<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1998
SEC FILE NO. 333-45195
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TERRACE HOLDINGS, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
AMENDING THE FACING SHEET, PROSPECTUS (INCLUDING ADDITIONAL
FINANCIAL INFORMATION) AND FILING CERTAIN EXHIBITS
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(1) FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............... 4,518,950(2) $1.25(3) $ 5,648,687.50 $1,666.36
- ----------------------------------------------------------------------------------------
Common Stock............... 570,000(4) $2.44(5) $ 1,390,800.00 $ 410.29
- ----------------------------------------------------------------------------------------
Common Stock............... 1,984,150(6) $2.44(5) $ 4,841,326.00 $1,428.19
- ----------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants......... 2,131,450(7) $1.25(8) $ 2,664,312.50 $ 785.97
- ----------------------------------------------------------------------------------------
TOTAL.................. $14,545,126.00 $4,290.81
- ----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Represents 1,637,500 shares issuable upon exercise of redeemable common
stock purchase warrants issued by the Registrant prior to and in
connection with its initial public offering in December, 1995; and
2,881,450 shares issuable upon exercise of warrants for resale by the
holders thereof.
(3) Represents the proposed temporary exercise prices.
(4) Represents shares issuable upon exercise of warrants (exercisable at
$1.1875 per share).
(5) In accordance with Rule 457(c), the price represents the average of the
closing bid and asked price of the Company's Common Stock as of January
22, 1998.
(6) Represents 1,784,150 shares issued upon automatic conversion of Preferred
Stock (issued as a component of "Units" privately placed by the Registrant
in July, 1997) on July 31, 1998, and 200,000 shares for resale by the
holders thereof.
(7) Issued as a component of "Units" privately placed by the Registrant in
July, 1997, for resale by the holders thereof.
(8) Pursuant to Rule 457(c), the price represents the average of the closing
bid and asked price of the 1,637,500 redeemable Common Stock purchase
warrants as of January 22, 1998.
----------------
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS DATED SEPTEMBER 11, 1998--SUBJECT TO COMPLETION
PROSPECTUS
TERRACE HOLDINGS, INC.
In December, 1995, Terrace Holdings, Inc., a Delaware corporation (the
"Company"), sold 1,437,500 redeemable common stock purchase warrants (the
"Public Warrants") and certain selling warrantholders sold 200,000 identical
warrants, which they had acquired in July 1995 ("Lenders Warrants"), to the
public. In August, 1997, the Company consummated a private placement of
1,523,825 units of its securities, including units issued as commissions, each
unit consisting of one share of preferred stock, $.001 par value ("Preferred
Stock"), each convertible into two shares of Common Stock, and two redeemable
common stock purchase warrants (the "Private Placement Warrants"), each to
purchase one share of common stock, $.001 par value ("Common Stock"). The
Private Placement Warrants are identical in all respects to the Public
Warrants, as are warrants to purchase 750,000 shares issued in July, 1997 to
Biltmore Securities, Inc., as an investment banking fee ("IB Warrants"). The
Public Warrants, Lenders Warrants, Private Placement Warrants and the IB
Warrants are sometimes hereinafter collectively referred to as the "Warrants".
The Company has temporarily reduced the exercise price of the Warrants from
$4.00 to $1.25 for a minimum of 60 calendar days commencing on the date of this
Prospectus, to and including 5:00 p.m., New York time, on ,
1998, subject to extension in the sole discretion of the Company ("Temporary
Exercise Period"). After the expiration of the Temporary Exercise Period, the
exercise price of the Warrants will return to the original $4.00 per share.
This Prospectus covers the offer and sale of up to (1) 4,518,950 shares of
Common Stock reserved for issuance upon exercise of Warrants (of which (i)
1,637,500 shares of Common Stock are being registered for original issuance and
(ii) 2,881,450 shares reserved for issuance on exercise of the Private
Placement Warrants and the IB Warrants are for resale), and (2) 1,984,150
shares of Common Stock, including 1,784,150 shares issued upon automatic
conversion of the Preferred Stock on July 31, 1998, and up to an additional
200,000 shares of Common Stock, for resale. All of the Warrants are exercisable
at $4.00 per share. See "Description of Securities--Warrants," "Price Range of
Securities," "Business--Recent Financing," "Plan of Distribution" and "Selling
Securities Holders."
(Continued on following page)
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
INCLUDED IN THE UNITS AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OR THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPORARY SOLICITATION PROCEEDS TO
EXERCISE PRICE FEE SELLING
OR PRICE TO OR SALES PROCEEDS TO SECURITIES
PUBLIC COMMISSIONS COMPANY(3) HOLDERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Warrant(2)........................ $1.25(1) $.05 $1.20 -0-
- ------------------------------------------------------------------------------------------------
Per Share(2).......................... various(2) various(2) -0- various(2)
- ------------------------------------------------------------------------------------------------
TOTAL(4).............................. $5,648,687 $225,948 $5,422,740 various(2)
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Holders of Warrants may exercise them at the $1.25 temporary exercise price
until , 1998, (60 calendar days after the date of this
Prospectus) after which the exercise price will return to the $4.00 per
share exercise price stated in the Warrants. See "Description of
Securities--Warrants."
(2) Certain holders of the Company's securities ("Selling Securities Holders")
may sell their shares of Common Stock, Warrants, or other warrants at any
time at varying market prices and pay their respective brokers various
sales commissions charged by such brokers. The Company will not receive any
proceeds from such sales and will not pay any of the associated brokerage
commissions.
(3) Before deducting expenses of the offering payable by the Company estimated
at $120,000. See "Use of Proceeds."
(4) Assumes all 4,518,950 Warrants are exercised at the $1.25 temporary
exercise price. See "Use of Proceeds."
The Date of this Prospectus is September , 1998
<PAGE>
(Continued from previous page)
This Prospectus also covers the offer and sale by the holders thereof of the
2,131,450 Private Placement Warrants. See "Selling Securities Holders." Up to
570,000 additional shares of Common Stock reserved for issuance upon exercise
of warrants issued to (i) Midas Investment Group, Inc. d/b/a Biltmore
Securities, Inc., the Company's initial underwriter (250,000 shares), (ii) the
former members of DownEast Frozen Desserts, LLC, in connection with the
Company's acquisition of Deering Ice Cream, Inc. (250,000 shares), and (iii)
one of its former directors (70,000 shares), are being registered for resale
so that if and when such warrants are exercised such shares may be offered and
resold to the public.
The Company will receive payments of the exercise prices of the Warrants or
its other outstanding warrants to the extent any of them are exercised. See
"Use of Proceeds from Warrant Exercises." There is no assurance, however, that
any of them will be exercised. Midas Investment Group Inc. d/b/a Biltmore
Securities, Inc., (the "Soliciting Agent"), will be paid a warrant
solicitation fee equal to 4% of the exercise price of Warrants with respect to
any Warrants exercised as a result of solicitation of the Warrant holders by
the Soliciting Agent, provided that such solicitation is in compliance with
applicable rules of the National Association of Securities Dealers, Inc.. See
"Use of Proceeds from Warrant Exercises," and "The Soliciting Agent." The
Company will not receive proceeds from resales of Warrants or shares of Common
Stock issued on exercises of the Warrants or its other warrants, although
costs incurred in connection with their registration for resale are being
borne by the Company. See "Selling Securities Holders."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the offices of
the Commission's New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048 and the Chicago Regional Office at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of these materials
may be obtained from the Public Reference Section of the Commission, 450 Fifth
Street N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a website that contains reports, proxy and information
statements and other information regarding issuers such as the Company that
file electronically with the Commission. The address of such site is
http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form SB-2
which the Company has filed with the Commission pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), relating to the Company's
securities (referred to herein, together with amendments and exhibits, as the
"Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
of the matter involved, and each such statement shall be deemed qualified in
its "entirety" by such reference. Copies of the Registration Statement and the
exhibits may be inspected, without charge, at the offices of the Commission,
or obtained at prescribed rates from the Public Reference Section of the
Commission at the address set forth above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........... 3
Risk Factors................. 6
Price Range of Securities.... 12
Dilution..................... 13
Use of Proceeds.............. 13
Capitalization............... 14
Dividend Policy.............. 14
Selected Financial Data...... 15
Management's Discussion and
Analysis.................... 16
Business..................... 20
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management......................... 27
Certain Relationships and Related
Transactions...................... 33
Selling Securities Holders......... 35
Description of Securities.......... 36
Plan of Distribution............... 39
Experts............................ 40
Legal Matters...................... 40
Additional Information............. 40
Index to Financial Statements...... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by reference to the more detailed
information and the financial statements and notes thereto appearing elsewhere
herein. Unless otherwise specified, all information in this Prospectus assumes
no exercise of the Warrants or any other Warrants. See "Description of
Securities," "Underwriting" and "Management--Employment Agreements." Each
prospective investor is urged to carefully read this Prospectus in its
entirety, including but not limited to the Risk Factors.
THE COMPANY
Terrace Holdings, Inc., (the "Company"), was incorporated under the laws of
the State of Delaware on June 15, 1995, to change the state of incorporation of
Bon Adventure Kosher Tours, Inc., a Florida corporation, formerly known as
Embassy Kosher Tours of South Florida, Inc. The Company currently has three
wholly-owned operating subsidiaries, having recently sold the "hospitality"
group, in "food services and distribution." The sold hospitality subsidiaries
are A&E Management Corp., which manages the food and beverage operations of a
non-kosher restaurant and catering operation at The Club at Emerald Hills in
Hollywood, Florida, and The Lasko Family Kosher Tours, Inc., which operates
Passover holiday vacations at three locations within the United States and the
Lasko Companies, Inc., which owns and operates on leased property the Company's
kosher, casual dining restaurant. See "Business--Hospitality."
The food services and distribution subsidiaries are: A-One-A Produce &
Provisions, Inc. which is a Pompano Beach, Florida based produce distributor
that sells and distributes fresh fruit and vegetable, dairy and grocery
products to hotels, restaurants and other businesses in the south Florida
region; and Terrace Fresh Inc., which as an affiliate of A-One-A Produce &
Provisions, Inc., processes and sells fresh produce. See "Business--Food
Services and Distribution." On July 15, 1998, the Company added Banner Beef and
Seafood Co., Inc., a Miami based custom value-added processor of meat, seafood
and poultry as a subsidiary. See "Business--Recent Acquisition."
In December, 1997, the Company consummated the sale of the assets and related
liabilities of its wholly-owned subsidiary, Deering Ice Cream, Inc. for
$1,000,000, subject to later adjustment, in cash and certain royalty payments
over four years. At the closing of the sale, the purchase price was adjusted
down, as a result of working capital deterioration, to approximately $613,000.
Further, based on post-closing accounting, the Company has released to the
buyer the $200,000 of the purchase price held in escrow further reducing the
purchase price, and is in discussions with the buyer to finalize the purchase
price. As of the date of this Prospectus, the parties are still in final
negotiation over the assumption of certain liabilities and the Company
estimates it may have to refund up to an additional approximately $50,000 to
the buyer. While the Company believes such sale will not have a material
adverse effect on its longer term growth or ultimate profitability, there is no
assurance that the Company's belief will be borne out. See "Business--Frozen
Desserts."
On August 26, 1998, shareholders approved a change in the Company's name to
Terrace Food Group, Inc. The purpose of the change is to better reflect the
Company's current business and operations. The name change will be effectuated
as soon as practicable consistent with the requirement of Delaware law and of
the NASDAQ Stock Market.
The Company's executive offices are located at 1351 N.W. 22nd Street, Pompano
Beach, Florida 33069. Its telephone number is 954-917-7272.
SECURITIES
<TABLE>
<S> <C>
Common Stock to be Issued by the Company
Upon the the Exercise of the
Warrants(1)............................. 4,518,950 shares
Other Securities Offered by Securities
Holders................................. 200,000 shares of Common Stock
2,131,450 Private Placement Warrants
570,000 shares of Common Stock(2)
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Securities Outstanding Prior to
this Prospectus
Common Stock(3)(5)............... 8,397,998 Shares
Warrants (4)(5).................. 6,258,950
NASDAQ SmallCap Marketsm Symbols... Common Stock--THIS; Warrants--THISW
Use of Net Proceeds from exercise For working capital and potential
of Warrants and other warrants.... acquisitions
Risk Factors....................... The securities offered hereby are highly
speculative and involve a high degree of
risk and should be purchased only by
investors that can afford the loss of their
entire investment. See "Risk Factors." In
addition, there is immediate substantial
dilution. See "Dilution."
</TABLE>
- --------
(1) Of the 4,518,950 shares, 2,881,450 shares are registered for resale by
holders of the Private Placement Warrants and IB Warrants. See the Cover
Page of this Prospectus.
(2) To be issued upon exercise of certain warrants. See the Cover Page of this
Prospectus.
(3) Assumes that all of the Warrants and other warrants are not exercised and
includes the Preferred Stock which automatically converted into shares of
Common Stock on July 31, 1998.
(4) Includes 2,131,450 Private Placement Warrants and (i) 750,000 shares of
Common Stock issuable upon exercise of warrants issued to two executive
officers of the Company; (ii) 1,437,500 shares of Common Stock reserved for
issuance upon exercise of the Public Warrants; (iii) 250,000 shares of
Common Stock issuable upon exercise of warrants issued in connection with
the acquisition of DownEast Frozen Desserts, LLC; (iv) 90,000 shares of
Common Stock issuable upon exercise of warrants issued to two directors of
the Company; (v) 1,000,000 shares of Common Stock issuable upon the
exercise of warrants issued to an investment banking firm which was the
underwriter of the Company's initial public offering; and (vi) 200,000
shares of Common Stock issuable upon exercise of warrants acquired in July,
1995, by certain warrantholders prior to the Company's public offering and
resold subsequent to that offering. Does not include the possible issuance
of (i) 141,500 shares of Common Stock issuable upon exercise of an option
(the "Underwriter's Option") to purchase securities of the Company sold to
the Soliciting Agent in connection with the Company's initial public
offering in December, 1995 ("Initial Public Offering"); (ii) 125,000 shares
of Common Stock issuable upon exercise of the warrants included in the
Underwriter's Option; (iii) 200,000 shares of Common Stock issuable upon
exercise of warrants ("Class B Warrants") which were issued immediately
following the effective date of the Company's Initial Public Offering (the
terms and conditions of the Class B Warrants are identical to the Warrants
except that the exercise price of the Class B Warrants is $10.00);
(iv)400,000 shares of Common Stock issuable upon exercising of warrants
("Fund Warrants") which were issued in connection with the Company's 12%
Convertible Subordinated Notes in favor of a private investor on June 25,
1998 (the terms and conditions of the Fund Warrants are identical to the
Warrants except that the exercise price of the Fund Warrants is $1.25).
(5) Assuming the exercise of all of the Company's warrants listed in footnote 4
above and including the Class B Warrants and the Fund Warrants, the Company
will have outstanding 14,656,948 shares of Common Stock. This includes the
automatic conversion of the Company's outstanding shares of Preferred Stock
which occurred on July 31, 1998. See "Description of Securities--Preferred
Stock."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The financial data set forth below is derived from, should be read in
conjunction with and is qualified in its entirety by the more detailed
financial statements and notes thereto, and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED FOR
SIX MONTHS ENDED JUNE CONSOLIDATED FOR
30, YEAR ENDED DECEMBER 31, PRO FORMA COMBINED
----------------------- ------------------------ FOR THE YEAR ENDED
1998 1997 1997(1) 1996(1) 12/31/97(2)
----------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $13,429,518 $ -0- $ 8,929,464 $ -- $23,192,237
Gross Profit............ 3,704,340 -0- 2,075,957 -- 5,182,590
Operating Expenses...... 3,669,321 411,651 3,430,480 478,265 6,868,146
Loss from Continuing
Operations............. (95,726) (389,939) (1,411,516) (458,927) (2,042,745)
Income (Loss) from
Discontinued
Operations............. 29 189,568 (2,940,537) (697,100) --
Net Loss................ $ (95,697) $ (200,371) $(4,352,053) $(1,156,027) --
Net Loss per Share...... (.02) (.05) (.98) (.35) (.46)
Weighted Average of
Common Shares
Outstanding............ 5,187,161 4,306,400 4,454,034 3,312,500 4,454,034
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CONSOLIDATED
COMBINED JUNE 30, DECEMBER 31,
JUNE 30, 1998(3) 1998 1997
---------------- ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)........... $ 9,075 $ 259,560 $(1,049,605)
Total Assets........................ 12,983,930 10,191,769 6,927,342
Long-Term Debt...................... 4,106,601 2,834,745 81,380
Total Liabilities................... 9,464,951 6,672,790 3,738,917
Shareholders' Equity................ $ 3,518,979 $ 3,518,979 $ 3,188,425
</TABLE>
- --------
(1) Only two years are presented since all prior years' assets relate to
discontinued operations.
(2) Represents combined operations of Terrace Holdings, Inc., A-One-A Produce
and Provisions, Inc. and Banner Beef and Seafood Co., Inc. treating the
latter two as if they were subsidiaries of Terrace for the full period then
ended.
(3) Represents combined Terrace Holdings, Inc. and subsidiaries and Banner Beef
and Seafood Co. Inc., acquired on July 15, 1998.
5
<PAGE>
UNLESS THE CONTEXT INDICATES OTHERWISE, ANY REFERENCE IN THIS PROSPECTUS TO
THE "COMPANY" MEANS AND REFERS TO THE COMPANY AND ITS WHOLLY-OWNED
SUBSIDIARIES.
RISK FACTORS
THE PURCHASE OF THE SECURITIES BEING OFFERED HEREBY IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. THE PURCHASE OF THESE
SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A
TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY. PROSPECTIVE INVESTORS, PRIOR TO
ANY PURCHASE, SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING FACTORS WHICH COULD
MATERIALLY AND ADVERSELY AFFECT THE OPERATIONS AND PROSPECTS OF THE COMPANY OR
AN INVESTMENT THEREIN, BEFORE MAKING A DECISION TO PURCHASE THE SECURITIES
BEING OFFERED HEREBY. THE FOLLOWING IS NOT INTENDED AS, AND SHOULD NOT BE
CONSIDERED, AN EXHAUSTIVE LIST.
1. No Assurance of Profitability. To date, the Company has generated net
losses. The total amount of the Company's accumulated deficit as of December
31, 1997, was $5,893,448. The Company's net losses from continuing operations
for each of the last three fiscal years were, $1,411,516, $458,927 and
$591,154, respectively. At December 31, 1997, the Company had a deficit in
cash and working capital of approximately $235,000 and $1,050,000
respectively. There is no assurance that the future operations of the Company
will result in revenues or will be profitable. Should the operations of the
Company be profitable, it is anticipated that the Company would retain all of
its earnings in order to finance future growth and expansion. See "Liquidity
and Capital Resources" "Dividend Policy" "Business" and "Financial
Statements."
2. No Dividends on Common Stock. The Company does not anticipate payment of
any cash dividends on its Common Stock for the foreseeable future; it being
anticipated that any earnings would be retained by the Company to finance its
operations and future growth and expansion. See "Dividend Policy."
3. Proposed Expansion. The Company intends to continue to pursue a strategy
of growth by acquisition. To date, it has made four material acquisitions: the
purchase, in January, 1996, of three additional Passover vacation venues (one
of which was not operated after 1996), the acquisition, in February, 1997, of
Deering Ice Cream, Inc. ("Deering"), the assets of which were sold in
December, 1997, the acquisition, in July, 1997, of A-One-A Wholesale Produce,
Inc. and the acquisition, on July 15, 1998, of Banner Beef and Seafood Co.,
Inc. ("Banner"). There can be no assurance that the Company will make any
additional acquisitions in the near future, or if made, that any such
acquisitions will add profitability to the Company. The Company has determined
to seek growth by acquisition of existing food and food related operations.
There is no assurance any such acquisitions will be available to the Company
or that its acquiring such operations will add to the Company's profitability.
Furthermore, competition in the Company's principal businesses could
significantly increase. See "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
4. Dependence on Proceeds of Warrant Exercises. The Company is dependent on
and intends to use a significant portion of the proceeds received upon
exercise of the Warrants and other warrants for working capital which may
include expansion plans. The Company anticipates the proceeds of the exercise
of the Warrants and other warrants, together with projected cash flow from
operations, will be sufficient to fund the Company's operations, including any
potential proposed expansion, during the twelve months following the date of
this Prospectus, although there cannot be any assurance of this. Since any
proceeds in connection with this offering are dependent on the exercise of the
Warrants and other warrants, there can be no assurance that this offering will
benefit the Company financially. See "Use of Proceeds."
5. Board Discretion in Application of Proceeds. The management of the
Company has broad discretion to adjust the application and allocation of the
net proceeds from exercise of the Warrants and other warrants, if
6
<PAGE>
any, which proceeds will be added to the Company's working capital. As a
result of the foregoing, the success of the Company is substantially dependent
upon the discretion and judgment of the management of the Company with respect
to the application and allocation of such net proceeds. See "Use of Proceeds."
6. Possible Need for Additional Financing; Possible Loss of Entire
Investment. In the event that the Company's plans change, its projections
prove to be inaccurate or the proceeds from the exercise of the Warrants and
other warrants prove to be insufficient, the Company may be required to seek
additional financing or curtail any potential expansion plans. In such case,
the Company will generally be required to seek additional debt or equity
financing to fund the costs of continuing operations or to expand its
operations. On July 15, 1998, the Company received funding from an
institutional lender to provide to the Company and its wholly-owned
subsidiaries an aggregate of up to $6,000,000 in senior secured financing, the
proceeds of which were or will be used for (i) repayment of indebtedness, (ii)
the Banner acquisition, and (iii) ongoing working capital. Prospective
investors should be aware that if the Company is not successful in its
operations, future acquisitions or facilities that it establishes, their
entire investment in the Company could become worthless. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--Liquidity and Capital Resources," "Use of Proceeds" and
"Business."
7. Competition. The produce, dairy and grocery distribution and food
processing businesses are highly competitive and there are numerous well-
established competitors possessing substantially greater financial, marketing,
personnel and other resources than the Company. These competitors include
national, regional and local firms. There can be no assurance that consumers
will regard the Company's products and services as significantly
distinguishable from competitive products and services, or that substantially
equivalent products will not be introduced by the Company's competitors or
that the Company will be able to compete successfully. See "Business--
Competition."
