food service customers with 7-day a week service
in the produce, dairy, frozen and dry grocery areas. For the quarter ended
March 31, 1998, A-One-A had revenues of approximately $6,500,000. Net Income
from this subsidiary was approximately $237,000 for the period. Management
believes that both revenues and income will continue to increase as the
Registrant furthers its plan for consolidation, increased efficiency, and
internal sales growth. There are no comparable financial results for the same
period in 1997 since the Registrant did not own this subsidiary until July 1997.
Fresh, Inc. is the Registrant's value added produce processing subsidiary. The
Registrant purchased Fresh, Inc. in January 1998, and its financial results are
included in the first quarter consolidated results. Fresh, Inc. manufactures
custom cut produce that is cleaned, processed and packaged in a ready to use
form for its customers. This higher margin sector of the produce industry is
rapidly growing as food service establishments attempt to cut labor expenses as
well as the associated costs. Fresh, Inc. maintains its own customers and also
sells through A-One-A's distribution system to A-One-A's accounts. Fresh,
Inc's. revenues for the quarter ended March 31, 1998 were approximately $262,000
with net income of approximately $55,000. Management believes that Fresh, Inc.
will continue to experience internal sales growth and will benefit from the
apparent continued industry move toward processed, "ready to use" produce.
The Registrant's management believes that with the 1997 year end and early 1998
dispositions of its non-core subsidiaries and with its organizational
restructuring now basically complete, the Registrant is positioned to continue
its projected profitability through 1998, although there is no assurance that
this will occur.
9
<PAGE>
Discontinued Operations:
- ------------------------
Lasko Family Kosher Tours & A & E Management Corp.
Effective January 1, 1998 the Company sold its Hospitality and catering
operations to Dr. Samuel Lasko, the Company's President. Dr. Lasko has agreed
to resign his position as President and as a member of the Board of Directors
upon shareholder approval of the transaction. In connection with the sale of
these subsidiaries Dr. Lasko has surrendered his employment agreement and
warrants to purchase common stock in an amount equal to the independent
valuation of these items and the businesses, as set forth in a fairness opinion
received by the Company. Management decided in November of 1997 to dispose of
these businesses and concentrate on its businesses of distribution and
processing of fresh produce. The hospitality and catering operations were
discontinued as of year end of 1997 and therefore there are no comparable
results for the first quarter of 1997 with which to compare the first quarter of
1998.
The Lasko Companies, Inc. (Terrace Oceanside Restaurant)
As of March 31, 1998, The Lasko Companies, Inc. was the only discontinued
subsidiary not yet disposed of. In February 1998, the Registrant entered into
an agreement to sell this subsidiary to an unrelated party in June of 1998.
Revenues for the quarter ended March 31, 1998, were $199,421 compared to
approximately $272,600 for the same period in 1997. Net income for the quarter
ended March 31, 1998 was approximately $7,500 compared to $48,000 for the same
period in 1997. The substantial decrease in both revenues and net income was
due to a poor winter season in South Florida. The Lasko Companies experienced
approximately a 20% decrease in customers in the restaurant and Management
believes this to be a major factor in the decrease in revenues as well as net
income. In light of the difficult time the Registrant has had in developing
this subsidiary, Management decided in November, consistent with its new plans
of goals and objectives, to sell the restaurant unit. The Registrant believes
the sale will be consummated in early June.
10
<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 statements
#33-96892-A and 333-45195
** 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 Report on Form 8-K dated January 16, 1998 for
the purpose of reporting the sale of its Deering Ice Cream business. The
Registrant filed a report Form 8-K on March 19, 1998 for the purpose of
reporting the sale of its Hospitality businesses to Samuel H. Lasko. The
Registrant also filed two reports on Form 8-K/A both dated April 28, 1998, for
the purpose of reporting proforma financial information as it related to the
1997 acquisition of A-One-A Produce and the sale of the Deering Ice Cream
business in December 1997, respectively.
11
<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: July 10, 1998 By: /s/ Jonathan S. Lasko
------------------ ------------------------------------------------
Jonathan S. Lasko, President
Dated: July 10, 1998 By: /s/ Mario J. Jacobs
------------------ ------------------------------------------------
Mario J. Jacobs, Principal Financial Officer
12
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TERRACE HOLDINGS, INC.
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EXHIBIT 11
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<TABLE>
<CAPTION>
March 31,
---------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Weighted average:
Weight Average Shares Outstanding Disregarding Potentially Dilutive
Common Stock Purchased Warrants 5,111,383 4,306,400
Plus incremental shares from assumed conversion:
Convertible Preferred Stock 3,047,650
Assuming Conversion of Warrants [1] -- --
--------- ---------
Common Shares Outstanding 8,159,033 4,306,400
========= =========
Income [Loss] for Fully Diluted Calculations $ 133,974 $(401,404)
========= =========
Basic Income[Loss] Per Common Share $ .03 $ (.09)
========= =========
Diluted Income [Loss] Per Common Share $ .02 $ (.09)
========= =========
</TABLE>
[1] Warrants to purchase common shares are excluded from the calculation as
they are considered anti-dilutive. However, if effect was given to the exercise
of all such warrants, common shares outstanding would have been increased by
9,488,450.