8. Sale of Subsidiaries. In February, 1997, the Company entered into an
Option Agreement with Samuel H. Lasko, then President, Treasurer and a
director of the Company, and Jonathan S. Lasko, the Executive Vice-President,
Secretary, Chief Operating Officer and a director of the Company, which gave
the Laskos, individually or collectively, the option to purchase all of the
stock or the assets, at their respective fair price, of The Lasko Companies,
Inc., A & E Management Corp., and The Lasko Family Kosher Tours, Inc., each of
which was a wholly-owned subsidiary of the Company. The fair price was
determined by an independent valuation and was approved by a committee of
disinterested directors, and is subject to ratification by the stockholders of
the Company. Samuel H. Lasko indicated to the Company that he intended to
exercise this option on the first date that it was exercisable in accordance
with the Option Agreement. As of March 13, 1998, Samuel H. Lasko purchased The
Lasko Family Kosher Tours, Inc. and A&E Management Corp. for consideration
equal to approximately $575,000, the independently determined fair market
value of them. The sale of The Lasko Companies, Inc. to an unaffiliated third
party for a total purchase price of $90,000, was consummated on May 29, 1998.
Jonathan S. Lasko did not participate in the purchases. As indicated elsewhere
in this Prospectus, the Company has recently disposed of its frozen dessert
business and its foodservice and vacation businesses to concentrate on its
food and produce distribution and processing operations. There is no assurance
that such dispositions will cause the Company to become profitable. See
"Business." Management of the Company believes, although such sales may have a
material short term adverse effect on the Company, there will not be material
long term effects from such sales. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations--
Hospitality," and "Business--Hospitality."
9. Resignation of Dr. Lasko. In connection with the sale of the hospitality
businesses, Samuel H. Lasko, an officer and director of the Company since its
inception, resigned as an officer of the Company effective on August 26, 1998,
the date of the ratification of the sale by the Company's shareholders. Dr.
Lasko did not stand for re-election as a Director at that time. No assurance
can be given that such resignation will not have an adverse effect upon the
Company.
10. Changes and Other Factors Affecting Business. The produce, dairy and
grocery distribution and food processing industries are often affected by
changes in consumer tastes, national, regional and local economic
7
<PAGE>
conditions, demographic trends, traffic patterns and the type, number and
location of competing facilities. In addition, the labor intensiveness of
these businesses, as well as factors such as inflation, increased food, labor
and employee benefit costs and availability of experienced management and
hourly employees may also adversely affect the Company's operations. See
"Business--Competition."
11. Current Seasonal Nature of Certain Operations. The Company's current
operations are located in south Florida and are seasonal in nature since such
operations rely, to a certain degree, on tourism in the winter months to
sustain them. See "Business."
12. Government Regulation. Food businesses are subject to various federal,
state and local laws and regulations. The failure to obtain and retain
licenses or any other governmental approvals or to pass periodic governmental
inspections would have a material adverse effect on the Company. In addition,
food processing and other operating costs are affected by increases in the
minimum hourly wage, unemployment tax rates, sales taxes and similar matters
over which the Company has no control. See "Business--Government Regulation."
13. PACA Licenses. The Company's A-One-A Produce & Provisions, Inc.
subsidiary and its affiliate, Terrace Fresh, Inc., are subject to The
Perishable Agricultural Commodities Act ("PACA") which regulates "commission
merchants," "brokers" and "dealers" engaged in the business of shipping or
receiving perishable agricultural commodities in interstate commerce. A-One-A
Produce and Terrace Fresh currently maintain PACA licenses to distribute fresh
produce, fruits and vegetables. The ability of the Company to continue
successful distribution and sales of its fresh produce, fruits and vegetables
is dependent upon its continued compliance with PACA. Loss of its PACA license
would have a materially adverse effect on the Company. See "Business."
14. Dependence on Key Personnel. The Company's success depends to a
significant extent on the continued service of certain key management
personnel, in particular, Steven Shulman, the Company's President and Chief
Executive Officer. The loss or interruption of Mr. Shulman's services, for
whatever reason, would have a material adverse affect on the Company. The loss
of Jonathan S. Lasko, Executive Vice President of the Company and its Chief
Operating Officer would materially adversely affect the Company's operations.
The Company maintains key-man life insurance for Jonathan S. Lasko but not on
any of its other executive personnel. See "Business."
15. Potential Liability and Possible Insufficiency of Insurance; No Key-Man
Life Insurance. The Company's operations involve the offering of consumer
products and services to the public. The Company therefore may be exposed to a
significant risk of liability for property damage or personal injury. The
Company maintains general liability insurance (in the aggregate or per claim)
for its various businesses. The Company endeavors to contractually limit its
potential liability to the amount and terms of its insurance policies.
However, the Company is not always able to obtain such limitations on
liability, and such provisions, when obtained, may not adequately shelter the
Company from liability. Consequently, a partially or completely uninsured
claim, if successful and of sufficient magnitude, may have a material adverse
effect on the Company and its financial condition. See "Business."
16. Risk Borne by Public Shareholders Disproportionate to Risk Borne by
Present Shareholders. Investors through this offering may have paid
substantially more than the initial or present shareholders, and, accordingly,
bear a disproportionate amount of risk because of the disparity in purchase
price. See "Dilution."
17. Immediate and Substantial Dilution. An investor exercising the Warrants,
at the temporary exercise reduced price, may experience immediate and
substantial dilution of $.92, or approximately 74%, per share because the
exercise price of the Warrants exceeds the pro forma net tangible book value
per share of the Company after giving effect to the exercises, purchases and
divestitures. See "Dilution."
18. No Assurance of Continued Public Trading Market or Continued
Qualification for NASDAQ Inclusion. The Company's Common Stock and Warrants
are listed on the NASDAQ SmallCapsm Market ("NASDAQ"). If a public trading
market does not continue for the Company's securities, purchasers of the
Company's securities may have difficulty selling their securities should they
desire to do so. If the Company is unable to satisfy the requirements for
continued quotation on NASDAQ, trading, if any, in the securities offered
hereby would be
8
<PAGE>
conducted in the over-the-counter market in what are commonly referred to as
the "pink sheets" or on the NASD OTC Electronic Bulletin Board and may become
subject to the Commission's "Penny Stock" regulations. See "Risk Factors--
Penny Stock Regulations."As a result, an investor may find it more difficult
to dispose or to obtain accurate quotations as to the price of the securities
offered hereby. The above-described rules may materially adversely affect the
liquidity of the market for the Company's securities. See "Description of
Securities."
19. Rule 144 Sales; Future Sales of Common Stock. 2,537,848 of the Company's
presently outstanding 8,397,998 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act and may only be sold pursuant to a registered offering or in
accordance with applicable exemptions from the registration requirements of
the Securities Act. Rule 144 provides for the sale of limited quantities of
restricted securities without registration under the Securities Act. In
general, under Rule 144, a person (or person whose shares are aggregated) who
has satisfied a one year holding period may, under certain circumstances,
sell, within any three month period, a number of shares which does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume during the four calendar weeks prior to such
sale. Rule 144(k) also permits, under certain circumstances, the sale of
shares without any quantity limitation by a person who is not an affiliate of
the Company and who has satisfied a two-year holding period. The Company is
unable to predict the effects that future sales under Rule 144 may have on the
then prevailing market price of the Company's securities. Possible or actual
sales of the Company's outstanding Common Stock by certain of the present
shareholders under Rule 144 may, in the future, have a depressive effect on
the price of the Company's securities.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common
Stock in any market and, therefore, the ability of any investor to sell his
securities may be dependent directly upon the number of securities that are
offered and sold. Affiliates of the Company may sell their securities during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See "Description of
Securities."
20. Future Issuances of Stock by the Company Without Shareholder Approval.
Assuming the exercise of all of the Company's Warrants it's other warrants and
including the recent automatic conversion of the Preferred Stock, the Company
will have outstanding 14,656,948 shares of Common Stock out of a total of
25,000,000 shares of Common Stock authorized. The Company also has 10,000,000
shares of Preferred Stock authorized, the rights, preferences, conversions,
terms and conditions of which may be set, from time to time, by the Board of
Directors. The 1,523,825 shares of Preferred Stock, each automatically
converted into two shares of Common Stock, or an aggregate of 3,047,650 shares
on July 31, 1998. The remaining shares of Common Stock not issued or reserved
for specific purposes and the remaining shares of Preferred Stock may be
issued without any action or approval of the Company's shareholders. Although
there are no present plans, agreements or undertakings involving the issuance
of such shares, except as disclosed in this Prospectus, any such issuance
could be used as a method of discouraging, delaying or preventing a change in
control of the Company or could significantly dilute the public ownership of
the Company, which could adversely affect the market. There can be no
assurance that the Company will not undertake to issue such shares if it deems
it appropriate to do so. On June 25, 1998, the Company issued to a private
investor $2,625,000 principal amount of 12% Convertible Subordinated Notes
which, to the extent not repaid with the proceeds of Warrant exercises covered
by this Prospectus, will be converted to up to 2,100,000 shares of a new
series of Redeemable Convertible 8% Cumulative Preferred Stock. See
"Dilution," "Business--Recent Financing," "Description of Securities" and
"Plan of Distribution."
21. Exercise of Warrants May Have Dilutive Effect on Market. The Warrants
and the Company's other warrants provide, during their term, an opportunity
for the holder to profit from a rise in the market price, of which there is no
assurance, with resulting dilution in the ownership interest in the Company
held by the then present shareholders. Holders of the Warrants and the
Company's other warrants most likely would exercise them and purchase the
underlying Common Stock at a time when the Company may be able to obtain
capital by a new offering of securities on terms more favorable than those
provided by such securities, in which event the terms on which the Company may
be able to obtain additional capital would be affected adversely. See
"Description of Securities."
9
<PAGE>
22. Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. The Company is able to issue shares of its Common Stock upon the
exercise of Warrants only if there is a current prospectus relating to the
Common Stock issuable upon the exercise of the Warrants under an effective
registration statement filed with the Commission and such Common Stock is then
qualified for sale or exempt therefrom under applicable state securities laws
of the jurisdictions in which the various holders of Warrants reside. There
can be no assurance, however, that the Company will be successful in
maintaining a current registration statement. After a registration statement
becomes effective, it may require updating by the filing of a post-effective
amendment. A post-effective amendment is required (i) any time after nine
months subsequent to the effective date of the prospectus when any financial
information contained in the prospectus is over sixteen months old, (ii) when
facts or events have occurred which represent a fundamental change in the
information contained in the registration statement, or (iii) when any
material change occurs in the information relating to the plan or distribution
of the securities registered by such registration statement. The Company
anticipates that the Registration Statement, of which this Prospectus is a
part, will remain effective for not more than nine months following the date
of this Prospectus, assuming a post-effective amendment is not filed by the
Company. The Company intends to qualify the securities in a limited number of
states, although certain exemptions under certain state securities ("blue
sky") laws may permit the securities to be transferred to purchasers in states
other than those in which they were initially qualified. The Company will be
prevented, however, from issuing Common Stock upon exercise of the Warrants in
those states where exemptions are unavailable and the Company has failed to
qualify the Common Stock issuable upon exercise of the Warrants. The Company
may decide not to seek, or may not be able to obtain, qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be sold.
Accordingly, the market for the Warrants may be limited because of the
Company's obligation to fulfill the foregoing requirements. See "Description
of Securities."
23. Warrants Subject to Redemption; Temporary Exercise Price. The Warrants
are immediately exercisable. Each such Warrant entitles the holder to purchase
one share of Common Stock at $4.00 per share until December 5, 2000. The
Warrants are redeemable by the Company for $.05 per Warrant, at any time, upon
thirty days' prior written notice, if the last reported sale price or the
average closing bid price of the Common Stock, as reported by the principal
exchange on which the Common Stock is quoted, the NASDAQ or the National
Quotation Bureau Incorporated, as the case may be, equals or exceeds $9.00 per
share, for any twenty consecutive trading days ending within ten days of the
notice of redemption. Upon thirty days' written notice to all holders of the
Warrants, the Company shall have the right to reduce the exercise price or
extend the term of the Warrants, subject to the Company complying with
applicable Commission rules. Notice of the redemption of the Warrants could
force the holders thereof to exercise the Warrants and pay the exercise price
at a time when it may be disadvantageous for them to do so, to sell the
Warrants at the current market price when they might otherwise wish to hold
them or to accept the redemption price which is likely to be substantially
less than the market value of the Warrants at the time of redemption. See
"Price Range of Securities, and Description of Securities--Warrants."
During the sixty day period commencing on the date of this Prospectus to and
including 5:00 p.m. New York time on , 1998, subject to extension
in the sole discretion of the Company ("Temporary Exercise Period"), the
Company has temporarily reduced the exercise price of the Warrants from $4.00
to $1.25. After the expiration of the Temporary Exercise Period, the exercise
price of the Warrants will return to the original $4.00 per share. See "Price
Range of Securities, and Description of Securities--Warrants."
24. Soliciting Agent's Influence on the Market. A significant amount of
securities of the Company are held by customers of the Soliciting Agent. Such
customers may engage in transactions for the sale or purchase of such
securities through or with the Soliciting Agent. Although it has no obligation
to do so, the Soliciting Agent may make a market in the Company's securities
and may otherwise effect transactions in such securities. If it participates
in the market, the Soliciting Agent may exert a dominating influence on the
market for the securities of the Company. Such market activity may be
discontinued at any time. The price and liquidity of the Company's securities
may be significantly affected by the degree, if any, of the Soliciting Agent's
participation in such market.
10
<PAGE>
25. Relationship of Soliciting Agent to Trading. The Soliciting Agent may
act in a brokerage capacity with respect to the purchase or sale of the
Company's securities in the over-the-counter market. Unless exempt under
Regulation M promulgated by the Securities and Exchange Commission, the
Soliciting Agent, while engaged in any distribution of the Company's
securities, will be prohibited from engaging in any market making activity or
soliciting brokerage activities with regard to the Company's securities during
a period beginning five business days prior to the commencement of any such
activity and ending when its participation in such distribution ends. As a
result, the Soliciting Agent may be unable to continue to make a market for
the Company's securities during certain periods when the Warrants are
exercisable. Such a limitation, while in effect, could impair the liquidity
and market price of these securities.
26. "Penny Stock" Regulations. Securities laws require certain disclosures
in connection with trades in any stock defined as a "penny stock." Commission
regulations generally define a penny stock to be any equity security that has
a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ. Unless an
exception is available, Commission regulations require the broker/dealer to
deliver, prior to effecting any transaction involving a penny stock, certain
information and disclosures regarding the penny stock market and the risks
associated therewith.
In addition, applicable Commission regulations provide that unless the
transaction involving a penny stock is exempt under the regulations, a
broker/dealer cannot effect a transaction in the penny stock unless certain
sales practice requirements are met, which include the determination by the
broker/dealer that transactions in penny stocks are suitable investments for
the prospective purchaser and receipt by the broker/dealer from such person of
a written agreement to the transaction.
As of the date of this Prospectus, by reason of inclusion on NASDAQ, the
Company's securities are exempt from the definition of penny stock. If any of
the Company's securities were subsequently to become characterized as a penny
stock, the market liquidity for the Company's securities could be severely
affected. In such an event, the regulations on penny stocks could limit the
ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities in this offering to sell
their securities in the secondary market.
27. Limitation on Director Liability. As permitted by the Delaware General
Corporation Law, the Company's Certificate of Incorporation limits the
liability of directors to the Company or its shareholders for monetary damages
for breach of a director's fiduciary duty except for liability for (i) any
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or which involved intentional
misconduct or knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock purchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law, or (iv) any transaction from which the
director derived an improper personal benefit. As a result of the Company's
charter provision and Delaware law, shareholders may have more limited rights
to recover against directors for breach of fiduciary duty. See "Management--
Limitation of Liability and Indemnification of Directors."
FOR ALL OF THE AFORESAID REASONS, AND OTHERS SET FORTH HEREIN, THESE
SECURITIES INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING AN INVESTMENT
IN THE SECURITIES OFFERED SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH
IN THIS PROSPECTUS. THESE SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO
CAN AFFORD A TOTAL LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY AND HAVE NO
IMMEDIATE NEED FOR A RETURN OF THEIR INVESTMENT.
11
<PAGE>
PRICE RANGE OF SECURITIES
MARKET INFORMATION
Since the Company's initial public offering in early December, 1995, the
Company's Common Stock and Warrants have been traded on the NASDAQ SmallCap
Market.
Set forth below is the range of high and low sales prices of the Common
Stock and Warrants for each quarter within the last two fiscal years as
reported by NASDAQ for those periods. The prices represent quotations between
dealers. The quotations do not include retail markups, markdowns, or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
TYPE OF SECURITY QUARTER ENDED
- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Common Stock.................................
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C> <C>
March 31, 1996 6 3/4 4 1/4
June 30, 1996 4 5/8 3
September 30, 1996 4 1/2 2 3/4
December 31, 1996 2 7/8 7/8
March 31, 1997 2 3/8 1
June 30, 1997 2 1/8 1 1/4
September 30, 1997 3 1/2 1 1/2
December 31, 1997 2 11/16 1 1/8
March 31, 1998 3 1/4 1 1/16
June 30, 1998 2 1/2 7/8
September 1, 1998* 1 3/4 1 1/8
<CAPTION>
QUARTER ENDED
------------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Warrants.....................................
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C> <C>
March 31, 1996 2 1/2 1 1/4
June 30, 1996 1 3/4 1
September 30, 1996 1 5/8 1/2
December 31, 1996 3/4 5/16
March 31, 1997 15/16 5/16
June 30, 1997 1 5/8
September 30, 1997 2 5/16 3/4
December 31, 1997 2 1/8 1
March 31, 1998 1 3/4 1
June 30, 1998 1 1/2 3/16
September 1, 1998* 7/8 3/8
</TABLE>
- --------
*Represents the period from July 1, 1998 to September , 1998.
HOLDERS
As of September 1, 1998, there were 82 and 36 holders of record of the
Company's Common Stock and publicly-traded Warrants, respectively. The Company
believes that it has a substantially greater number of shareholders and Public
Warrant holders because the Company believes that a substantial amount of its
Common Stock and Public Warrants are held of record in street name by broker-
dealers for their customers.
DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
expect to pay a cash dividend in the foreseeable future, but intends to devote
all funds to the operation of its business.
12
<PAGE>
DILUTION
As of June 30, 1998, the net tangible negative book value of the Company was
$(1,018,832). Net tangible book value per share consists of total assets less
intangible assets and liabilities, divided by the total number of shares of
Common Stock outstanding. On July 31, 1998, all of the then outstanding shares
of Convertible Preferred Stock, by the terms thereof converted to Common
Stock. As a result, 3,047,650 additional shares of Common Stock were
outstanding. Giving effect to this issuance, the net tangible negative book
value per share was approximately $(.12) as of June 30, 1998. By giving effect
to the exercise, at an assumed exercise price of $1.25 per share, of the
4,518,950 shares of Common Stock issuable upon exercise of the Warrants
(resulting in net proceeds to the Company estimated to be $5,302,741 the
adjusted net tangible book value at June 30, 1998 would have been $4,283,909,
or approximately $.33 per share. Thus, as of June 30, 1998, the adjusted pro
forma net tangible book value per share of Common Stock owned by the Company's
current shareholders would have increased by approximately $.45 without any
additional investment on their part. Exercise of the Warrants will result in
an immediate dilution of approximately $.92 per share from the exercise
price.(1) "Dilution" means the difference between the exercise price of the
Warrants and the adjusted net tangible book value per share after giving
effect to the offering. Holders of Common Stock may be subjected to additional
dilution if (i) any additional securities are issued as compensation or to
raise additional financing, or (ii) any of the securities set forth in
footnote (1) below are issued. The following table illustrates the dilution
which investors participating in this offering will incur and the benefit to
current shareholders as a result of this offering.
<TABLE>
<S> <C> <C>
Exercise price of the Warrants................................. $1.25
Net tangible negative book value per share before offering... $(.12)
Increase in pro forma net tangible book value per share
attributable to Common Stock issued on exercise of Warrants. $ .45
-----
Net tangible book value per share after offering............... $ .33
-----
Dilution of net tangible book value per share to purchasers
exercising their Warrants(2).................................. $ .92
=====
</TABLE>
- --------
(1) Does not reflect (i) 141,500 shares of Common Stock issuable upon exercise
of the Underwriter's Option; (ii) 125,000 shares of Common Stock issuable
upon exercise of the Warrants included in the Underwriter's Option; (iii)
200,000 shares of Common Stock issuable upon exercise of the Class B
Warrants; (iv) 400,000 shares of Common Stock issuable upon exercise of
the Fund Warrants; or (v) the issuance of any Options under the 1997 Stock
Option Plan. See "Description of Securities", "Certain Transactions" and
"Management".
(2) Assuming no exercise of the Underwriter's Option, the Warrants, the Class
B Warrants, the Fund Warrants, or the issuance of any Options under the
1997 Stock Option Plan. See "Underwriting" and "Description of
Securities".
USE OF PROCEEDS
The Company will not receive any of the proceeds from the resale of any of
the Common Stock, Warrants or the Company's other warrants offered under this
Prospectus by the Selling Securities Holders. However, if all of the Warrants
or the Company's other warrants to purchase Common Stock are exercised in
full, at the $1.25 temporary exercise price which expires 60 calendar days
after the date of this Prospectus, subject to extension in the sole discretion
of the Company, the Company may receive net proceeds of $5,302,741, after
deducting the Soliciting Agent's 4% Solicitation Fee ($225,947) and the
estimated other expenses of this offering ($120,000). The first $2,625,000 of
such proceeds will be used to repay the Company's 12% Convertible Subordinated
Notes. See "Business--Recent Financing." The balance of such net proceeds will
be added to the working capital of the Company. After expiration of the
Temporary Exercise Period, the exercise price of the Warrants will return to
the original $4.00 per share. There is no assurance, however, that any of the
Warrants or the Company's other warrants will be exercised. See "Risk
Factors--Dependence on Proceeds of Warrant Exercises," "Warrants Subject to
Redemption; Temporary Exercise Price" and "Broad Discretion in Application of
Proceeds."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1998. This table should be read in conjunction with the financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA,
AS
ADJUSTED*
----------
<S> <C> <C>
Long-Term Debt........................................ $ 2,834,745 $4,106,601
Shareholders' Equity:
Convertible Preferred Stock......................... 1,524 --
Common Stock, 25,000,000 shares authorized, $.001
par value, 5,270,348 shares issued; 8,317,998 as
adjusted........................................... 5,270 8,318
Additional Paid-in Capital.......................... 9,501,330 9,499,806
Retained Earnings (Deficit)......................... (5,989,145) (5,989,145)
----------- ----------
Total Shareholders' Equity........................ 3,518,979 3,518,979
----------- ----------
Total Capitalization.............................. $ 6,353,724 $7,958,560
=========== ==========
</TABLE>
- --------
* Represents combined Terrace Holdings, Inc. and subsidiaries and Banner
Beef and Seafood Co., Inc., acquired on July 15, 1998, and the conversion
of Convertible Preferred Stock, by the terms thereof, to Common Stock on
July 31, 1998.
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
The Company has not paid and does not intend to pay cash dividends in the
foreseeable future on the shares of Common Stock. Cash dividends, if any, that
may be paid in the future to holders of Common Stock will be payable when, as
and if declared by the Board of Directors of the Company, based upon the
Board's assessment of the financial condition of the Company, its earnings,
need for funds, capital requirements, and other factors, including any
applicable laws. The Company intends to retain earnings, if any, to finance
its operations as well as the development and expansion of its business. In
addition, any financing which the Company may obtain in the future may contain
provisions restricting the Company's ability to pay dividends. Accordingly,
there can be no assurance that dividends of any kind or amount will ever be
paid in the future. Investors needing immediate or future income by way of
dividends should not purchase the securities of the Company. The Company
currently is restricted from the payment of dividends under its financing
agreements with IBJ Schroder Business Credit Corp. and there is no assurance
that the Company can or will attempt to renegotiate such restrictions in the
foreseeable future.
14
<PAGE>
SELECTED FINANCIAL DATA
The financial data set forth below is derived from, should be read in
conjunction with and is qualified in its entirety by the more detailed
financial statements and notes thereto, and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED FOR SIX CONSOLIDATED FOR
MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, PRO FORMA COMBINED
----------------------- ------------------------- FOR THE YEAR ENDED
1998 1997 1997(1) 1996(1) 12/31/97(2)
----------- ---------- ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $13,429,518 -0- $ 8,929,464 $ -- $23,192,237
Gross Profit............ 3,704,340 -0- 2,075,957 -- 5,182,590
Operating Expenses...... 3,669,321 411,651 3,430,480 478,265 6,868,146
Loss from Continuing
Operations............. (95,726) (389,939) (1,411,516) (458,927) (2,042,745)
Income (Loss) from
Discontinued
Operations............. 29 189,568 (2,940,537) (697,100) --
Net Loss................ (95,697) (200,321) $(4,352,053) $ (1,156,027) --
Net Loss per Share...... (.02) (.05) (.98) (.35) (.46)
Weighted Average of
Common Shares
Outstanding............ 5,187,161 4,306,400 4,454,034 3,312,500 4,454,034
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED CONSOLIDATED CONSOLIDATED
JUNE 30, JUNE 30, DECEMBER 31,
1998(3) 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)................ $ 9,075 259,560 $(1,049,605)
Total Assets............................. 12,938,930 10,191,769 6,927,342
Long-Term Debt........................... 4,106,601 2,834,745 81,380
Total Liabilities........................ 9,464,951 6,672,790 3,738,917
Shareholders' Equity..................... $ 3,518,979 3,518,979 $ 3,188,425
</TABLE>
- --------
(1) Only two years are presented since all prior years' assets relate to
discontinued operations.
(2) Represents combined operations of Terrace Holdings, Inc., A-One-A Produce
and Provisions, Inc. and Banner Beef and Seafood Co., Inc. treating the
latter two as if there were subsidiaries of Terrace for the full period
then ended.
(3) Represents combined Terrace Holdings, Inc. and subsidiaries and Banner
Beef and Seafood Co. Inc., acquired on July 15, 1998.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
historical financial statements and footnotes thereto and with the Pro Forma
Combined Financial Statements of the Company and notes thereto included
elsewhere in this Prospectus.
RESULTS OF OPERATIONS
TERRACE HOLDINGS, INC. (CONSOLIDATED)
The Company's consolidated net loss for 1997 was approximately $4,352,000,
compared to a net loss of approximately $1,156,000 for 1996. The substantial
increase was due to several factors. The primary factor was the loss on the
disposition of several of the Company's operating subsidiaries. In November,
1997, Management and the Board of Directors restructured the focus and
objective of the Company. A major part of this restructuring included the
concentration on the processing and distribution of produce and other food
related items. The Company's plan called for the sale of its ice cream and
hospitality units. For the year ended December 31, 1997, the sale of these
operations resulted in losses on disposal of approximately $2,127,000. The
balance of the operating losses primarily resulted from the underperfomance of
the ice cream unit due to increased cost associated with production as well as
increased selling, general, and administrative costs.
In November of 1997, the Company determined to focus its resources on its
distribution and processing operations. The Company's continuing operations
distribute produce, dairy and grocery items to food service customers in the
south Florida area. In addition, the Company's subsidiary, Fresh, Inc.
operates a "value added" precut produce operation which sells prepared, ready
to use products to the food service sector. In January 1998, the Company
purchased a customer list and certain inventory for retail distribution and
has since consolidated all of its distribution operations into its warehouse
facility in Pompano Beach, Florida. The Company intends to continue its growth
as a distributor and value added processing company. The Company's
consolidated revenues from continuing operations for the six months ended June
30, 1998, were approximately $13,430,000 and its consolidated loss from
continuing operations was approximately $96,000.
The Company incurred operating losses principally from its A-One-A Produce
and Provisions, Inc. subsidiary in the six-months it was owned by the Company
in 1997 and for the six month period ended June 30, 1998. Costs associated
with its moving into its new facility, increased labor costs, several
equipment and technological upgrades and increase in selling, general, and
administrative expenses contributed to such losses. See Below.
Continuing Operations:
A-One-A Produce and Provisions, Inc., the Company's largest operating
subsidiary with respect to sales volume, that distributes produce, dairy, and
other grocery items, operates in Pompano Beach, Florida, out of its 55,000 sq.
ft. warehouse. There are no comparable results for 1996, as A-One-A Produce &
Provisions, Inc. was not part of the Company's organization. For the six-month
period ended December 31, 1997, A-One-A Produce and Provisions, Inc. sustained
a loss of approximately $437,000. This loss, was primarily due to costs
associated with moving into its new facility, increased labor costs and the
increased cost in selling, general, and administrative expenses due to the
Company's plan to develop the business in a very aggressive manner. The
Company has taken steps to increase efficiency, including technological
upgrades, to overcome initial inefficiencies and realize greater profitability
from its distribution sector.
During the second quarter of 1998, the Company implemented a new computer
system for its warehouse, distribution and processing operations. In addition
to the capital investment for the technology upgrade,
16
<PAGE>
substantial training and initial operational start-up expense was incurred.
This computer implementation has been completed and management believes
efficiencies from the computer system will be realized. In addition, the
Company took measures to realize greater efficiencies in the warehousing and
distribution of products. The 55,000 square foot facility was slotted by
pallet location to properly receive, store and ship merchandise for its
produce and dairy operations. This locating system is intended to reduce
mispulls and misrotation of product and should reduce the cost of
redistribution caused by warehousing errors. The Company also purchased
logistics software, which is specially formatted to route the distribution
fleet in a more efficient manner. As the Company continues to refine this
software use to its specifications, further expense reduction should be
realized.
In the first quarter of 1998, the Company began the operation of the
foodservice and export dairy division. Management with expertise in this
specific segment of the industry was hired. Sales for this new division were
approximately $1,000,000 for the first six months of 1998. In order to
continue to properly maintain the appropriate distribution temperature for
both dairy and produce, the Company is in the process of upgrading its fleet
of distribution vehicles. The upgrade process should be completed by the end
of 1998. This fleet upgrade should position the Company for continued growth
in the perishable commodity distribution arena.
In addition, during the second quarter of 1998, the Company increased its
provision for doubtful accounts by approximately $100,000 in order to provide
for a number of dry grocery accounts. Management believes that this provision
is sufficient to cover these accounts and going forward this account will be
reduced to lower historical rates as greater credit control standards are put
into place.
Terrace Fresh, Inc. ("Fresh") is the Company's value added produce
processing subsidiary. The Company purchased Fresh in January, 1998, and its
financial results are included in the first quarter unaudited consolidated
results. Fresh 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 maintains
its own customers and also sells through A-One-A's distribution system to A-
One-A's accounts. Fresh's revenues for the period ended June 30, 1998, were
approximately $783,000 with operating income of approximately $54,000.
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. Management also believes that as it
continues to attempt to increase value, both through increased produce sales
as well as varying its product lines, the Company will realize greater
profitability.
Discontinued Operations:
Passover Holiday Segments:
For the Passover season in 1997, the Company operated three venues, the
Registry Resort & Spa in Fort Lauderdale, Florida, the Fountainbleau Hotel in
Miami Beach, Florida, and the Rye Town Hilton in Westchester, New York.
Revenue for this segment was approximately $3,475,000, in 1997 compared to
$3,750,000 in 1996. The Company originally acquired the contracts to operate
vacation venues at the Fountainbleau, Rye Town Hilton and Tamiment Resort in
1996 for $675,000. The full amount was recorded as intangible assets. The
decrease in revenue was a result of the Company's decision not to renew 1997
operations at the Tamiment Hotel in Pennsylvania. As a result of non-operation
at this facility, the Company expensed the remainder of the amortized value
directly associated with that hotel. Management decided that the growth and
income trend of this segment was not in the ultimate plans of the Company, and
accordingly decided to exit this segment of the Company's business. Subsequent
to the year ended December 31, 1997, the Company sold these operations
retroactive to the beginning of 1998 and subject to shareholder ratification.
These operations and one of the food services subsidiaries were sold to Samuel
H. Lasko, President, pursuant to Mr. Lasko's exercise of his option to
purchase the hospitality subsidiaries for an aggregate purchase price of
$575,000, which is the value of the businesses as determined by an independent
fairness opinion.
17
<PAGE>
Food Service Segment
The Company decided in November, 1997 to discontinue its food service units.
For 1997, the Company's reported loss for its A & E Management Corp. and The
Lasko Companies, Inc. subsidiaries was approximately $98,000 compared to a
loss of approximately $189,000 in 1996. The substantial decrease was due
primarily to cost cutting measures taken by the Company at the end of 1996.
The Company's decision to discontinue these operations was primarily a result
of Management's belief that it would be unable to reach a level of
profitability in either 1998 or 1999. In addition, the Company has also sold
the Terrace Oceanside Restaurant (the "Restaurant"), which is the only
business of The Lasko Companies, Inc. subsidiary, to an unaffiliated third
party for total purchase price of $90,000. This sale took place on May 29,
1998.
Revenues for The Lasko Companies, Inc. for the period ended March 31, 1998,
were $199,421 compared to approximately $272,600 for the same period in 1997.
Net income for the period 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, Inc. 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.
Deering Ice Cream, Inc.
In February, 1997, the Company purchased the assets and related liabilities
of DownEast Frozen Desserts, LLC. The loss incurred for the year ended
December 31, 1997, was approximately $738,000. The losses were incurred from
operations as well as from the disposal of the ice cream business. Management
decided to dispose of this segment because the revenues in the ice cream
subsidiary took a downturn. As a result, profitability was not obtained.
Management of the Company believed it would have had to infuse substantial
funding to compete with some of the larger competition, whether in the form of
equity capital or debt financing. Such financing did not appear to be
reasonably available. See "Prospectus Summary--The Company."
The Company'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 Company is positioned to continue
its projected profitability through 1998, although there is no assurance that
this will occur.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had a deficit in cash and working capital
of approximately $(372,000) and $(1,050,000), respectively. At June 30, 1998,
there was no cash deficit, and working capital was approximately $260,000. The
Company, A-One-A Produce & Provisions, Inc. and Terrace Fresh, Inc. have
relied principally on internally generated funds and bank financing to fund
their working capital needs.
On July 15, 1998, the Company executed a funding agreement with an
institutional lender providing the Company and its wholly-owned subsidiaries
an aggregate of up to $6,000,000 in senior secured financing, the proceeds of
which have been and will be used for (i) repayment of senior indebtedness,
(ii) the acquisition of Banner Beef and Seafood Co., Inc. (see "Business--
Recent Acquisition"), and (iii) ongoing working capital.
The Company, by this Prospectus is offering to its Warrantholders the
opportunity to exercise their Warrants and purchase common stock at a
temporarily reduced exercise price.
In addition, as of June 25, 1998, the Company issued to a private investor
$2,625,000 principal amount of 12% Convertible Subordinated Notes ("Notes"),
and warrants to purchase 400,000 shares of Common Stock of the Company. The
Notes convert into 8% Convertible Preferred Stock and the warrants are
exercisable into Common Stock at $1.25 per share. The funds evidenced by the
Note will be used for working capital and will be repaid if sufficient
proceeds are realized by the Company from the warrant exercises. If the Note
is not repaid it will be converted into preferred stock. See "Business--Recent
Financing."
18
<PAGE>
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern. However, the success of Management's
plans is not assured.
SEASONALITY
The continuing operations of the Company are seasonal due to the increased
business in south Florida during the winter months. However, the Company's
Management believes that continuing operations will be less seasonal than the
hospitality and ice cream units have been. Additionally, Management believes
that through additional acquisitions in the food processing and distribution
areas it may minimize these seasonal effects, though there is no assurance
that any further acquisitions will be successfully made or that less seasonal
effects will be accomplished.
19
<PAGE>
BUSINESS
GENERAL
Terrace Holdings, Inc., was incorporated under the laws of the State of
Delaware on June 15, 1995, to change the state of incorporation of Bon
Adventure Kosher Tours, Inc., a Florida corporation, formerly known as Embassy
Kosher Tours of South Florida, Inc. The Company currently has three wholly-
owned operating subsidiaries, having recently sold three in the "hospitality"
group and two in the "food services and distribution" group. The sold
hospitality subsidiaries are A&E Management Corp., which manages the food and
beverage operations of a non-kosher restaurant and catering operation at The
Club at Emerald Hills in Hollywood, Florida; The Lasko Family Kosher Tours,
Inc., which operates Passover holiday vacations at three locations within the
United States; and The Lasko Companies, Inc., which owns and operates on
leased property a kosher, casual dining restaurant, Terrace Oceanside
Restaurant, in Hallandale, Florida. See "Hospitality." The food services and
distribution subsidiaries are: A-One-A Produce & Provisions, Inc. which is a
Pompano Beach, Florida based produce distributor that sells and distributes
fresh fruit and vegetable, "dry" grocery and dairy products to hotels,
restaurants and other businesses in the southern Florida region; Terrace Fresh
Inc., which operates as an affiliate of Terrace's A-One-A Produce &
Provisions, Inc. subsidiary; and Banner Beef and Seafood Co., Inc., acquired
on July 15, 1998. In December, 1997, the Company disposed of its frozen
desserts manufacturing business. See "Frozen Desserts."
FOOD SERVICES AND DISTRIBUTION
Produce. In August, 1997, but effective as of July 1, 1997, the Company's
wholly-owned subsidiary, A-One-A Produce & Provisions, Inc. ("A-One-A
Produce") acquired the assets and related liabilities of A-One-A Wholesale
Produce, Inc. ("A-One-A Wholesale"). Effective January, 1998, the Company
acquired the assets and related liabilities of A One A Wholesale's affiliate,
Fresh, Inc. Both corporations were unaffiliated with the Company. A-One-A
Produce distributes fresh fruits, vegetables and dairy products to
restaurants, country clubs, hotels, airline foodservice, and other
institutional foodservice providers in the south Florida region. A-One-A
Produce's warehouse encompasses 55,000 square feet on 3.5 acres, with 24
loading docks, 1,700 pallet locations and includes 30,000 square feet of
refrigerated warehouse space. A-One-A Produce also operates a fleet of 31
refrigerated delivery trucks.
Frozen Desserts. In February, 1997, in consideration of the issuance of
918,900 shares of the Company's Common Stock, warrants to purchase an
additional 250,000 shares of Common Stock at $1.1875 per share and
approximately $114,000 in cash, the Company's wholly owned subsidiary, Deering
Ice Cream, Inc., acquired all of the assets and related liabilities of
DownEast Frozen Desserts, LLC, a Delaware limited liability company
unaffiliated with the Company, which manufactured and marketed frozen desserts
under the names Deering Ice Cream and Howard Johnson, as well as co-packing
for approximately 15 other unaffiliated companies. The Company also issued
warrants to purchase 250,000 shares at $1.1875 to Midas Investment Group, Inc.
d/b/a Biltmore Securities, Inc., and 75,000 shares of Common Stock to Barclay
Partners, L.L.C. as investment banking and finder's fees, and warrants to
purchase 50,000 shares at $1.1875 to Bruce S. Phillips, a director of the
Company, in recognition of his efforts successfully to negotiate and
consummate the acquisition. In December, 1997, the Company consummated the
sale of the assets and certain liabilities of its wholly-owned subsidiary,
Deering Ice Cream, Inc. to a subsidiary of Fieldbrook Farms, Inc., Dunkirk,
New York, for approximately $613,000 cash at closing, subject to later
adjustment, plus certain royalties over four years. See "Prospectus Summary--
The Company." During the relatively short period in which the Company owned
and operated Deering Ice Cream, Inc., it became evident that the Company could
not effect profitable operations without a substantial increase of financial
resources to frozen dessert manufacturing, which resources have not been
available to the Company. Additionally, the Company's management determined
that concentrating on food distribution and processing would better serve its
overall goals over time. Accordingly, the Company determined to dispose of its
frozen dessert manufacturing operations and concentrate on its food
distribution businesses in an attempt to enhance shareholder value over the
longer term. There is no assurance, however, that the Company will be
successful in accomplishing this.
20
<PAGE>
Food Processing. On July 15, 1998 the Company acquired the business of
Banner Beef and Seafood Co., Inc., a manufacturer of food products customized
to customer specifications, for $1,800,000. See "Recent Acquisition."
HOSPITALITY
Restaurant. From October, 1993 through May, 1995, the founders of the
Company owned and operated the Terrace-on-the-Lake Restaurant, a casual,
upscale kosher restaurant in Hollywood, Florida. In its short existence,
Terrace-on-the-Lake developed a following among tourists visiting south
Florida who observe the Jewish dietary laws. Because both the kitchen and the
facilities were not large enough to serve adequately the needs of this
restaurant, it was closed at the end of May, 1995, and in October, 1995, the
Company opened a new restaurant, "Terrace Oceanside Restaurant", in
Hallandale, Florida (the "Restaurant"). The Company's initial plan was to
establish a chain of kosher restaurants, which were to be called Terrace
restaurants, along the Eastern seaboard and possibly later in the Midwestern
United States. During 1996, however, Management of the Company determined that
the proposed expansion by establishing additional kosher Terrace restaurants
would entail substantial financial costs and additional personnel, and
determined, instead, to seek possible acquisitions of going concerns in the
food--or food distribution--related industries.
On May 29, 1998, the restaurant business was sold to an unaffiliated third
party for an aggregate purchase price of $90,000. See "Sale of Hospitality
Segments."
Food and Beverage Management. The Company, until March 13, 1998, through its
wholly-owned subsidiary, A&E Management Corp., managed a non-kosher restaurant
and catering operation at The Club at Emerald Hills, an upscale country club
in Hollywood, Florida. See "Sale of Hospitality Segments."
Holiday Vacations. The Company, until March 13, 1998, through its wholly-
owned subsidiary, The Lasko Family Kosher Tours, Inc., operated kosher
Passover holiday vacation venues. Passover occurs each spring. See "Sale of
Hospitality Segments."
In January, 1996, the Company consummated an agreement with an unaffiliated
entity, to assume operation of the annual Passover vacation venues at the
Fontainebleau Hilton Hotel, Miami Beach, the Rye Town Hilton Hotel, Rye, New
York, and the Tamiment Resort & Conference Center, Tamiment, Pennsylvania. As
a result, for the 1996 Passover holiday, the Company operated holiday
vacations at four different locations. The contract to operate a Passover
vacation at the Tamiment Hotel expired after the 1996 Passover holiday and was
not renewed for the 1997 Passover holiday.
Sale of Hospitality Segments. In November, 1997, Samuel H. Lasko, President,
notified the Company of his intention to exercise his option to purchase the
hospitality subsidiaries of the Company at a purchase price equal to the "fair
value" of the subsidiaries. Dr. Lasko's exercise of his option was subject to
the Company securing an independent fair value opinion and the affirmative
vote of the majority of the Company's shareholders. A committee of
disinterested members of the Board of Directors retained an independent
consulting and valuation firm to render such an opinion and that opinion was
acceptable to Dr. Lasko. Accordingly, on March 13, 1998, the A&E Management,
Corp., ("A&E") and The Lasko Family Kosher Tours, Inc. ("LFKT") subsidiaries
of the Company were sold to him effective as of January 1, 1998, subject to
the affirmative shareholder vote required, for consideration aggregating
$575,000 in accordance with the independent fair value opinion received by the
Company. The sale was ratified by the shareholders at the 1998 Annual Meeting
on August 26, 1998. Additionally, on May 29, 1998, the Company consummated an
agreement for the sale of the business assets and lease of The Lasko
Companies, Inc. ("TLC") (The Terrace Oceanside Restaurant) with Steven Newman,
an unaffiliated third party, for an aggregate sales price of $90,000 in cash.
The Durkin Company ("Durkin") was retained to estimate the fair market value
of a 100% interest in TLC, LFKT, and A&E as of December 31, 1997. Durkin was
also asked to estimate the value of the employment agreement between Dr.
Samuel Lasko and the Company, and the value of warrants owned by Dr. Lasko.
21
<PAGE>
In rendering its opinion, Durkin analyzed and relied on a variety of
financial reports and other relevant material including (i) the business
history of the Company, LFKT, and A&E; (ii) audited financial statements of
the Company and internally prepared financial reports concerning the
operations of LFKT and A&E; (iii) information on publicly traded comparable
companies; (iv) discussions with members of management with respect to the
Company's operations, current products, future prospects and opportunities;
(v) the historical and current prices of the warrants; and (vi) other
financial analysis, studies and investigations as deemed appropriate.
Durkin considered several approaches in the process of estimating the fair
market value of these entities. The asset approach was considered to be the
most appropriate for TLC and A&E. The income approach was selected as being
the most appropriate method for LFKT. Durkin estimated that the liquidation
value of A&E was $22,000 and the liquidation value of TLC was $88,000 as of
December 31, 1997. Durkin capitalized a weighted average of the cash flows of
LFKT. A "key person" discount was applied to this value. Based upon the
results of the above analysis and other relevant factors, the fair market
value of LFKT was $553,000 as of December 31, 1997.
Dr. Lasko's five year employment agreement with the Company was for the
period September 1, 1995, through August 31, 2000. Dr. Lasko received an
annual salary of $95,000 for the first two years of the agreement, and
$125,000, $150,000 and $175,000 for the third, fourth and five years
respectively. In addition, Dr. Lasko was entitled to receive a variety of
fringe benefits which included health and group life insurance, automobile,
etc. Based on this, Durkin's appraisal report indicated that the fair market
value of Dr. Lasko's employment agreement was $417,807, as of December 31,
1997.
Upon reviewing the Durkin opinions and report, it was determined that
Durkin's independent valuation of Dr. Lasko's warrants was based in part upon
Durkin's mistaken assumption that Dr. Lasko's warrants were publicly
tradeable. The terms of the original agreement were amended. The Company
agreed to accept from Dr. Lasko $159,000 evidenced by his three year
Promissory Note for such amount, bearing interest at 8% per annum and payable
in three equal installments on or before April 30, 1999, 2000 and 2001. Due to
the modification of the terms of the sale of the "hospitality" business to Dr.
Lasko, the loss to be recognized by the Company will be reduced by $159,000
(to $464,000), and that adjustment was recorded in the Company's financial
statements for the quarter ended June 30, 1998.
As disclosed elsewhere in this Prospectus, during the second half of 1997,
the Board of Directors of the Company determined that its initial strategy of
attempting to expand by establishing additional kosher dining facilities and
Passover vacation venues geographically dispersed would entail substantial
financial costs and additional personnel. Accordingly, the Board of Directors
determined to seek Company growth by acquisition of existing food services and
distribution operations. Thus, on November 12, 1997, the Board of Directors
determined to discontinue the "hospitality" segments of its business and
shortly thereafter Dr. Lasko notified the Board of Directors of his intention
to acquire those segments. In connection with that transaction, Dr. Lasko
submitted his resignation as President of the Company effective immediately
upon the affirmative vote of the Company's stockholders at its August 26, 1998
Annual Meeting ratifying the transaction. In accordance with the agreement,
Dr. Lasko ceased drawing salary from the Company effective as of January 1,
1998. See "Management--Directors and Officers."
FOOD SERVICES AND DISTRIBUTION
A-One-A Produce & Provisions, Inc. Effective July 1, 1997, the Company's
wholly-owned subsidiary, A-One-A Produce acquired the assets and related
liabilities of A-One-A Wholesale for a purchase price of $3,100,000 in cash
and the issuance of a total of 500,000 shares of Common Stock to the two
shareholders of A-One-A Wholesale. Effective January, 1998, the Company
acquired the assets and related liabilities of A-One-A Wholesale's affiliate,
Fresh, Inc. for a purchase price of $105,000 and the issuance of a total of
138,948 shares of Common Stock. Both corporations were unaffiliated with the
Company. A-One-A Produce distributes fresh fruits, vegetables and dairy
products to restaurants, country clubs, hotels, airline foodservice, and other
institutional foodservice providers in the South Florida region.
22
<PAGE>
A-One-A Wholesale was founded in 1987 by Virgil D. Scarbrough and Scott
Davis. Messrs. Scarbrough and Davis are now senior executives of A-One-A
Produce under employment agreements expiring on June 30, 2002. See
"Management--Employment Agreements and Aggregate Options Holdings." The
business is located in Pompano Beach, Florida and is currently housed in
55,000 square feet of rented space. In addition, the Company incorporated
Terrace Fresh, Inc. to operate the business of A-One-A Wholesale's affiliate,
Fresh, Inc. Revenue in 1996, prior to the Company's acquisition, for A-One-A
Wholesale was approximately $14.5 million dollars. A-One-A Produce employs
approximately 105 people.
A-One-A Produce delivers seven days per week and its customers rely on daily
deliveries. The served area reaches southward to Homestead, Florida, and as
far as Jupiter, Florida, to the north, principally on the east coast of the
state. Service is a major component of the business' competitive strength. A-
One-A Produce does not attempt to be the low cost provider, but, rather, seeks
to distinguish itself as a provider of high quality products and exceptional
service. Most orders are received in the afternoon and delivered the next
morning. Customers are supported by a sales manager and nine regional sales
representatives to ensure optimum service and communication. A-One-A Produce
operates a fleet of 31 delivery trucks, all of which are refrigerated and
equipped with two-way radios.
Mr. Davis is primarily responsible for buying produce, pricing the produce
to the customers and identifying and selling the new larger accounts. Mr.
Scarbrough generally is responsible for office administration, personnel,
warehouse and delivery operations. For the most part, each of Messrs. Davis
and Scarbrough is capable of performing the other's basic day-to-day duties.
Jonathan S. Lasko, Executive Vice-President and Chief Operating Officer of the
Company is the President and Chief Executive Officer of A-One-A Produce.
Produce is purchased through approximately six brokers. The Company has also
recently joined a produce buying co-operative, Pro*Act, and is currently
buying a substantial portion of its requirements through it. The Company also
purchases directly from farmers in the Florida market depending upon seasonal
availability. Pricing to customers is set on a weekly basis in accordance with
market conditions. The Company's pricing formulas are very complex and take
into effect a number of qualitative factors. Pricing is set at a detailed item
by item level for each type of produce by customer. A small number of the
larger accounts, in terms of sales, have pricing arrangements that represent a
margin above cost. Some of the Company's larger customers currently include
TGI Friday's, Darden (Red Lobster and Olive Garden), and Applebee's. No
individual customer accounts for more than 10% of the Company's produce sales.
Terrace Fresh, Inc. ("Fresh") supplies cut produce through A-One-A Produce
and also to process food manufacturers directly. This business is
approximately two years old. Its revenues in 1997 were approximately
$1,500,000; approximately $800,000 of which represents sales to A-One-A for
resale. The produce is processed by Fresh primarily by means of washing or
peeling and cutting. The produce is then vacuum sealed in dated plastic bags
and boxed for immediate delivery. The pre-cut, pre-packaged produce market is
currently in its infancy in southern Florida. Although there can be no
assurance, it is anticipated that this business segment will contribute
material growth in revenues and profits in the future.
A-One-A Produce leases a building housing its offices, warehouse and
processing operations in Pompano Beach, Florida. This property is a 55,000
square foot warehouse on 3.5 acres and would allow for further expansion. The
building has 24 loading docks (approximately half of which are refrigerated),
1,700 pallet locations, and includes 30,000 square feet of refrigerated
warehouse space. The building is leased from an affiliate of Messrs.
Scarbrough and Davis. The lease was negotiated in connection with the
acquisition of A-One-A Wholesale and Fresh.
In September, 1997, the Company acquired the assets of Dry Dock
Distributors, Inc. a Florida corporation d/b/a Bay Purveyors ("Bay
Purveyors"), which distributes "dry" grocery items in the south Florida
region. The purchase price was $340,000. The business of Bay Purveyors has
been conducted as part of A-One-A Produce.
In January, 1998, the Company acquired the assets of D.M.S. Food
Distributors, Inc., a Florida corporation, d/b/a Gourmet Distributors
("Gourmet Distributors"), which distributes "dry" grocery items in the south
23
<PAGE>
Florida region. The purchase price was $125,000. The business of Gourmet
Distributors has been conducted as part of A-One-A Produce.
SALE OF FROZEN DESSERTS BUSINESS
In December, 1997, the Company's wholly-owned subsidiary, Deering Ice Cream,
Inc. ("Deering"), sold substantially all of its assets and related liabilities
to a subsidiary of Fieldbrook Farms, Inc. ("Fieldbrook"), for an aggregate
purchase price of $1,000,000, subject to later adjustment. In conjunction with
the sale, Milton Namiot, Chief Executive Officer of the Company and President
of Deering, and Joseph Dane, Controller of the Company and Chief Financial
Officer of Deering, resigned their respective positions with the Company.
Under the agreement with Fieldbrook, $200,000 of the purchase price was
placed in escrow for 60 days pending receipt by the parties of a post-closing
accounting of Deering, any third party claims against Deering relating to
matters prior to the closing and certain other matters. In addition, there was
a downward adjustment of the purchase price made at closing of $387,142 as a
result of the working capital deterioration at Deering from September 30,
1997, to closing. On March 20, 1998, the Company released the full escrow
amount to Fieldbrook and is currently in discussion to finalize the purchase
price based on the post-closing accounting and final negotiation over the
assumption of certain liabilities. The Company presently estimates it may have
to refund approximately $50,000 more of the purchase price.
The Company will receive annual royalties from Fieldbrook for four years at
the rates of 2%, 2%, 1% and 1%, respectively, of net sales by Fieldbrook of
products under the Howard Johnsons and Deering labels. At this time, the
Company cannot estimate whether or if such royalties, if received, will be
material.
ADVERTISING AND MARKETING
The Company currently markets its products and services through the use of
mailing lists and various trade publications. The Company presently is
considering engaging in the future outside professional marketing firms to
conduct its marketing activities, none of whom yet have been engaged. Such
marketing activities may include an evaluation of all aspects of the Company's
products and services. Depending upon the outcome of any such marketing
evaluations, the Company may decide to make changes with respect to the
marketing of its products and services.
COMPETITION
The wholesale fresh produce, dairy grocery and processing businesses are
very competitive, and the Company's subsidiaries face competition from other
low-cost providers. However, the Company strives to maintain high quality and
exceptional service in the market by making quality products and efficient
service its priority. Food related businesses are often affected by arbitrary
changes in consumer tastes, national, regional and local economic conditions,
demographic trends, traffic patterns, the number and locations of competing
businesses and employment trends.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting
its businesses. Each of the Company's foodservice operations is subject to
licensing regulation by numerous governmental authorities which may include
building, health and safety and fire agencies. Difficulties in obtaining or
failures to obtain or maintain the necessary licenses or approvals would have
a material adverse effect on the Company's operations.
A-One-A Produce and Fresh maintain licenses under the Perishable
Agricultural Commodities Act ("PACA") which regulates "commission merchants,"
"brokers," and "dealers" engaged in the business of shipping or receiving
perishable agricultural commodities in interstate commerce.
24
<PAGE>
EMPLOYEES
The Company employs approximately 170 people which includes approximately 20
administrative, 40 transportation, 28 sales and customer service
representatives, 75 warehouse and processing personnel, and 5 executive
management. None of the Company's employees are represented by a union, nor
have there been any work stoppages.
PROPERTIES
Fresh leases from an unaffiliated third party approximately 8,000 square
feet at 2001 N.W. 15th Avenue, Pompano Beach, Florida, for its offices,
processing and warehouse. The lease is for a term of five years with an option
to extend for an additional five years at an average annual rental of $70,000.
Fresh may terminate the lease at its option on one year's notice.
A-One-A Produce & Provisions, Inc. leases approximately 55,000 square feet
at 1351 N.W. 22nd Street, Pompano Beach, Florida, for use as its principal
offices and warehouse. The lease term is for five years with two five year
options to extend expiring July 31, 2002, at a rental of $220,000 per year.
The Pompano Beach facility is owned by an affiliate of Messrs. Scarbrough and
Davis. A lease for this facility was negotiated as part of the purchase of A-
One-A wholesale. Under the lease, the Company has an option to purchase the
land and building in Pompano Beach, Florida at a purchase price of $2,000,000
until December, 1998. The Company's executive offices are located in the A-
One-A Produce facility in Pompano Beach, Florida. Management believes that the
above facilities will be sufficient for its operations in the foreseeable
future. See "Recent Acquisition" concerning the properties owned and leased by
Banner Beef and Seafood Co., Inc.
RECENT FINANCING
In August, 1997, the Company guaranteed payment on a Loan and Security
Agreement between Foothill Capital Corporation of Mechanicsville, Virginia
("Foothill"), a credit facility, and the Company's wholly-owned subsidiaries,
Deering Ice Cream, Inc. and A-One-A Produce under which Foothill has provided
revolving loans in a total amount of approximately $4,200,000, which were
being used to refinance the principal accounts receivable and inventory
financing with respect to Deering Ice Cream, Inc., and also to provide for the
ongoing working capital needs of A-One-A Produce. This financing was repaid as
described below.
On July 15, 1998, the Company entered into a Revolving Credit Term Loan and
Security Agreement with IBJ Schroder Credit Corp. ("Schroder"), a credit
facility, providing the Company and its wholly-owned subsidiaries an aggregate
of up to $6,000,000 in senior secured financing, the proceeds of which have
been and will be used for (i) repayment of the senior indebtedness to
Foothill, described above (ii) the acquisition of Banner Beef and Seafood Co.,
Inc. (see "Recent Acquisition"), and (iii) ongoing working capital. Under the
terms of the loan agreement, the Company has executed (i) a $2,000,000 Term
Note which the Company is to make monthly principal repayments in the amount
of $23,810, with final payment due in July, 2001, and (ii) a $4,000,000
Revolving Credit Note on which the Company will receive advances of up to
$4,000,000 based on its accounts receivable and inventory. The Revolving
Credit Note is repayable in full at the time of final payment of the Term
Note.
On June 25, 1998, the Company issued to an unaffiliated private investor,
Network Funds III, Ltd., (the "Fund") $2,625,000 principal amount of 12%
Convertible Subordinated Notes ("Notes"), and warrants to purchase 400,000
shares of Common Stock of the Company. The proceeds of the Notes have been
added to the working capital of the Company. The Notes will be repaid from the
first net proceeds, if any, received by the Company from the exercise of its
$4.00 Warrants at the temporary $1.25 per share exercise price. At any time
subsequent to the expiration of the 60-day Temporary Exercise Period, the
Notes are convertible at the option of
25
<PAGE>
the Fund, at the rate of one share of Common Stock for each $1.25 of principal
and accrued but unpaid interest, and the warrants are exercisable at a price
of $1.25 per share of Common Stock. At any time subsequent to the Temporary
Exercise Period, any Notes not then converted or repaid, will be converted by
the Company, into $1.25 Redeemable Convertible 8% Cumulative Preferred Stock
("Preferred Stock") of the Company. The Notes, warrants and Preferred Stock
issued to the Fund are subject to anti-dilution adjustments, registration
rights, interest and dividend adjustments and payment by the Company of
certain fees and expenses in connection with the transaction. In addition, the
Company has granted to the Fund an option expiring no later than December 31,
1998 to purchase 500,000 shares of the Company's Common Stock at a price
determined on the basis of the average closing price for the Company's Common
Stock for the ten trading days immediately following the expiration of the
Temporary Exercise Period. See "Risk Factors--Warrants Subject to Redemption;
Temporary Exercise Price."
While the issuance of the Notes and warrants do not require shareholder
approval under the Delaware General Corporation Law, the NASDAQ Stock Market
Rules ("NASDAQ") require a listed company to secure such shareholder approval
unless the Audit Committee of the Board of Directors expressly approves an
exception, application is made to NASDAQ and the shareholders are notified of
the omission to seek shareholder approval. On June 23, 1998, the Audit
Committee unanimously approved such an exception and determined that the delay
in securing shareholder approval would seriously jeopardize the financial
viability of the Company. On June 29, 1998, application for the exception was
made to NASDAQ and on August 7, 1998, the shareholders were notified via the
Company's 1998 Proxy Statement.
RECENT ACQUISITION
On July 15, 1998, the Company acquired substantially all the assets and
assumed substantially all the liabilities of Banner Beef and Seafood Co., Inc.
("Banner") for an aggregate purchase price of $1,800,000. The assets acquired
and the liabilities assumed were assigned to the Company's subsidiary which
changed its name to Banner. The acquisition was financed by the Company with a
portion of the Schroder financing. See "Recent Financing."
As part of the acquisition, the Company entered into a five year Employment
Agreement with Mr. Manuel Jimenez to act as Chief Executive Officer of Banner
at an annual base salary of $200,000. Mr. Jimenez is a shareholder of the
former Banner Beef and Seafood Co., Inc. and was its Chief Operating Officer.
The former Banner Beef and Seafood Co., Inc., has been in business since
1965. As part of the acquisition, the Company also acquired the land and
building at 1111 N.W. 21st Terrace, Miami, Florida, where the Banner
processing facilities and offices are located. In addition, the Company has
entered into a five-year lease for the building and real estate at 6601 N.W.
37th Avenue, Hialeah, Florida, which is used as a processing facility. This
facility is approximately 22,000 square feet of processing, warehouse and
office space and is leased at approximately $120,000 per year. During the term
of the lease, provided it is not in default, the Company has an option to
purchase this property for the lesser of $1,270,000 or its independently
appraised value. The owners of this real estate are the two principal
shareholders of the former Banner Beef and Seafood Co., Inc., each of whom has
executed a Non-Competition Agreement with the Company. The Company believes
that the current Banner facilities are adequate for its operations for the
reasonably foreseeable future.
Banner employs approximately 90 persons, 16 administrative personnel and 74
processing, warehousing, delivery and similar personnel. There are no union
contracts and Management of Banner believes that its labor relations are good.
Banner is a custom value-added processor of meat, seafood and poultry. It
manufactures food products customized to customer specifications for the
retail and discount store, airline, restaurant and other industries. See
"Financial Statements" for audited historical and unaudited pro forma
financial information concerning this acquisition.
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceeding.
26
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Steven Shulman.......... 57 Chairman of the Board of Directors President and Chief
Executive Officer
Jonathan S. Lasko....... 27 Executive Vice-President, Secretary, Chief Operating
Officer and Director
Richard Power........... 49 Director
Fred A. Seigel.......... 42 Director
Houssam T. Aboukhater... 27 Director
William P. Rodrigues, 55 Vice-President--Finance Treasurer and Chief Financial Officer.
Jr......................
</TABLE>
Directors are elected on an annual basis. All directors of the Company hold
office until the next annual meeting of the shareholders or until their
successors are elected and qualified. At present, the Company's by-laws
provide for not less than one director nor more than seven. Currently, there
are five directors. The Company's by-laws permit the Board of Directors to
fill any vacancy and such director may serve until the next annual meeting of
shareholders or until his successor is elected and qualified. Officers are
elected to serve, subject to the discretion of the Board of Directors, until
their successors are appointed.
STEVEN SHULMAN, age 57, is a Managing Director of Latona Associates, Inc.,
an investment banking firm involved in advisory services and principal
investments. He serves as a director of a number of public and private
companies and is currently a director of WPI Group, Inc., Ermanco
Incorporated, Beacon Capital Partners, L.P. and Corinthian Directory, Inc. Mr.
Shulman holds an M.S. in Industrial Management from the Stevens Institute of
Technology, where he currently serves as Vice Chairman of its Board. Since
February, 1997, Mr. Shulman has served as the Chairman of the Board of
Directors and since February 18, 1998, has also served as the Chief Executive
Officer of the Company.
JONATHAN S. LASKO, age 27, has been a director of the Company since
September, 1994, and its Chief Operating Officer and Secretary since August,
1995. He has also been the Company's Executive Vice-President since May, 1993.
Mr. Lasko was the vice-president of A&E Management Corp. from October 27,
1993, The Lasko Companies, Inc. from May 11, 1995, and Prime Concern Kosher
Foods, Inc. from December, 1995 until such businesses were sold in 1998. He is
also President and Chief Executive Officer of A-One-A Produce and Provisions,
Inc. Mr. Lasko attended Yeshiva University, New York, New York, in 1988 and
1989, and Bernard Baruch College of City University of New York, New York in
1990 and 1991. From January, 1990 until October, 1993, when he became a full-
time employee of the Company, Mr. Lasko was a part-time employee of the
Company and managed its food and beverage operations for its Passover holiday
vacation. Mr. Lasko is the son of Dr. Samuel H. Lasko, the founding President
of the Company.
RICHARD D. POWER, age 49, has been Vice-President of Tyco Fire and Safety
Services since May, 1997, and the President of Carlisle Plastics, Inc., from
January, 1997, to May 1997, both divisions of Tyco International Ltd., a New
York Stock Exchange listed corporation. He served as a consultant to Tyco in
Mergers and Acquisitions from 1995 through 1996, Vice President and Chief
Financial officer of Abex Inc. a New York Stock Exchange listed corporation
between 1994 and 1995, and was the Managing Director of a private investment
company from 1992 through 1994. Mr. Power holds a B.S. and an M.B.A. from
Boston College. Since February, 1997, Mr. Power has served as a director of
the Company.
FRED A. SEIGEL, age 42, was elected a Director on February 18, 1998, to fill
a vacancy. Mr. Seigel is a founder, President and a Director of Energy Capital
Partners, a privately-held, Boston-based company organized in September, 1993,
providing financing for energy efficiency projects for commercial, industrial
and institutional property owners throughout the United States. He has more
than twenty years experience in the energy field.
27
<PAGE>
From January, 1988, to October, 1994, he served as a limited partner in two
large-scale energy co-generation projects in New York state, representing a
total investment of $350,000,000. From March, 1984, to November, 1986, Mr.
Seigel was a project manager for Wheelabrator-Frye, Inc., in that company's
Resource Recovery Division. From January, 1981, to January, 1993, he was the
Director of the Executive Office for Energy for the State of New Hampshire.
Mr. Seigel holds a B.A. from New England College, Henniker, New Hampshire.
HOUSSAM T. ABOUKHATER, age 27, was elected a Director of the Company on
August 26, 1998. He is Vice President of Prestolite Wire, a privately-held,
Southfield, Michigan based company, which is a leading producer of
telecommunications wire. From 1993 to 1996, Mr. Aboukhater served as Vice
President of Balcrank Products, an automotive components division of the
General Chemical Group, a New York Stock Exchange listed corporation. Mr.
Aboukhater also currently serves as Director of Market Analysis for Latona
Associates, an investment banking firm involved in advisory services and
principal investments. Mr. Aboukhater holds a B.A. in business administration
from the University of San Diego, San Diego, California.
William P. Rodrigues Jr., age 55 was appointed Vice President-Finance and
Chief Financial Officer on July 18, 1998. Previously, he had been Controller
of Mueller Co. a unit of Tyco, International, Inc. since 1989. From 1976 to
1986 he was Vice President-Finance and Controller of Clearfield Cheese
Company, a subsidiary of H.P. Hood Inc. a Boston based dairy products company.
Mr Rodrigues holds an A.B. degree from Boston College.
DIRECTOR COMPENSATION
Directors are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors and commencing in fiscal 1996,
non-employee directors are paid $750 for each directors' meeting attended. In
addition to the foregoing, directors through 1997 were also granted 20,000
options annually under the Company's 1997 Stock Option Plan. At the Annual
Directors Meeting held August 26, 1998 the Chairman of the Board and
President, Mr. Shulman, was granted 50,000 options and each of the other four
directors was granted 30,000 options for 1999. The Company anticipates that
the Board of Directors will continue to meet at least four times a year.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or distributions made
during the fiscal years ended December 31, 1997, 1996 and 1995, by the Company
or any of its subsidiaries to the Chief Executive Officer of the Company and
to each of its most highly compensated executive officers, other than the
Chief Executive Officer, whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------
YEAR ENDED ANNUAL OTHER
NAME & PRINCIPAL POSITION DECEMBER 31 SALARY COMPENSATION OPTIONS
- ------------------------- ----------- -------- ------------ -------
<S> <C> <C> <C> <C>
Samuel H. Lasko.............. 1995 $ 31,403 $169,081(1) 750,000(4)
President and Treasurer(8) 1996 $125,000 $ 9,517(2)(3)
1997 $150,000 $ 22,502(2) 125,000(7)
Jonathan S. Lasko............ 1995 $ 24,592 $169,081(1) 750,000(4)
Executive Vice President,
Secretary and 1996 $ 70,000 $ 7,255(2)
Chief Operating Officer 1997 $ 95,000 $ 21,727(2) 125,000(7)
Steven Shulman............... 1997 $ 0 $ 0 130,000(7)
Chief Executive Officer(5)
Milton Namiot................ 1997 $175,000 $ 9,500(2) 125,000(7)
Chief Executive Officer(6)
</TABLE>
- --------
(1) Represents combined "S" corporation distributions in the nature of
dividends through December 5, 1995, when the Company first offered and
sold its securities to the public.
(2) Represents amounts paid for lease of automobile, automobile insurance,
cellular phone and health insurance.
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<PAGE>
(3) Does not include repayments of loans from A&E, The Lasko Companies, Inc.
and the Company.
(4) In connection with the DownEast acquisition in February, 1997, each of
Samuel Lasko and Jonathan Lasko surrendered their respective right to
750,000 options based on performance, contained in their respective
employment agreements and, in lieu thereof, the Company issued to each of
Samuel H. Lasko and Jonathan D. Lasko warrants to purchase 375,000 shares
of the Company's common stock at $1.1875 per share exercisable immediately
and expiring August 31, 2000.
(5) Steven Shulman became Chief Executive Officer of the Company in February,
1998, subsequent to the resignation of former CEO Milton Namiot (in
connection with the closing of the sale of the Deering business).
(6) In connection with the sale of the Company's Deering Ice Cream, Inc.
business, Mr. Namiot resigned as an officer. He was an officer and
director of the Company from February 17, 1997, until the closing of the
Deering transaction. In connection with his resignation and the
termination of this three year employment contract, 50% of the options
theretofore granted Mr. Namiot, or options to purchase 125,000 shares of
the Company's common stock, were made immediately exercisable. They have
since expired unexercised.
(7) Represents options granted to directors and executive officers under the
Company's 1997 Stock Option Plan.
(8) Resigned effective August 26, 1998. See "Business--Hospitality--Sale of
Hospitality Segments."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OF
NAME GRANTED (#) FISCAL YEAR BASE PRICE ($/SH) EXPIRATION DATE
---- ------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Samuel H. Lasko**....... 125,000 16.9% $1.185 February 20, 2007
Jonathan S. Lasko....... 125,000 16.9% $1.185 February 20, 2007
Steven Shulman.......... 130,000 17.6% $1.185 February 20, 2007
Milton Namiot*..........
</TABLE>
- --------
*See Footnote (6) to "Executive Compensation" above.
**See Footnote (8) to "Executive Compensation" above.
EMPLOYMENT AGREEMENTS AND AGGREGATE OPTIONS HOLDINGS
The Company has 5-year employment agreements, ending August 31, 2000, with
each of Dr. Samuel H. Lasko and Jonathan S. Lasko. Dr. Samuel H. Lasko
tendered to the Company the balance of his employment agreement in partial
consideration of his purchase of the Company's "hospitality" segments. See
"Business--Sale of Hospitality Segments."
Under his employment agreement, Dr. Samuel H. Lasko had received an annual
base salary of $95,000 for the first two years and was to receive $125,000 for
the third year, $150,000 for the fourth year and $175,000 for the fifth year
of his employment. Under his employment agreement, Jonathan S. Lasko receives
an annual base salary of $70,000 for the first two years, $95,000 for the
third year, $115,000 for the fourth year and $125,000 for the fifth year of
his employment. In connection with the DownEast transaction, by amendments
dated February 17, 1997, to their respective employment agreements, Dr. Lasko
and Jonathan Lasko each voluntarily surrendered their one-time performance
based options under their respective employment agreements to purchase up to
an aggregate of 750,000 shares of common stock, and in lieu thereof, the
Company issued to each of Dr. Lasko and Jonathan Lasko, warrants to purchase
375,000 shares of its common stock at an exercise price of $1.1875 per share.
The employment agreements also entitle the individuals to the use of an
automobile and to employee benefit plans, such as group life, health,
hospitalization and life insurance. Under each of these employment agreements,
employment terminates upon death or total disability of the employee and may
be terminated by the Company for "cause," which is defined, among other
things, as the willful failure to perform duties, embezzlement, conviction of
a felony, or breach of the employee's covenant not to compete or maintain
29
<PAGE>
confidential certain information. On February 18, 1998, the Board of Directors
accepted the recommendation of its Compensation Committee and increased
Jonathan S. Lasko's base compensation for 1998 to $125,000.
In connection with the acquisition of DownEast, the Company entered into a
3-year employment agreement, effective February 17, 1997, and ending August
31, 2000, with Milton Namiot under which Mr. Namiot served as the President
and Chief Executive Officer of Deering and Chief Executive Officer of the
Company. As a result of the sale of the Deering business, Mr. Namiot resigned
from his positions as an officer and director of the Company.
In connection with the acquisition of A-One-A, the Company entered into 5-
year employment agreements, effective July 1, 1997, and ending July 30, 2002,
with both Virgil D. Scarbrough and Scott Davis under which Messrs. Scarbrough
and Davis will serve as senior executives of the Company's wholly-owned
subsidiaries A-One-A Produce & Provisions, Inc. and Terrace Fresh, Inc. Under
their respective employment agreements, Messrs. Scarbrough and Davis each
receive an annual base salary of $120,000, an annual discretionary bonus, a
performance incentive bonus of 20% of each one's annual salary, which
percentage will be increased incrementally if the pre-tax income of A-One-A
and Fresh exceed specified levels, and all other benefits available to other
Company executives.
In connection with the Bay Purveyors acquisition, the Company's wholly-owned
subsidiary, A-One-A Produce, entered into a 5-year employment agreement
effective September 1, 1997, with Kenneth Cohen under which Mr. Cohen will
serve in an upper level management position for A-One-A Produce. Under his
employment agreement, Mr. Cohen receives an annual base salary of $65,000, an
annual discretionary bonus, a performance incentive bonus of 20% of each one's
annual salary, which percentage will be increased incrementally if the pre-tax
income of A-One-A exceeds specified levels, and all other benefits available
to other Company employees.
In connection with the Gourmet Distributors acquisition, the Company entered
into a 3-year consulting agreement with Phyllis Forstein, to assist in and
consult concerning the business acquired. Ms. Forstein receives an annual
consulting fee of approximately $92,000.
In connection with the Banner acquisition, the Company entered into a five
year employment agreement with Manuel Jimenez to act as Chief Executive
Officer of Banner. See "Business--Recent Acquisition."
THE 1997 STOCK OPTION PLAN AND PARTICIPANTS
The Company adopted the 1997 Stock Option Plan (the "Plan") which enables it
to grant options for shares of its Common Stock. The Plan authorizes the grant
of options to purchase up to an aggregate of 1,250,000 shares of the Company's
Common Stock, to (i) officers, directors, and other full-time salaried
employees of the Company and its subsidiaries with managerial, professional or
supervisory responsibilities, and (ii) consultants and advisors who render
bona fide services to the Company and its subsidiaries, in each case, where
the Compensation Committee determines that such officer, director, employee,
consultant or advisor has the capacity to make a substantial contribution to
the success of the Company. As used herein with respect to the Plan,
references to the Company include subsidiaries of the Company.
The purposes of the Plan are to enable the Company to attract and retain
persons of ability as officers, directors, and other key employees with
managerial, professional or supervisory responsibilities, to retain able
consultants and advisors, and to motivate such persons to use their best
efforts on behalf of the Company by providing them with an equity
participation in the Company. The full text of the Plan is set forth as an
exhibit to this Registration Statement, and the following description is
qualified in its entirety by reference thereto.
The Plan is administered by the Compensation Committee, which was appointed
by the Company's Board of Directors, and consists of three members of the
Board of Directors, two of whom are "disinterested" persons within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934. Under the terms of
the Plan, the
30
<PAGE>
Committee will have the authority to determine, subject to the terms and
conditions of the Plan, the persons to whom options are granted, the number of
options granted to each optionee, and the terms and conditions of each option,
including its duration.
The Plan can be amended, suspended, reinstated or terminated by the Board of
Directors; provided, however, that without approval of the Company's
shareholders, no amendment shall be made which (i) increases the maximum
number of shares of Common Stock which may be subject to stock options granted
under the Plan, except for specified adjustment provisions, (ii) extends the
term of the Plan, (iii) materially increases the benefits accruing to
optionees under the Plan, (iv) materially modifies the requirements as to
eligibility for participation in the Plan, or (v) will cause stock options
granted under the Plan to fail to meet the requirements of Rule 16b-3. Unless
previously terminated or extended by the Board of Directors, the Plan will
terminate on February 20, 2007.
Stock options may be granted to purchase Common Stock under the Plan at not
less than the fair market value of the shares as of the date of grant. The
maximum number of shares for which options may be issued to an employee of the
Company during any calendar year may not exceed 250,000. Other than the limit
of 250,000 options per year, there is no limitation on the aggregate number of
stock options which may be granted to any optionee pursuant to the Plan.
As of the date hereof, 898,000 options have been granted, including 445,000
to the current officers and directors.
Stock options may be granted for a term of up to ten years. The Plan
provides that if a stock option, or portion thereof, expires, lapses without
being exercised or is terminated, canceled or surrendered for any reason
without being exercised in full, the unpurchased shares of Common Stock which
were subject to such stock option or portion thereof shall be available for
future grants of stock options under the Plan.
Pursuant to the terms of the Plan, the option price for all options must be
paid in cash, by check, bank draft or money order payable in United States
dollars to the order of the Company, or with Common Stock of the Company owned
by the optionee and having a fair market value on the date of exercise equal
to the aggregate exercise price of the shares to be so purchased, or a
combination thereof.
Options granted pursuant to the Plan will not be assignable or transferable
except by will or the laws of intestate succession. Options acquired pursuant
to the Plan may be exercised by the optionee (or the optionee's legal
representative) only while the optionee is employed by the Company, or within
six months after termination of employment due to a permanent disability, or
within three months after termination of employment due to a permanent
disability, or within three months after termination of employment due to
retirement. The executor or administrator of a deceased optionee's estate or
the person or persons to whom the deceased optionee's rights thereunder have
passed by will or by the laws of descent or distribution shall be entitled to
exercise the option within the sixth month after the decedent's death. Options
expire immediately in the event an optionee is terminated with or without
cause or resigns; provided, however, in the event the Company terminates the
employment of an optionee who at the time of such termination was an officer
of the Company and had been continuously employed by the Company during the
two year period immediately preceding such termination, for any reason except
"good cause" (as defined in the Plan), each stock option held by such optionee
(which had not then previously lapsed or terminated and which had been held by
such optionee for more than six months prior to such termination) shall be
exercisable for a period of three months after such termination to the extent
otherwise exercisable during that period. All of the aforementioned exercise
periods set forth in this paragraph are subject to the further limitation that
an option shall not, in any case, be exercisable beyond its stated expiration
date.
The purchase price and the number and kind of shares that may be purchased
upon exercise of options granted pursuant to the Plan, and the number of
shares which may be granted pursuant to the Plan, are subject to adjustment in
certain events, including stock splits, recapitalizations, mergers, and
reorganizations.
31
<PAGE>
As of August 31, 1998, the following officers, directors, significant
employees and other employees have received the number of options as is
designated opposite their respective names:
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS(1)
---- --------------------
<S> <C>
Samuel H. Lasko(2)................................. 125,000
Jonathan S. Lasko.................................. 155,000(3)
Steven Shulman..................................... 180,000(4)(5)
Bruce S. Phillips(2)............................... 20,000(4)
Richard Power...................................... 50,000(3)(4)
Fred A. Seigel..................................... 30,000(3)
Houssam T. Aboukhater.............................. 30,000(3)
Other Employees(6)................................. 188,000
-------
TOTAL............................................ 778,000(7)
=======
</TABLE>
- --------
(1) Unless otherwise stated, these options were granted at an exercise price
of $1.185 per share and become exercisable one third per year over three
years from the date granted.
(2) Former Director.
(3) Includes 30,000 options granted at the Annual Board of Directors meeting
on August 26, 1998, at an exercise price of $1.375 per share, which become
exercisable one third per year over three years from the date granted.
(4) All of Mr. Phillips' options, 20,000 of Mr. Power's options, as well as
30,000 of Mr. Shulman's options, granted in February 1997, at a price of
$1.185, became exercisable at the time they were granted.
(5) Includes 50,000 options granted at the Annual Board of Directors meeting
on August 26, 1998, at an exercise price of $1.375 per share, which become
exercisable one third per year over three years from the date granted.
(6) Includes options granted to four of the Company's employees at an exercise
price of $1.185 per share and 19 individual employees of the Company's
subsidiaries at an exercise price of $2.31 per share. All such options
become exercisable one third per year over three years from the date
granted.
(7) Does not include options granted to Milton Namiot, a former director and
Chief Executive Officer, and Joseph Dane, former Corporate Controller of
the Company. In February, 1997, Messrs. Namiot and Dane were granted
250,000 and 25,000 options, respectively. Although they were no longer
affiliated with the Company subsequent to the sale of the Company's
Deering Ice Cream business, the Compensation Committee determined to make
immediately exercisable 125,000 of Mr. Namiot's options and all of Mr.
Dane's options for a total of 120 days beyond the date of the cessation of
their employment by the Company. All of such options have expired
unexercised.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning the beneficial ownership
of Common Stock of the Company by each director, certain executive officers,
and by all directors and officers of the Company as a group as of August 31,
1998. In addition, the table provides information concerning the beneficial
owners known to the Company to hold more than 5 percent of the outstanding
Common Stock of the Company as of August 31, 1998.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(1)(2)
- ------------------------ ------------ -----------
<S> <C> <C>
Dr. Samuel H. Lasko(3)................................ 383,750(4) *
Jonathan S. Lasko..................................... 405,000(5) *
Richard Power......................................... 304,154 *
Steven Shulman........................................ 446,154 5.4%
Bernard Rubin, M.D.(8)................................ 30,000 *
Fred A. Seigel........................................ 64,577 *
Bruce S. Phillips(8).................................. -0- -0-
Houssam T. Aboukhater(6).............................. 150,000 *
All Directors and Executive Officers as a Group
(8 persons).......................................... 1,783,635(7) 21.3%
</TABLE>
32
<PAGE>
- --------
*Less than five percent
(1) In each case the beneficial owner has sole voting and investment power
except that shares held by Dr. Samuel H. Lasko are held in joint tenancy
with his wife Arlene Lasko and the shares held by Jonathan S. Lasko are
held in joint tenancy with his wife Ellen J. Lasko.
(2) The calculation of percent of class is based upon the number of shares of
Common Stock outstanding as of July 31, 1998.
(3) In connection with the sale of the "hospitality" businesses, Dr. Lasko
resigned as an officer of the Company effective August 26, 1998 and is no
longer a director.
(4) Includes 3,750 shares held for the benefit of Dr. Lasko's minor child.
(5) Includes 25,000 shares held for the benefit of Jordana Lasko, a minor.
(6) Mr. Aboukhater was elected a director on August 26, 1998.
(7) Includes an aggregate of 355,000 shares of Common Stock which was
automatically converted from Preferred Stock on July 31, 1998. Does not
include stock options granted in the amounts and prices as follows: Samuel
H. Lasko--125,000 @ $1.185; Jonathan S. Lasko--125,000 @ $1.185 and 30,000
@ $1.375; Steven Shulman--130,000 @ $1.185 and 50,000 @ $1.375; Richard
Power--20,000 @ $1.185 and 30,000 @ $1.375; Fred A. Seigel--30,000 @
$1.375; and Houssam T. Aboukhater--30,000 @ $1.375. See "1997 Stock Option
Plan and Participants." Also does not include warrants to purchase Common
Stock at a price of $1.1875 in the following amounts: Samuel H. Lasko--
375,000; Jonathan S. Lasko--375,000; Steven Shulman--36,666.7; Richard
Power--31,666.7; Fred A. Seigel--15,833.3; Bernard Rubin, M.D.--20,000;
and Bruce S. Phillips--70,000.
(8) Former director
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
As permitted by the Delaware General Corporation Law ("DGCL"), the Company
has included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, as
provided in Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit. The effect of this
provision in the Company's Certificate of Incorporation is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a Director
for breach of the fiduciary duty of care as a Director except in the
situations described in (i) through (iv) above. This provision does not limit
nor eliminate the rights of the Company or any stockholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach
of a Director's duty of care. These provisions will not alter the liability of
Directors under federal securities laws.
The Certificate of Incorporation and the by-laws of the Company provide that
the Company is required and permitted to indemnify its officers and directors,
employees and agents under certain circumstances. In addition, the Company is
required to advance expenses to its officers and directors as incurred in
connection with proceedings against them for which they may be indemnified
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such person is not
entitled to indemnification. At present, the Company is not aware of any
pending or threatened litigation or proceeding involving a director, officer,
employee or agent of the Company in which indemnification would be required or
permitted. The Company may obtain directors and officers insurance in amounts
it deems necessary. The Company believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. Insofar as indemnification for liabilities
arising under the Securities
33
<PAGE>
Act may be permitted to directors and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Samuel H. Lasko loaned Terrace Holdings, Inc., The Lasko Companies, Inc. and
A&E Management Corp. the sums of $7,276, $42,715 and $235,558, respectively, or
an aggregate of $285,549. Each loan provided interest at the prime rate of
interest and principal and interest due on demand. $100,000 of principal of
these loans was repaid from the proceeds of the Company's initial public
offering. Pursuant to agreements, the remaining principal of $185,549, together
with all accrued interest, was payable out of the Company's working capital in
twelve equal monthly installments commencing in December, 1995. At December 31,
1996, the principal balance of these loans was paid in full.
In connection with the DownEast acquisition, the Company issued to each of
Samuel H. Lasko and Jonathan D. Lasko (collectively the "Laskos") warrants to
purchase 375,000 shares of the Company's common stock at $1.1875 per share. The
Laskos surrendered their respective performance options to purchase up to
750,000 shares of the Company's common stock, contained in their respective
employment agreements. In addition, they entered into an option agreement to
purchase the businesses, assets or capital stock of three of the Company's
wholly owned subsidiaries, The Lasko Family Kosher Tours, Inc., The Lasko
Companies, Inc. and A&E Management Corp. at the fair market value thereof to be
independently determined. The option was exercised by Samuel H. Lasko alone and
on March 13, 1998, he purchased The Lasko Family Kosher Tours, Inc. and A&E
Management Corp. for consideration equal to $575,000 in accordance with "fair
value opinion" and "fairness" opinions received by the Company and Dr. Lasko
from an independent valuation firm. The sale was ratified by the shareholders
at the 1998 Annual Meeting on August 26, 1998. See "Business--Sale of
Hospitality Segments."
A-One-A Produce & Provisions, Inc. leases approximately 55,000 square feet at
1351 N.W. 22nd Street, Pompano Beach, Florida, for use as its principal offices
and warehouse. The lease term is for five years with two five year options to
extend expiring July 31, 2002 at an annual rental of $220,000. The Pompano
Beach facility is owned by an affiliate of Messrs. Scarbrough and Davis. A
lease for this facility was negotiated as part of the A-One-A acquisition.
Under the lease, the Company has an option to purchase the land and building in
Pompano Beach, Florida at a purchase price of $2,000,000 until December, 1998.
All of the foregoing transactions were approved by at least two disinterested
directors at the time of those transactions. In addition, of the transactions
that are currently ongoing, all have been ratified by independent,
disinterested directors.
All future material transactions and loans made with and by the Company will
be on terms no less favorable to the Company than those that can be obtained
from unaffiliated third parties. In addition, any forgiveness of loans will be
approved by a majority of the Company's independent directors who do not have
an interest in the transactions and who have access, at the Company's expense,
to the Company's or independent counsel.
34
<PAGE>
SELLING SECURITIES HOLDERS
The following table sets forth the record and beneficial ownership by each
of the Selling Securities Holders, the number of shares of Common Stock,
Warrants or other warrants to be offered for resale by each as of the date of
this Prospectus. No person owned of record or beneficially more than 10% of
the Common Stock of the Company. The Selling Securities Holders will not pay
any of the expenses incident to the offering made by this Prospectus other
than any sales, commissions or concessions applicable to the securities
offered by them hereby.
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP OF
COMMON COMMON STOCK
NAME STOCK(1) WARRANTS(2) AFTER OFFERING(3)
- ---- --------- ----------- -----------------
<S> <C> <C> <C>
Boca Raton Synagogue............. 107,850(4) --
Biltmore Securities, Inc.(5)..... 12,750 94,050 --
Carpionato, Alfred............... 250,000 250,000 3.8%
Feinberg, Michael................ 200,000(6) 1.6%
Gelfand, Mark E.................. 25,000 25,000 --
Haber, Sidney and Linda.......... 50,000 50,000 --
Healthcare Financial Corporation,
LLC............................. 50,000 50,000 --
Katz Investments II.............. 100,000 100,000 1.6%
Kaufman, Howard.................. -- 186,550 1.4%
Kraut, Dr. Irving................ 250,000 250,000 3.8%
Kulman, Craig.................... 25,000 -- --
Loewenstern Properties, Inc.(7).. 312,650(8) 562,650 6.8%
Lyons Community Property Trust,
Phillip N. Lyons, Trustee....... 300,000 300,000 4.7%
Masada I Limited Partnership..... -- 25,000 --
NAC Group, Inc................... 50,000 -- --
Namiot, Milton(9)................ 25,000 25,000 --
Phillips, Bruce S................ 70,000(10) --
Rothstein, Martin................ 96,500 149,400 1.9%
Waldman, Cory.................... 50,000 50,000 --
--------- --------- -----
TOTAL.......................... 1,866,900 2,225,500 31.7%
========= ========= =====
</TABLE>
- --------
(1) Unless otherwise indicated, includes Common Stock issued upon automatic
conversion of preferred stock on July 31, 1998. See "Description of
Securities--Preferred Stock."
(2) There currently is a public market for these Warrants. See "Price Range of
Securities." Upon exercise of the Warrants, these amounts represent the
Common Stock underlying such Warrants.
(3) Assumes exercise of all the Warrants and assumes that none of the Common
Stock owned or received upon exercise of the Warrants has been sold.
Unless otherwise indicated, percentage of ownership is less than one
percent.
(4) Received as a charitable contribution from Loewenstern Properties, Inc.
(5) The Underwriter of the Company's initial public offering in 1995, and its
Warrant Soliciting Agent.
(6) Represents shares of Common Stock previously issued for resale by the
holder thereof.
(7) Received the Company's securities through various assignments from Midas
Investment Group, Inc. d/b/a Biltmore Securities, Inc., the Underwriter of
the Company's initial public offering in 1995 and its Warrant Soliciting
Agent.
(8) Includes 250,000 shares underlying warrants exercisable at $1.1875.
Loewenstern Properties, Inc. has notified the Company that it intends to
exercise the warrants to purchase these shares.
(9) Former director and Chief Executive Officer of the Company.
(10) Represents Common Stock underlying warrants at $1.1875 which former
director has indicated he intends to exercise.
35
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.001 per share, of which 8,397,998 shares are currently outstanding.
Assuming exercise of all of the 4,518,950 Warrants and all of the 1,740,000
warrants, there will be 14,656,948 shares of Common Stock outstanding.
Holders of Common Stock are entitled to dividends when, as and if declared
by the Board of Directors out of funds available therefor, subject to any
priority as to dividends for any Preferred Stock that may be outstanding. The
Preferred Stock currently authorized and outstanding is non-voting stock
unless or until it is converted into Common Stock. Each share of Preferred
Stock is convertible into two shares of Common Stock. Holders of Common Stock
are entitled to cast one vote for each share held at all shareholder meetings
for all purposes, including the election of Directors. The holders of more
than fifty percent of the Common Stock issued and outstanding and entitled to
vote, present in person or by proxy, constitute a quorum at all meetings of
shareholders and the vote of the holders of a majority of Common Stock present
at such a meeting will decide any question brought before such meeting, except
for certain actions such as the election of directors, amendments to the
Company's Certificate of Incorporation, mergers or dissolutions which require
the vote of the holders of a majority of the outstanding Common Stock. Upon
liquidation or dissolution, the holder of each outstanding share of Common
Stock will be entitled to share equally in the assets of the Company legally
available for distribution to such shareholder after the payment of all debts
and other liabilities and after distributions to preferred shareholders, if
any, legally entitled hereto. No holder of Common Stock has any preemptive or
preferential rights to purchase or subscribe for any part of any unissued or
any additional authorized stock or any securities of the Company convertible
into shares of its stock. The outstanding shares of Common Stock are, and the
Common Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
$.001 par value. The Preferred Stock may be issued in one or more series at
such time or times and for such consideration as shall be authorized from time
to time by the Board of Directors. The Board of Directors is authorized to fix
the designation of each series of Preferred Stock and the relative rights,
preferences, limitations, qualifications, powers or restrictions thereof,
including the number of shares comprising each series, the dividend rates,
redemption rights, rights upon voluntary or involuntary liquidation,
provisions with respect to a retirement or sinking fund, conversion rights,
voting rights, if any, preemptive rights, other preferences, qualifications,
limitations, restrictions and the special or relative rights of each series
not inconsistent with the provisions of the Certificate of Incorporation. The
previously outstanding 1,523,825 shares of Preferred Stock were each
automatically converted into two shares of Common Stock on July 31, 1998. See
"Business--Recent Financing" concerning the possible issuance of up to
2,100,000 shares of a new series of Redeemable Convertible 8% Cumulative
Preferred Stock by the Company to a private investor.
WARRANTS
In addition to the 4,518,950 Warrants currently outstanding, an aggregate of
250,000 warrants were issued by the Company in connection with the DownEast
transaction ("DownEast Warrants"), 90,000 warrants have been issued to two
directors in recognition of their services to the Company ("Directors
Warrants") 750,000 warrants were issued to two executive officers in
connection with their employment agreements ("Executive Officers' Warrants"),
250,000 warrants were issued to the Company's initial underwriter in
connection with its initial public offering ("Underwriter's Option"), 200,000
Class B Warrants were issued prior to the Company's initial public offering,
and 400,000 warrants were issued to a private investor in connection with the
Company's 12% Convertible Subordinated Notes ("Fund Warrants"). The terms of
all of these warrants, described in more detail below, are identical to the
Warrants, except that the exercise price of the DownEast Warrants, the
Directors Warrants, the Executive Officers' Warrants and the Underwriter's
Option is $1.1875, the exercise price of the Class B Warrants is $10.00, and
the exercise price of the Fund Warrants is $1.25. Accordingly, the following
description of Warrants is applicable to the Company's other warrants as well.
Each Warrant entitles the holder
36
<PAGE>
to purchase one share of Common Stock at an exercise price of $4.00 per share,
subject to adjustment, until December 5, 2000. No holder, as such, of Warrants
shall be entitled to vote or receive dividends or be deemed the holder of
shares of Common Stock for any purpose whatsoever until such Warrants have been
duly exercised and the purchase price has been paid in full. Each Warrant is
redeemable by the Company for $.05 per Warrant, at any time, upon thirty days'
prior written notice, if the last reported sale price or average closing bid
price of the Common Stock, as reported by the principal exchange on which the
Common Stock is traded, NASDAQ or the National Quotation Bureau Incorporated,
as the case may be, exceeds $9.00 per share for twenty consecutive trading days
ending within ten days prior to the date of the notice of redemption. Any right
to exercise a Warrant will terminate at 5:00 p.m. (New York time) on the
business day immediately preceding the date of redemption.
Upon thirty days' written notice to all holders of Warrants, the Company has
the right, subject to compliance with applicable Commission rules, to reduce
the exercise price or extend the term of the Warrants. The Warrants will be
entitled to the benefit of adjustments in the exercise price of the Warrants
and in the number of shares of Common Stock or other securities delivered upon
the exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
During the 60-day period commencing on the date of this Prospectus, to and
including 5:00 p.m., New York time, on , 1998, subject to extension in
the sole discretion of the Company ("Temporary Exercise Period"), the Company
has reduced temporarily the exercise price of the Warrants from $4.00 to $1.25.
After the expiration of the Temporary Exercise Period, the exercise price of
the Warrants will return to the original $4.00 per share. See "Plan of
Distribution."
The fundamental business reasons for the temporary reduction in the exercise
price of the Warrants are, first, to attempt to secure additional cash
liquidity for immediate working capital and, second, to increase the Company's
equity capital base. Management believes that temporarily reducing the Warrant
exercise price is a substantially less expensive alternative to additional
borrowings for its current and future cash and capital needs. There is no
assurance, however, that the temporary exercise price reduction will
successfully cause material exercises or that any resulting cash liquidity will
benefit the Company. See "Risk Factors--Warrants Subject to Redemption;
Temporary Exercise Price and Price Range of Securities."
The Warrants may be exercised when there is a current effective registration
statement covering the shares of Common Stock underlying the Warrants. If the
Company does not or is unable to maintain a current effective registration
statement, the Warrant holders will be unable to exercise the Warrants and the
Warrants may become valueless. Moreover, if the shares of Common Stock
underlying the Warrants are not registered, or qualified for sale in the state
in which a Warrant holder resides, such Warrant holder might not be permitted
to exercise the Warrants.
Warrant certificates may be exchanged for new certificates of different
denominations and may be exercised or transferred by presenting them at the
office of the transfer agent. Holders of the Warrants may sell the Warrants if
a market exists rather than exercise them. However, there can be no assurance
that a market will continue as to such Warrants. If the Company is unable to
qualify its Common Stock underlying such Warrants for sale in any state,
holders of the Warrants in those states will have no choice but to either sell
such Warrants or allow them to expire.
Each Warrant may be exercised by surrendering the Warrant certificate, with
the formal election to purchase on the reverse side of the Warrant certificate
properly completed and executed, together with payment of the exercise price to
the Warrant Agent. Prior to their expiration or redemption by the Company, the
Warrants may be exercised in whole or, from time to time, in part. If less than
all of the Warrants evidenced by a Warrant certificate are exercised, a new
Warrant certificate will be issued for the remaining number of Warrants.
Holders of the Warrants are protected against dilution of the equity interest
represented by the underlying shares of Common Stock upon occurrence of certain
events, including, but not limited to, issuance of stock dividends. If the
Company merges, reorganizes or is acquired in such a way as to terminate the
Warrants, they may be exercised immediately prior to such action. In the event
of liquidation, dissolution or winding up of the Company, holders of the
Warrants are not entitled to participate in any distribution of the Company's
assets.
37
<PAGE>
For the life of the Warrants, the holders thereof are given the opportunity,
at nominal cost, to profit from a rise in the market price of the Common Stock
of the Company. The exercise of the Warrants will result in the dilution of
the then book value of the Common Stock of the Company held by the public
investors and will also result in a dilution of their percentage ownership of
the Company. The terms upon which the Company may obtain additional capital
may be adversely effected through the period that the Warrants remain
exercisable. The holders of these Warrants may be expected to exercise them at
a time when the Company would, in all likelihood, be able to obtain equity
capital on terms more favorable than those provided for by the Warrants.
Because the Warrants may be transferred, it is possible that they may be
acquired by persons residing in states where the Company has not registered,
or is exempt from registration, such that the shares of Common Stock
underlying the Warrants may not be sold or transferred upon exercise of the
Warrants. Warrant holders residing in those states would have no choice but to
attempt to sell their Warrants or let them expire unexercised. Also, it is
possible that the Company may be unable, for any reason, to cause a
registration statement covering the Common Stock underlying the Warrants to be
in effect when they are exercisable. In such event, the Warrants may expire
unless extended by the Company because a registration statement, including
audited financial statements, must be in effect in order for Warrant holders
to exercise their Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
2,537,848 of the 8,397,998 shares of Common Stock currently are "restricted
securities" as that term is defined under the Securities Act and in the future
may only be sold in compliance with Rules 144 and 144A promulgated under the
Securities Act or pursuant to an effective registration statement. As of July
31, 1998, the 3,047,650 shares of Common Stock issued upon automatic
conversion of the 1,523,825 shares of Preferred Stock may also be sold in
compliance with those rules. Rule 144 provides, in essence, that a person
(including a group of persons whose shares are aggregated) and including any
person who may be deemed an "affiliate" of the Company, as that term is
defined under the Securities Act, who has satisfied a one-year holding period
for such restricted securities may sell within any three-month period, under
certain circumstances, an amount of restricted securities which does not
exceed the greater of 1% of that class of the Company's outstanding securities
or the average weekly trading volume of that class of securities during the
four calendar weeks prior to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. In addition, pursuant to Rule
144, persons who are not affiliated with the Company and who have held their
restricted securities for at least two years are not subject to the quantity
limitations or the manner of sale restrictions of the rule.
Sales of shares by the Company's current shareholders, whether pursuant to
Rule 144 or otherwise, may have a depressing effect upon the market price of
the Common Stock in any market for the Company's securities that may develop.
To the extent that these shares enter the market, the value of the Common
Stock in the over-the-counter market may be reduced. See "Risk Factors" and
"Description of Securities."
Commission Rule 144A permits unlimited resales of restricted securities of
any issuer provided that the purchaser is a qualified institutional buyer (as
that term is defined therein) that at the end of its most recent fiscal year
has assets invested in securities of non-affiliated entities that were
purchased for a total of more than $100 million. Rule 144A allows holders of
restricted shares of the Company to sell such shares to such institutions
without regard to any volume or other restrictions.
In the event that shares of Common Stock which are not currently saleable
become saleable by means of registration, eligibility for sale under Rule 144
or otherwise and the holders of such shares of Common Stock elect to sell such
shares of Common Stock in the public market, there is likely to be a negative
effect on the market price of the Company's securities and on the ability of
the Company to obtain additional equity financing. No predictions can be made
as to the effect, if any, that sales of the Common Stock or the exercise of
the Warrants or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
the foregoing could adversely affect prevailing market prices. See "Risk
Factors" and "Description of Securities."
38
<PAGE>
Sales of substantial amounts of shares of Common Stock, pursuant to Rule
144, Rule 144A or otherwise, could adversely affect the market prices of the
Common Stock, and/or the Warrants, and may make it more difficult for the
Company to sell equity securities in the future at a time and price that it
deems appropriate. See "Risk Factors."
TRADING SYMBOLS
The Common Stock and the Warrants are listed for quotation on NASDAQ under
the symbols "THIS" and "THISW", respectively. There can be no assurances that
an active trading market will continue. See "Risk Factors--No Assurance of
Continued Public Trading Market or Continued Qualification for NASDAQ
Inclusion."
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Company's Common Stock and its Warrant Agent for
the Public and Preferred Warrants is American Stock Transfer and Trust
Company, New York, New York.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is not subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exemptions, that
a Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person who is an
"interested shareholder" for a period of three years from the date that such
person became an interested shareholders unless: (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the shareholder becoming an interested
shareholder, or (ii) upon consummation of the transaction which resulted in
the shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
shareholder. An "interested shareholder" is defined to include any person, and
the affiliates and associates of such person that (i) is the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the three-
year period immediately prior to the date on which it is sought to be
determined whether such person is an interested shareholder.
PLAN OF DISTRIBUTION
WARRANT SOLICITATION FEE
To the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc. and the rules and regulations of the
Commission, the Company has agreed to pay to the Soliciting Agent a warrant
solicitation fee equal to 4% of the then current exercise price for each
solicited Warrant exercised, payable upon exercise of the Warrant. However, no
compensation will be paid to the Soliciting Agent in connection with the
exercise of the Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the then current exercise price of the Warrants,
(b) the Warrants are held in a discretionary account, except where prior
specific written approval for the exercise has been received, (c) the Warrants
are exercised in an unsolicited transaction, (d) the Soliciting Agent has not
provided bona fide services in connection with the solicitation of the
Warrant, (e) the holder of the Warrant has not in writing designated the
Soliciting Agent as
39
<PAGE>
the party to receive the solicitation fee, or (f) these compensation
arrangements have not been disclosed at the time of the exercise. In addition,
unless exempt from Regulation M promulgated by the Commission, the Soliciting
Agent will be prohibited from engaging in any market making activities or
solicited brokerage activities with regard to the Company's securities until
the later of the termination of such solicitations activities or the
termination by waiver or otherwise of any right the Soliciting Agent may have
to receive a fee for the exercise of the Warrants following such solicitation.
RECENT PRIVATE PLACEMENT AND INVESTMENT BANKING AGREEMENT
On July 1, 1997, the Company entered into an Investment Banking Agreement
with Midas Investment Group, Inc. d/b/a Biltmore Securities, Inc. ("Midas"),
under which for a period of three years Midas is to provide services
including, without limitation, (i) review of business plans and projections;
(ii) review of financial data as it relates to raising financing; (iii)
advising on the Company's capital structure and on alternatives for raising
capital; (iv) reviewing and advising on prospective mergers and acquisitions,
and on any financing required to complete such transactions; (v) advising on
issues relating to public offerings;(vi) providing fairness opinions; (vii)
reviewing managerial needs; and (viii) advising on issues relating to
financial public relations. In consideration, the Company issued to Midas and
its assignees warrants to purchase 750,000 shares of Common Stock of the
Company.
As the Company's investment banker, Midas, was its placement agent with
respect to the private offer and sale to accredited investors of 1,352,500
Units, each Unit consisting of one share of convertible Preferred Stock and
two warrants. Each share of Preferred Stock was automatically converted into
two shares of the Company's Common Stock on July 31, 1998. For services
rendered in connection with this placement of its securities, the Company
issued an additional 156,325 Units to Midas, and 15,000 Units to Westport
Capital Markets, LLC. See "Selling Securities Holders."
SALES OF SHARES OF COMMON STOCK
Certain current shareholders of Common Stock or persons who become
shareholders of Common Stock upon exercise of warrants or conversion of
Preferred Stock may sell their shares from time to time following the date of
this Prospectus through the Soliciting Agent or any other registered
broker/dealer. Any commissions paid to such broker/dealers will be paid by
those certain current shareholders and not the Company. Any of those certain
current shareholders may be required to deliver a copy of this Prospectus with
such sales. Accordingly, the Company may be required to update and amend this
Prospectus to keep it current in accordance with applicable laws, rules and
regulations. See "Selling Securities Holders."
EXPERTS
The financial statements of the Company, excluding Banner, included in this
Prospectus have been audited by Moore Stephens, P.C., New York, New York,
independent certified public accountants, to the extent and for the periods
set forth in their reports appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of said firm as experts in
auditing and accounting.
The financial statements of Banner Beef and Seafood Co., Inc., as of
December 31, 1997, and 1996, and for each of the two years in the period ended
December 31, 1997, included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the
securities offering hereby, are being passed upon for the Company by Fishman,
Merrick, Miller, Genelly, Springer, Klimek & Anderson, P.C., 125 South Wacker
Drive, Suite 2800, Chicago, Illinois 60606.
40
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
registration statement under the Securities Act on Form SB-2 ("Registration
Statement") with respect to the securities offered hereby. No distribution of
these securities will be made until the Registration Statement, as it may be
amended, has been declared effective. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the securities offered hereby,
reference is hereby made to the Registration Statement and the exhibits
thereto. All of these documents may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10007
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies may be obtained at the prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington,
D.C. In addition, the Commission maintains a website that contains reports,
proxy and information statements and other information regarding issuers such
as the Company that file electronically with the Commission. The address of
such site is http://www.sec.gov. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
---------
<S> <C>
Pro Forma Condensed Combined Financial Statements (Unaudited)........ P-2-P-6
Notes to Pro Forma Financial Statements.............................. P-7
Report of Independent Auditors (Terrace Holdings, Inc.).............. F-1
Financial Statements
Consolidated Balance Sheets......................................... F-2
Consolidated Statements of Operations............................... F-3
Consolidated Statements of Stockholders' Equity..................... F-4
Consolidated Statements of Cash Flows............................... F-5-F-6
Notes to Consolidated Financial Statements.......................... F-7-F-22
Report of Independent Certified Public Accountants (Banner Beef and
Seafood Co., Inc.).................................................. F-23
Balance Sheets...................................................... F-24
Statements of Operations............................................ F-25
Statements of Stockholders' Equity.................................. F-26
Statements of Cash Flows............................................ F-27
Notes to Financial Statements....................................... F-28-F-30
</TABLE>
P-1
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed combined statements of operations for the
year ended December 31, 1997, give effect to the following:
(1) A-One-A Wholesale Produce, Inc. Acquisition--On July 1, 1997, the
Registrant acquired all of the assets and related liabilities of A-One-A
Wholesale Produce, Inc. ["A-One-A"]. In consideration for the acquisition,
the Registrant issued to A-One-A 500,000 unregistered shares of the
Company's common stock valued at $1,000,000. The asset purchase agreement
also provides for contingent consideration based upon the achievement of
specified earnings levels in future periods. The Registrant also paid A-
One-A $3,130,000 in cash. The total cost of the acquired company was
approximately $4,300,000 including an estimate for the contingent
consideration. The acquisition was accounted for as a purchase effective
July 1, 1997. The operations of A-One-A have been included in the
Registrant's results of operations from that date. Cost in Excess of Net
Assets of businesses acquired totaling $3,461,947 was recorded as part of
this acquisition. The excess purchase price is allocated to Cost in Excess
of Net Assets of businesses acquired because the amounts are in effect
inseparable from Cost in Excess of Net Assets of businesses acquired. The
items sold by A-One-A are not unique in any way and the asset represents
the relationships, reputation and the value of past services rendered
provided to its customers.
(2) Banner Beef and Seafood Co., Inc. Acquisition--On July 15, 1998, the
Company, Terrace Holdings, Inc. ("Terrace"), acquired all of the assets and
related liabilities with the exception of the stockholders loans of Banner
Beef and Seafood Co., Inc. ("Banner"). In consideration for the
acquisition, the Registrant paid Banner $1,800,000 in cash. The acquisition
was accounted for as a purchase effective July 17, 1998. The operations of
Banner Beef and Seafood Co., Inc. will be included in the Company's results
of operations from that date. The excess purchase price is allocated to
property and equipment based upon appraisals the Company received from an
independent third party.
The pro forma condensed combined statement of operations for the six months
ended June 30, 1998, and the pro forma combined condensed balance sheet at
June 30, 1998, give effect to the Banner Acquisition.
The pro forma condensed combined statement of operations gives effect to
these transactions as if they had occurred at the beginning of the fiscal year
presented and were carried forward through the period presented. The pro forma
balance sheet assumes that the acquisition was consummated at the balance
sheet date.
The pro forma combined statements have been prepared by the Company's
management based upon the historical financial statements of the Company, A-
One-A and Banner. These pro forma statements may not be indicative of the
results that actually would have occurred if the acquisitions had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the historical
financial statements and notes contained elsewhere herein.
P-2
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICALS
---------------------- PRO FORMA PRO FORMA
TERRACE BANNER ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash....................... $ 793,159 $ -- $1,800,000(4) $ 793,159
(1,800,000(5))
Accounts Receivable--Net... 2,136,865 524,605 -- 2,661,470
Inventory.................. 556,625 656,287 -- 1,212,912
Restricted Cash............ 94,497 -- -- 94,497
Current Portion of Note Due
From Officer.............. 53,000 -- -- 53,000
Other Current Assets....... 463,459 88,928 -- 552,387
----------- ---------- ---------- -----------
Total Current Assets..... 4,097,605 1,269,820 -- 5,367,425
Property and Equipment--Net.. 1,270,353 761,019 749,619(5) 2,780,991
Intangible Assets--Net....... 4,537,811 -- -- 4,537,811
Note Due From Officer........ 106,000 -- -- 106,000
Other Assets................. 180,000 11,703 -- 191,703
----------- ---------- ---------- -----------
Total Assets............. $10,191,769 $2,042,542 $ 749,619 $12,983,930
=========== ========== ========== ===========
</TABLE>
P-3
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET--(CONTINUED)
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICALS
----------------------- PRO FORMA PRO FORMA
TERRACE BANNER ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current Liabilities:
Cash Overdrafts......... $ -- $ 1,118 $ -- $ 1,118
Accounts Payable and
Accrued Expenses....... 2,453,496 327,154 -- 2,780,650
Current Portion of Long
Term Debt.............. 182,321 406,313 285,720 (4) 874,354
Line of Credit.......... 1,064,729 500,000 -- 1,564,729
Term Loan............... 50,000 -- -- 50,000
Other Current
Liabilities............ 87,499 -- -- 87,499
----------- ---------- --------- -----------
Total Current
Liabilities.......... 3,838,045 1,234,585 285,720 5,358,350
----------- ---------- --------- -----------
Long-Term Debt............ 209,745 90,556 (332,980)(5) 1,481,601
Convertible Subordinated
Notes.................... 2,625,000 -- 1,514,280 (4) 2,625,000
----------- ---------- --------- -----------
Commitments and
Contingencies............ -- -- -- --
----------- ---------- --------- -----------
Total Liabilities..... 6,672,790 1,325,141 1,467,020 9,464,951
----------- ---------- --------- -----------
Stockholders' Equity:
Convertible Preferred
Stock $.001 Par Value,
10,000,000 Shares
Authorized, 1,523,825
Shares Issued; None,
Pro forma.............. 1,524 -- (1,524)(10) --
Common Stock--$.001 Par
Value, 25,000,000
Shares Authorized,
5,270,348 Issued, 3,048 (10)
8,317,998, Pro forma... 5,270 100,000 (100,000)(5) 8,318
Additional Paid-in
Capital................ 9,501,330 150,000 (150,000)(5) 9,499,806
(1,524)(10)
(Accumulated Deficit)
Retained Earnings...... (5,989,145) 467,401 (467,401) (5,989,145)
----------- ---------- --------- -----------
Total Stockholders'
Equity............... 3,518,979 717,401 (717,401) 3,518,979
----------- ---------- --------- -----------
Total Liabilities and
Stockholders' Equity. $10,191,769 $2,042,542 $ 749,619 $12,983,930
=========== ========== ========= ===========
</TABLE>
P-4
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICALS
-----------------------
PRO FORMA PRO FORMA
TERRACE BANNER ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................... $13,429,518 $2,821,303 $ -- $16,250,821
Cost of Sales............. 9,725,178 2,550,591 -- 12,275,769
----------- ---------- --------- -----------
Gross Profit.......... 3,704,340 270,712 -- 3,975,052
----------- ---------- --------- -----------
Operating Expenses:
Selling, General and
Administrative......... 3,563,713 563,802 33,732(6) 4,161,247
Provision for Doubtful
Accounts............... 105,608 -- -- 105,608
----------- ---------- --------- -----------
Total Operating
Expenses............. 3,669,321 563,802 33,732 4,266,855
----------- ---------- --------- -----------
Income (Loss) from
Operations........... 35,019 (293,090) (33,732) (291,803)
----------- ---------- --------- -----------
Other (Expense) Income:
Other Income............ 26,000 32,459 -- 58,459
Interest Income......... 3,180 -- -- 3,180
Interest Expense........ (159,925) (56,747) (85,500)(8) (302,172)
----------- ---------- --------- -----------
Total Other (Expense). (130,745) (24,288) (85,500) (240,533)
----------- ---------- --------- -----------
Loss from Continuing
Operations........... $ (95,726) $ (317,378) $(119,232) $ (532,336)
=========== ========== ========= ===========
Income Per Share of Common
Stock:
Loss from Continuing
Operations............. $ (.02) $ (0.10)
=========== ===========
Basic Loss Per Share of
Common Stock........... $ (.02) $ (0.10)
=========== ===========
Diluted Loss Per Share
of Common Stock........ $ (.02) $ (0.10)
=========== ===========
Weighted Average Shares
of Common Stock
Outstanding............ 5,187,161 5,187,161
=========== ===========
</TABLE>
P-5
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997.
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICALS
--------------------------------------
A-ONE-A
TERRACE SIX MONTHS BANNER
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, PRO FORMA PRO FORMA
1997 1997* 1997 ADJUSTMENTS COMBINED
------------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 8,929,464 $8,180,688 $6,082,085 $ -- $23,192,237
Cost of Sales........... 6,853,507 5,771,292 5,384,848 -- 18,009,647
----------- ---------- ---------- --------- -----------
Gross Profit............ 2,075,957 2,409,396 697,237 -- 5,182,590
----------- ---------- ---------- --------- -----------
Selling, General and
Administrative
Expenses............... 3,370,480 1,883,273 1,400,380 86,549(2) 6,808,146
67,464(7)
Bad Debts............... 60,000 -- -- -- 60,000
----------- ---------- ---------- --------- -----------
Total Operating
Expenses............. 3,430,480 1,883,273 1,400,380 154,013 6,868,146
----------- ---------- ---------- --------- -----------
(Loss) Income from
Operations............. (1,354,523) 526,123 (703,143) (154,013) (1,685,556)
----------- ---------- ---------- --------- -----------
Other Income (Expense):
Other Income............ -- -- 16,381 -- 16,381
Interest (Expense)...... (56,993) (17,432) (108,526) (19,619)(3) (373,570)
(171,000)(9)
----------- ---------- ---------- --------- -----------
Total Other Income (56,993) (17,432) (92,145) (190,619) (357,189)
(Expense)..............
----------- ---------- ---------- --------- -----------
(Loss) Income from
Continuing Operations
Before Income Taxes.... (1,411,516) 508,691 (795,288) (344,632) (2,042,745)
Income Taxes............ -- 203,476 -- (203,476)(1) --
----------- ---------- ---------- --------- -----------
(Loss) Income from
Continuing Operations.. $(1,411,516) $ 305,215 $ (795,288) $(141,156) $(2,042,745)
=========== ========== ========== ========= ===========
(Loss) Per Share........ $ (.32) $ (.46)
=========== ===========
Weighted Average Shares
Outstanding............ 4,454,034 4,454,034
=========== ===========
</TABLE>
- --------
* The Registrant's December 31, 1997 statement of operations includes the
statement of operations for A-One-A Wholesale, Inc. for the six months then
ended.
P-6
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On July 1, 1997, the Company acquired all of the assets and related
liabilities of A-One-A Wholesale Produce, Inc.
A-ONE-A ACQUISITION:
INCOME STATEMENT ADJUSTMENTS:
<TABLE>
<S> <C>
(1) To reflect reduction of income tax expense as computed on
a consolidated basis. $ 203,476
----------
(2) To reflect six months' amortization of Cost in Excess of
Net Assets of business acquired associated with the
A-One-A acquisition. The total amount of Cost in Excess
of Net Assets of business acquired, $3,461,947, has been
amortized over 20 years using the straight-line method. $ 86,549
----------
(3) To reflect six months of interest cost incurred for the
acquisition of A-One-A approximately $356,700 @ 11%. $ 19,619
----------
BANNER BEEF AND SEAFOOD CO. INC. ACQUISITION:
BALANCE SHEET ADJUSTMENTS:
(4)To reflect $1,800,000 term loan over 36 months at 9.5%. $1,800,000
----------
(5) To reflect the Banner acquisition which includes the
elimination of the Banner shareholders' loans not
acquired and the elimination of Banner's stockholders'
equity
INCOME STATEMENT ADJUSTMENTS:
(6) To reflect six months depreciation of property and
equipment associated with the Banner acquisition. The
total amount of property and equipment has been
depreciated over 30 years for buildings and 5 years for
machinery and equipment using the straight-line method. $ 33,732
----------
(7) To reflect twelve months depreciation of property and
equipment associated with the Banner acquisition. The
total amount of property and equipment has been
depreciated over 30 years for buildings and 5 years for
machinery and equipment using the straight-line method. $ 67,464
----------
(8) To reflect six months interest expense incurred for the
term loan of $1,800,000 at 9.5%. $ 85,500
----------
(9) To reflect twelve months interest expense incurred for
the term loan of $1,800,000 at 9.5%. $ 171,000
----------
Actions taken by management or expected to occur after the business combination
include the termination of two selling shareholder employees. For the year
ended December 31, 1997 expenses related to these employees which include their
salaries and related benefits totaled approximately $401,000. Similar costs for
the six months ended June 30, 1998 was approximately $121,000. The effects of
these terminations will be included in operations within the twelve months
following the transaction but they were not considered in the pro forma
statements of operations.
TERRACE HOLDINGS, INC:
BALANCE SHEET ADJUSTMENT:
(10) To reflect the automatic conversion of Preferred Stock
to Common on July 31, 1998.
</TABLE>
P-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Terrace Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Terrace
Holdings, Inc. and its subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1997. 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 consolidated financial position
of Terrace Holdings, Inc. and its subsidiaries as of December 31, 1997, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Moore Stephens, P. C.
Certified Public Accountants
New York, New York
March 13, 1998
F-1
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents......................... $ 793,159 --
Accounts Receivable (Less Allowance for Doubtful
Accounts of $118,000 and $60,000 at June 30,
1998, and December 31, 1997, respectively)....... 2,136,865 $ 1,869,198
Inventories....................................... 556,625 280,458
Due from Related Party............................ -- 122,752
Restricted Cash................................... 94,497 137,701
Due on Sale of Discontinued Operations............ -- 90,000
Current Portion Note Due From Officer............. 53,000 --
Other Current Assets.............................. 463,459 107,823
----------- -----------
Total Current Assets............................ 4,097,605 2,607,932
Property and Equipment--Net......................... 1,270,353 665,282
Intangible Assets--Net of Accumulated Amortization
of $206,167 at June 30, 1998, and Cost in Excess of
Net Assets of Businesses Acquired--Net of
Accumulated Amortization of $88,148 at December 31,
1997............................................... 4,537,811 3,639,882
Net Assets of Discontinued Operations............... -- --
Note Due From Officer............................... 106,000 --
Other Assets........................................ 180,000 14,246
----------- -----------
Total Assets.................................... $10,191,769 $ 6,927,342
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft.................................... $ -- $ 372,451
Accounts Payable.................................. 1,818,596 892,742
Accrued Expenses.................................. 634,900 805,890
Current Portion of Long-Term Debt................. 182,321 162,370
Line of Credit.................................... 1,064,729 1,354,084
Provision for Phase-Out Costs..................... -- 20,000
Term Loan......................................... 50,000 --
Other Current Liabilities......................... 87,499 50,000
----------- -----------
Total Current Liabilities....................... 3,838,045 3,657,537
----------- -----------
Long-Term Debt...................................... 209,745 81,380
Convertible Subordinated Notes...................... 2,625,000 --
----------- -----------
Total Liabilities............................... 6,672,790 3,738,917
----------- -----------
Commitments and Contingencies....................... -- --
----------- -----------
Stockholders' Equity:
Convertible Preferred Stock, $.001 Par Value,
10,000,000 Shares Authorized, 1,523,825 Shares
Issued and Outstanding........................... 1,524 1,524
Common Stock--$.001 Par Value, 25,000,000 Shares
Authorized, 5,270,348 and 5,006,400 Issued and
Outstanding at June 30, 1998 and December 31,
1997, respectively............................... 5,270 5,006
Additional Paid-in Capital........................ 9,501,330 9,075,343
Accumulated Deficit............................... (5,989,145) (5,893,448)
----------- -----------
Total Stockholders' Equity...................... 3,518,979 3,188,425
----------- -----------
Total Liabilities and Stockholders' Equity...... $10,191,769 $ 6,927,342
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER
(UNAUDITED) 31,
---------------------- ------------------------
1998 1997 1997 1996
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales.................... $13,429,518 $ -- $ 8,929,464 $ --
Cost of Sales................ 9,725,178 -- 6,853,507 --
----------- --------- ----------- -----------
Gross Profit............... 3,704,340 -- 2,075,957 --
----------- --------- ----------- -----------
Operating Expenses:
Selling, General and
Administrative Expenses... 3,563,713 411,651 3,370,480 348,439
Loss on Disposal of Prime
Concern Kosher Foods,
Inc....................... -- 129,826
Provision for Doubtful
Accounts.................. 105,608 -- 60,000 --
----------- --------- ----------- -----------
Total Operating Expenses. 3,669,321 411,651 3,430,480 478,265
----------- --------- ----------- -----------
Income (Loss) from
Operations................ 35,019 (411,651) (1,354,523) (478,265)
----------- --------- ----------- -----------
Other (Expense) Income:
Royalty Income............. 26,000 -- -- --
Interest Expense........... (159,925) -- (79,594) --
Interest Income............ 3,180 21,712 22,601 19,338
----------- --------- ----------- -----------
Total Other (Expense).... (130,745) 21,712 (56,993) 19,338
----------- --------- ----------- -----------
Loss From Continuing
Operations................ (95,726) (389,939) (1,411,516) (458,927)
Discontinued Operations:
Income (Loss) from
Operations of Discontinued
Business Segments (Net of
Income Taxes of $-0-)..... 29 189,568 (813,795) (697,100)
(Loss) on Disposal of
Business Segments,
including Provision of
$20,000 for Operating Loss
during the Phase Out
Period (Net of Income
Taxes of $-0-)............ -- -- (2,126,742) --
----------- --------- ----------- -----------
Net Loss................. $ (95,697) $(200,371) $(4,352,053) $(1,156,027)
=========== ========= =========== ===========
Loss Per Share of Common
Stock:
Loss from Continuing
Operations................ $ (.02) $ (.09) $ (.32) $ (.14)
Income (Loss) from
Operations of Discontinued
Business Segments (Net of
Income Tax of $-0-)....... -- .04 (.18) (.21)
(Loss) on Disposal of
Discontinued Business
Segments.................. -- -- (.48) --
----------- --------- ----------- -----------
Basic Net Loss Per Share of
Common Stock................ $ (.02) $ (.05) $ (.98) $ (.35)
=========== ========= =========== ===========
Diluted Net Loss Per Share of
Common Stock................ $ (.02) $ (.05) (.98) (.35)
=========== ========= =========== ===========
Weighted Average Shares of
Common Stock Outstanding--
Basic....................... 5,187,161 4,306,400 4,454,034 3,312,500
----------- --------- ----------- -----------
Effect of Dilutive
Securities--Convertible
Preferred Stock............. 3,047,650 -- -- --
----------- --------- ----------- -----------
Weighted Average Shares of
Common Stock--Diluted....... 8,234,811 4,306,400 4,454,034 3,312,500
=========== ========= =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ---------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--January 1,
1996................... -- $ -- 3,312,500 $3,313 $3,945,948 $ (385,368) $ 3,563,893
Net Loss................ -- -- -- -- -- (1,156,027) (1,156,027)
--------- ------ --------- ------ ---------- ----------- -----------
Balance--December 31,
1996................... -- -- 3,312,500 3,313 3,945,948 (1,541,395) 2,407,866
Asset Acquisition-
Deering -- -- 918,900 918 763,081 -- 763,999
Finders Fee............. -- -- 75,000 75 88,238 -- 88,313
Asset Acquisition
A-One-A................ -- -- 500,000 500 999,500 -- 1,000,000
Private Placement....... 1,523,825 1,524 -- -- 2,671,776 -- 2,673,300
Stock Issuances......... -- -- 200,000 200 219,800 -- 220,000
Stock Based
Compensation........... -- -- -- -- 387,000 -- 387,000
Net Loss................ -- -- -- -- -- (4,352,053) (4,352,053)
--------- ------ --------- ------ ---------- ----------- -----------
Balance--December 31,
1997................... 1,523,825 $1,524 5,006,400 5,006 9,075,343 (5,893,448) 3,188,425
Asset Acquisition-Fresh,
Inc. .................. -- -- 138,948 138 269,862 -- 270,000
Warrants Exercise....... -- -- 125,000 126 156,125 -- 156,251
Net Loss................ -- -- -- -- -- (95,697) (95,697)
--------- ------ --------- ------ ---------- ----------- -----------
Balance--June 30, 1998
(unaudited)............ 1,523,825 $1,524 5,270,348 $5,270 $9,501,330 $(5,989,145) $ 3,518,979
========= ====== ========= ====== ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER
(UNAUDITED) 31,
----------------------- ----------------------
1998 1997 1997 1996
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Operating Activities:
Net Loss from Continuing
Operations................. $ (95,726) $ (389,939) $(1,411,516) $(458,927)
---------- ----------- ----------- ---------
Adjustments to Reconcile Net
Income (Loss) to Net Cash
(Used for) Provided by
Operating Activities:
Depreciation and
Amortization............. 225,265 -- 157,613 --
Stock Based Compensation.. -- -- 180,000 --
Provision for Doubtful
Accounts................. 58,000 -- 60,000 --
Changes in Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable..... (325,667) -- (541,699) --
Inventory............... (276,167) -- (102,069) --
Other Current Assets.... (355,636) -- 17,638 --
Due from Related Party.. 122,752 -- --
Due from Officer........ (159,000) -- --
Due on sale of
Discontinued Operation. 90,000 -- --
Other Assets............ 165,754 -- (1,728) --
Increase (Decrease) in:
Accounts Payable.......... 925,854 -- 182,082 --
Accrued Expenses.......... (153,491) -- 338,955 --
---------- ----------- ----------- ---------
Total Adjustments..... (13,844) -- 290,792 --
---------- ----------- ----------- ---------
Net Cash--Continuing
Operations--Forward.. (109,570) (389,939) (1,120,724) (458,927)
---------- ----------- ----------- ---------
Discontinued Operations:
Income (Loss) From
Discontinued Business
Segments................... 29 189,568 (2,940,537) (697,100)
Adjustments to Reconcile
Income to Net Cash:
Depreciation and
Amortization............. -- 186,283 180,115 340,086
(Loss) on Disposal of
Business Segments
(Including Provision of
$20,000 for Operating
Loss During Phase Out
Period).................. -- -- 1,974,742 --
Changes in Net Assets,
Liabilities.............. (1,150,703) (1,787,219) (165,304)
---------- ----------- ----------- ---------
Net Cash--Discontinued
Operations--Forward.. 29 (774,852) (2,572,899) (522,318)
---------- ----------- ----------- ---------
Investing Activities--
Continuing Operations:
Acquisition of Assets....... (712,316) -- (201,744) (179,308)
Purchase of Business--Net of
Cash Acquired.............. (745,948) -- (3,616,993) --
---------- ----------- ----------- ---------
Net Cash--Investing
Activities--
Continuing
Operations--Forward.. (1,458,264) -- (3,818,737) (179,308)
---------- ----------- ----------- ---------
Investing Activities--
Discontinued Operations:
Acquisition of Intangible
Assets..................... -- (19,699) -- (675,000)
Purchase and Disposal of
DownEast Frozen Desserts,
LLC--Net of Cash Acquired.. -- -- 288,900 --
Acquisition of Assets....... -- (40,138) (40,933) --
---------- ----------- ----------- ---------
Net Cash--Investing
Activities--
Discontinued
Operations--Forward.. -- $ (59,837) $ 247,967 $(675,000)
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEARS ENDED DECEMBER
30, (UNAUDITED) 31,
---------------------- ------------------------
1998 1997 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Cash--Continuing
Activities--Forwarded...... $ (100,570) $ (389,939) $(1,120,724) $ (458,927)
---------- ---------- ----------- -----------
Net Cash--Discontinued
Operations--Forwarded...... 29 (774,852) (2,572,899) (522,318)
---------- ---------- ----------- -----------
Net Cash--Investing
Activities--Continuing
Operations--Forwarded...... (1,458,264) -- (3,818,737) (179,308)
---------- ---------- ----------- -----------
Net Cash--Investing
Activities--Discontinued
Operations--Forwarded...... -- (59,837) 247,967 (675,000)
---------- ---------- ----------- -----------
Financing Activities--
Continuing Operations:
Proceeds from Notes
Payable.................. -- -- 100,000 --
Payment of Notes Payable.. -- -- (64,467) (10,000)
Payments of Demand Notes
Payable--Stockholders and
Related Parties.......... -- -- -- (185,549)
Proceeds from Line of
Credit................... (289,355) -- 1,354,085 --
Restricted Cash........... 43,204 -- (137,701) --
Bank Overdrafts........... (372,451) -- 372,448 --
Proceeds from Issuance of
Convertible Preferred
Stock.................... -- -- 2,673,300 --
Proceeds from Issuance of
Common Stock............. -- -- 220,000 --
Current Portion of Long
Term Debt................ 19,951 -- -- --
Proceeds from Warrants
Exercised................ 156,250 -- -- --
Payments of Long Term Debt
Borrowing................ 178,365 -- -- --
Proceeds from Subordinated
Convertible Notes........ 2,625,000 -- -- --
---------- ---------- ----------- -----------
Net Cash--Financing
Activities--
Continuing
Operations......... 2,360,964 -- 4,517,665 (195,549)
---------- ---------- ----------- -----------
Financing Activities--
Discontinued Operations:
Proceeds of Demand Notes
Payable.................. -- -- 1,175,821 --
Payment of Demand Notes
Payable.................. -- (39,280) -- --
---------- ---------- ----------- -----------
Net (Decrease) in
Cash and Cash
Equivalents........ 793,159 (1,263,911) (1,570,907) (2,031,102)
Cash and Cash Equivalents--
Beginning of Periods and
Years, respectively........ -- 1,570,907 1,570,907 3,602,009
---------- ---------- ----------- -----------
Cash and Cash Equivalents--
End of Periods and Years,
respectively............... $ 793,159 $ 306,996 $ -- $ 1,570,907
========== ========== =========== ===========
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the
periods and years for:
Interest................ $ 165,689 $ 71,100 $ 51,093 $ 9,020
Income Taxes............ $ -- $ 32,205 $ -- $ --
</TABLE>
Supplemental Disclosures of Non-Cash Financing Activities:
During the quarter ending March 31, 1997, the Company issued 993,900 shares
of common stock valued at approximately $853,000 in connection with the
acquisition of DownEast Frozen Desserts, LLC.
During the third quarter, the Company issued 500,000 shares of its common
stock valued at $1,000,000 in connection with the acquisition of A-One-A
Wholesale Produce, Inc.
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 Consolidated Financial Statements.
F-6
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Terrace Holdings, Inc. ("Terrace" or the "Company"), was incorporated under
the laws of the State of Delaware on June 15, 1995, to change the state of
incorporation of Bon Adventure Kosher Tours, Inc., a Florida corporation,
formerly known as Embassy Kosher Tours of South Florida, Inc. During 1997, the
Board of Directors determined to dispose of the net assets of the Company's
frozen dessert and hospitality business segments (See Note 3). The Company's
continuing operations focus on the food services and distribution business
through its wholly-owned subsidiary, A-One-A Produce & Provisions, Inc. ("A-
One-A"). A-One-A is a Pompano Beach, Florida based produce distributor that
sells and distributes fresh fruit and vegetables and dry grocery products to
hotels, restaurants and other businesses in southern Florida.
Consolidation Policy--The consolidated financial statements include the
accounts of Terrace and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
The consolidated financial statements as of and for the year ended December
31, 1997, include the accounts of Terrace and its wholly-owned subsidiaries,
A&E Management Corp. ("A&E"), The Lasko Family Kosher Tours, Inc. ("LFKT"),
The Lasko Companies ("Lasko") (together, the "Hospitality Group"), and A-One-
A. A-One-A's fiscal year ends on the Saturday nearest to December 31. LFKT was
incorporated on February 14, 1997 for the purpose of managing and operating
the Passover holiday vacation business, which was subsequently disposed of in
December 1997 (See Note 3B). On February 10, 1997, Deering Ice Cream, Inc.
("Deering") was incorporated to acquire certain assets and related liabilities
from DownEast Frozen Desserts, LLC ("DownEast"), to manufacture and market
frozen desserts. This subsidiary was disposed of in December 1997 (See Note
3A).
The consolidated financial statements for the year ended December 31, 1996,
include the accounts of Terrace, A&E, Lasko and Prime Concern Kosher Foods,
Inc. ["Prime"]. In July 1996, the Company disposed of all of the operating
assets of Prime which operated a kosher delicatessen/fast food operation in
Boca Raton, Florida incurring a loss of $129,826.
Cash and Cash Equivalents--The Company considers certain highly liquid
investments, with a maturity of three months or less when purchased to be cash
equivalents. The Company did not have any cash equivalents at December 31,
1997.
Inventories--Inventories are recorded at the lower of cost or market. Cost
is determined on the first-in, first-out ("FIFO") basis. Inventories consist
of fresh fruit, vegetables and dry goods.
Property and Equipment--Property and equipment are recorded at cost.
Expenditures for normal repairs and maintenance are charged to earnings as
incurred. When assets are retired or otherwise disposed, their costs and
related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in operations. Depreciation is recorded
using the straight-line method over the shorter of the estimated lives of the
related asset or the remaining lease term. Estimated useful lives are as
follows:
<TABLE>
<S> <C>
Transportation Equipment....................................... 7-10 Years
Equipment, Furniture and Fixtures.............................. 5- 7 Years
Leasehold Improvements......................................... 5-10 Years
</TABLE>
Cost in Excess of Net Assets of Businesses Acquired--The cost in excess of
net assets of businesses acquired is being amortized on a straight-line basis
over 20 years. Amortization expense amounted to $88,148 for the year ended
December 31, 1997.
F-7
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
Impairment--The Company's policy is to record an impairment loss against the
balance of a long-lived asset in the period when it is determined that the
carrying amount of the asset may not be recoverable. This determination is
based on an evaluation of such factors as the occurrence of a significant
event, a significant change in the environment in which the business assets
operate or if the expected future non-discounted cash flows of the business
was determined to be less than the carrying value of the assets. If impairment
is deemed to exist, the assets will be written down to fair value. Management
also evaluates events and circumstances to determine whether revised estimates
of useful lives is warranted. As of December 31, 1997, management expects its
long-lived assets to be fully recoverable.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk include cash and cash equivalents
and accounts receivable arising from its normal business activities. The
Company places its cash and cash equivalents with high credit quality
financial institutions. The Company had approximately $452,000 at December 31,
1997 in a financial institution subject to normal credit risk beyond insured
amounts. The Company does not require collateral on its financial instruments.
The Company extends credit to its customers, which results in accounts
receivable arising from its normal business activities. The Company routinely
assesses the financial strength of its customers and, based upon factors
surrounding the credit risk of its customers, believes that its receivable
credit risk exposure is limited. The Company's estimate of the financial
strength of its customers may be subject to change in the near term.
Other Concentrations--In December 1997, A-One A became a full-time member of
a cooperative of independent distribution specialists (the "Cooperative")
which enables the Company to enter group negotiations which results in better
pricing on purchases. Although the Company purchased approximately 37% through
the Cooperative, management believes that there is no business vulnerability
regarding this concentration of purchases from the Cooperative as the produce
purchased is available from other sources.
Business Risk--The Company is subject to the Perishable Agricultural
Commodities Act ("PACA") which regulates certain entities engaged in the
business of shipping or receiving perishable agricultural commodities in
interstate commerce. Currently, the Company maintains a PACA license to
distribute fresh produce, fruits and vegetables. The ability of the Company to
continue distribution and sales of its fresh produce, fruits and vegetables is
dependent upon its continued compliance with the PACA statute. Loss of its
PACA license would have a materially adverse effect on the Company.
Advertising--Advertising costs, which were not material at December 31, 1997
and 1996, are expensed as incurred.
Earnings Per Share--The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior period earnings per share data have been
recalculated as necessary to conform prior year data to SFAS No. 128.
F-8
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15,
"Earnings per Share," and replaces its primary earnings per share with a new
basic earnings per share representing the amount of earnings for the period
available to each share of common stock outstanding during the reporting
period. SFAS No. 128 also requires a dual presentation of basic and diluted
earnings per share on the face of the statement of operations for all
companies with complex capital structures. Diluted earnings per share reflects
the amount of earnings for the period available to each share of common stock
outstanding during the reporting period, while giving effect to all dilutive
potential common shares that were outstanding during the period, such as
common shares that could result from the potential exercise or conversion of
securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on earnings per share (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options
and warrants will have a dilutive effect only when the average market price of
the common stock during the period exceeds the exercise price of the options
or warrants. Securities that could potentially dilute earnings per share in
the future are disclosed in Notes 13 and 14.
(2) BUSINESS ACQUISITIONS
In August 1997, but effective as of July 1, 1997, the Company acquired all
of the assets and related liabilities of A-One-A in a transaction accounted
for as a purchase. The operations of A-One-A have been included in the
Company's results of operations from that date.
In consideration for the acquisition, the Company issued 500,000
unregistered shares of its common stock valued at $1,000,000, and paid
$3,130,000 in cash. Additionally, an adjustment to the purchase price of
approximately $148,000 was made subsequent to the acquisition date and has
been accrued at December 31, 1997.
In connection with the acquisition, the Company entered into 5 year
employment agreements with two officers, effective July 1, 1997, and ending
July 30, 2002. The employment agreements, call for aggregate annual
compensation of $240,000.
Also in connection with the A-One-A acquisition, the Company entered into an
agreement to lease space for use as its principal offices and warehouse. The
lease term is for ten years with three five year options to extend expiring
June 30, 2007, at an annual rental of approximately $222,000 including sales
tax. The Pompano Beach facility is owned by an affiliate of A-One-A officers.
Under the lease, the Company has an option to purchase the land and building
at a purchase price of $2,000,000 until December, 1998 (See Note 12A).
During 1997, the Company acquired all of the assets and related liabilities
of Dry Dock Distributors, Inc. d/b/a Bay Purveyors, ("Bay Purveyors") a Miami,
Florida based dry goods distributor which sells and distributes dry goods and
dairy goods to various restaurants and other business in Southern Florida. The
acquisition was deemed immaterial by management of the Company. Bay Purveyors
has operated as a division of A-One-A since its October 1, 1997 effective
purchase date. In connection with the Bay Purveyors acquisition, the Company
entered into an employment agreement with an uppper level manager.
F-9
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
In consideration for the acquisition, the Company paid the shareholders of
Dry Dock Distributors, Inc. $340,000. The acquisition has been accounted for
as a purchase.
A summary of the allocation of the aggregate consideration paid for
aforementioned acquisitions to the fair market value of the assets acquired
and liabilities assumed is as follows:
<TABLE>
<S> <C>
Current Assets:
Cash........................................................ $ 20,445
Accounts Receivable......................................... 1,383,703
Inventories................................................. 178,389
Other....................................................... 123,082
----------
Total..................................................... 1,705,619
----------
Property, Plant and Equipment................................. 545,475
Cost in Excess of Net Assets Acquired (Including Acquisition
Costs of $239,725)........................................... 3,728,030
Other Assets.................................................. 4,366
----------
Total..................................................... 5,983,490
----------
Current Liabilities:
Accounts Payable and Accrued Expenses....................... 914,206
Other....................................................... 221,960
----------
Total..................................................... 1,136,166
----------
Aggregate Consideration Paid.................................. $4,847,323
==========
</TABLE>
The cost in excess of net assets acquired recorded for the acquisitions is
to be amortized over 20 years using the straight-line method.
The following pro forma information presents the results of the combined
operations of Terrace and A-One-A, treating the latter as if it was a
subsidiary of Terrace for the full period then ended. This pro forma
information does not purport to be indicative of what would have occurred had
the acquisitions been completed as of January 1, 1996 or results which may
occur in the future. (See Note 17--Banner Beef and Seafood Co., Inc.
Acquisition).
Pro forma unaudited information:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Total Revenues................................. $17,110,152 $14,497,109
Net (Loss) Income.............................. $(1,010,800) $ (179,669)
Basic and Diluted Net (Loss) Income Per Share
of Common Stock............................... $ (.23) $ (.05)
</TABLE>
(3) DISCONTINUED OPERATIONS
(A) Frozen Desert Business Segment--On February 17, 1997, the Company
acquired certain of the assets and related liabilities of DownEast, which
manufactured and marketed frozen desserts under the name Deering Ice Cream.
The assets acquired included accounts receivable, inventories, and certain
furniture and equipment. The stated liabilities assumed were principally trade
payables and certain long-term debt.
F-10
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
In consideration for the acquisition, the Company issued: (1) 993,900 shares
of its common stock, including 75,000 shares of common stock issued for
investment banking and finders fees, valued at approximately $853,000 and (2)
warrants to purchase 250,000 additional shares of the Company's common stock
at an exercise price of $1.1875 per share, (exercisable commencing February
17, 1997, through August 31, 2000), and paid approximately $114,000 in cash.
The acquisition was accounted for as a purchase, effective January 1, 1997.
The total cost of the consideration tendered and the liabilities assumed in
excess of the assets purchased, including acquisition costs, was approximately
$1,800,000.
In November 1997, the Company adopted a formal plan to sell Deering. The
disposal occurred in December 1997. The net proceeds on disposal was
approximately $373,000. The loss on disposal was approximately $1,385,000
(including estimated disposal costs of $50,000 and $152,000 of liabilities not
assumed by the Purchaser).
Operating results of Deering, including net sales of approximately
$6,360,000 are included in discontinued operations, in the statement of
operations for the year ended December 31, 1997.
Assets and liabilities disposed of consisted of the following at the
disposal date:
<TABLE>
<S> <C>
Cash.......................................................... $ 43,784
Accounts Receivable........................................... 573,808
Inventories................................................... 581,648
Property, Plant and Equipment--Net............................ 1,667,520
Intangible Assets--Net........................................ 922,790
Other......................................................... 486,281
----------
Total Assets.............................................. 4,275,831
----------
Accounts Payable and Accrued Expenses......................... 1,543,930
Notes Payable and Lines of Credit............................. 1,175,821
----------
Total Liabilities............................................. 2,719,751
----------
Net Assets Disposed of.................................... $1,556,080
==========
</TABLE>
(B) Hospitality Business Segment--In November 1997, the Company adopted a
formal plan to sell the Hospitality Group to Samuel H. Lasko ("Dr. Lasko")
(See Note 11) and to an unrelated party (See Notes 16 and 17). The disposal is
expected to be completed within one year. The assets of the Hospitality Group
to be sold consist primarily of accounts receivable, inventories, property and
equipment and intangible assets.
The estimated loss on the disposal of the Hospitality Group of approximately
$742,000, includes a provision of $20,00 for expected losses during the phase-
out period. The Company is to receive $90,000 from the unrelated party. Dr.
Lasko relinquished his employment contract and certain warrants (See Note 11).
Operating results, including net sales of approximately $4,853,000 and
$4,557,000, respectively, of the Hospitality Group for the years ended
December 31, 1997 and 1996 are included in discontinued operations, in the
statements of operations. The statement of operations for 1996 has been
restated. For the two years ended December 31, 1997, the Hospitality Group
operated kosher Passover holiday vacation venues, kosher and non-kosher
restaurants and a catering operation in southern Florida and New York. The
Passover holiday usually occurs in the second quarter of the calendar year.
The Company managed and operated three Passover holiday vacation venues in
1997 and four in 1996.
F-11
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
Assets and liabilities of the Hospitality Group to be disposed of consisted
of the following at December 31, 1997:
<TABLE>
<S> <C>
Accounts Receivable............................................ $ 164,929
Intangible Assets--Net......................................... 335,000
Other Current Assets........................................... 105,540
Property and Equipment--Net.................................... 469,277
---------
Total Assets............................................... 1,074,746
---------
Accounts Payable and Accrued Expenses.......................... 149,512
Deferred Revenue............................................... 113,750
---------
Total Liabilities.......................................... 263,262
---------
Net Assets to Be Disposed of................................... $ 811,484
=========
</TABLE>
Assets are shown at their expected net realizable values and payables and
deferred revenue are shown at their face amounts.
There is no income tax benefit on the loss from operations of discontinued
business segments or on the loss on disposal of discontinued business
segments.
(4) GOING CONCERN CONSIDERATIONS AND RELATED PROPOSED FINANCING
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern. However, the Company has suffered recurring
losses from operations and has a working capital deficiency of approximately
$1,050,000 at December 31, 1997. These factors had raised substantial doubt
about the ability of the Company to continue as a going concern. Such
substantial doubt has been alleviated primarily due to management's plans for
dealing with the possible adverse effects of these factors.
Management has initiated a financing plan with a bank and a number of its
investors to provide the necessary funds to continue to operate its businesses
and to provide additional capital for a possible acquisition.
The Company has received a letter of intent from a bank to provide financing
to the Company. The bank has commenced its normal due diligence investigation
which should be completed shortly. Management is not presently aware of any
matter which would prevent the completion of the financing.
The Company has a pending registration statement covering a proposed offer
to its warrantholders to exercise their warrants and purchase common stock at
a temporarily reduced exercise price. In addition, if so requested by the
Company, a private investor has indicated his intent to purchase equity
capital in the Company if sufficient proceeds are not realized by the Company
from such warrant exercises.
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern. However, the success of management's
plans is not assured.
F-12
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
(5) RESTRICTED CASH
In connection with a financing agreement (See Note 8) the Company entered
into a trust indenture with a bank, pursuant to which, the bank debits monthly
principal and interest loan payments.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," which requires disclosing fair value, to the extent practicable,
for financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled,
nor does the fair value amount consider the tax consequences of realization or
settlement.
In assessing the fair value of these financial instruments, the Company used
a variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
trade receivables, amounts due on sale of discontinued operations, related
party balances, trade payables and bank line of credit, it was assumed that
the carrying amount approximated fair value for these instruments because of
their short maturities. It was estimated that the carrying amount of the
Company's long-term debt approximated its fair value based on quoted market
prices for similar issues.
(7) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<S> <C>
Transportation Equipment........................................ $608,820
Office Equipment, Furniture and Fixtures........................ 113,696
Leasehold Improvements.......................................... 12,231
--------
Total....................................................... 734,747
Less: Accumulated Depreciation.................................. 69,465
--------
Property and Equipment--Net..................................... $665,282
========
</TABLE>
Depreciation expense related to property and equipment amounted to $69,465
for the year ended December 31, 1997.
(8) LINE OF CREDIT
During 1997, the Company had a working capital line of credit with Suntrust
Bank, South Florida, N.A. amounting to $300,000, at a variable interest rate
at .75% over the bank's prime-based rate. The working capital revolver was
secured by a blanket lien on all Company assets, excluding amounts due from
affiliates. The principal was paid in full on March 31, 1997, and the account
was closed.
In August 1997, the Company guaranteed payment on a Loan and Security
Agreement between Foothill Capital Corporation of Mechanicsville, Virginia
("Foothill") and the Company's then wholly-owned subsidiaries, Deering and A-
One-A under which Foothill agreed to provide revolving loans subject to
available collateral to a maximum of $3,200,000. The principal balance of
approximately $1,360,000 at December 31, 1997 represents substantially all
credit available under the facility at that date. The balance incurs interest
at 2.5% above the bank's prime rate. The prime rate at December 31, 1997, was
8.5%. The loan is collateralized by virtually all assets of the Company.
F-13
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
(9) LONG-TERM DEBT
At December 31, 1997, long-term debt consisted of the following:
<TABLE>
<S> <C>
Note payable in thirty-six monthly total installments of
$6,583, including interest at 9.1% per annum, through June
1999, collateralized by certain transportation equipment...... $110,370
Note payable in thirty-six monthly total installments of
$1,154, including interest at 9.8% per annum, through December
1999, collateralized by certain transportation equipment...... 25,071
Note payable in thirty-six monthly total installments of
$1,150, including interest at 9.8% per annum, through December
1999, collateralized by certain transportation equipment...... 24,976
Note payable--bank in eighteen monthly total installments of
$5,556, plus interest of 2.5% above a variable interest rate
(prime rate), per annum, through February 1999, collateralized
by certain transportation equipment........................... 83,333
--------
Total...................................................... 243,750
Less: Current Portion.......................................... 162,370
--------
Total...................................................... $ 81,380
========
</TABLE>
Long-term debt at December 31, 1997, matures as follows:
<TABLE>
<S> <C>
1998............................ $162,370
1999............................ 81,380
2000............................ --
2001............................ --
2002............................ --
Thereafter...................... --
--------
Total....................... $243,750
========
</TABLE>
The Company is subject to restrictive covenants including restrictions on
the use of proceeds, and collateral, and assurance of the maintenance of
marketable title to collateral. Management believes the Company was in
compliance with all debt covenants at December 31, 1997.
The weighted average interest rate on short-term borrowings as of December
31, 1997, was 11%.
(10) INCOME TAXES
Under generally accepted accounting principles, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which temporary differences are expected to
be recovered or settled. Temporary differences include different tax and book
bases of property and equipment and intangible assets. Generally accepted
accounting principles requires the establishment of a deferred tax asset for
all deductible temporary differences and operating loss carryforwards. The
operating loss carryforwards at December 31, 1997, (assuming all operating
loss carryforwards will be available) amount to
F-14
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
approximately $5,550,000. Such loss carryforwards will expire at the rate of
$4,000,000 in 2012, $1,200,000 in 2011 and $350,000 in 2010. At December 31,
1997, based on the amount of operating loss carryforwards, the Company would
have had a deferred tax asset of approximately $1,900,000. However, because of
the uncertainty that the Company will generate income in the future sufficient
to fully or partially utilize these carryforwards, a valuation allowance of
$1,900,000 has been established representing an increase of $1,374,000 from
December 31, 1996. Accordingly, no deferred tax asset is reflected in these
financial statements.
(11) RELATED PARTIES TRANSACTIONS
During 1996, the Hospitality Group paid off an outstanding loan due to a
stockholder, which was payable on demand plus interest. The interest rate on
the loan was 8.5%. Interest expense related to this loan amounted to $7,667
for the period ended December 31, 1996.
A-One-A had sales to a related entity whose shareholders include
shareholders of the Company. Sales to the related entity totaled $203,327 for
the period July 1 (effective purchase date) to December 27, 1997.
A-One-A also purchased goods from the same related party totaling $357,425
for the period July 1 (effective purchase date) to December 27, 1997. The
Company had net receivables of $122,752 (net of a payable of $56,964) due from
the related party at December 27, 1997, which will be collected and paid
within one year, during the normal course of business. The Company purchased
the related entity in February 1998 (See Note 16).
In February 1997, the Company entered into an option agreement with Dr.
Lasko, the President, Treasurer, and a Director of the Company and his son,
Jonathan S. Lasko, the Executive Vice-President, Secretary, Chief Operating
Officer and a Director of the Company, which gave the Laskos, individually or
together, the option to purchase the businesses, assets or capital stock of
the Hospitality Group at the fair market value thereof. The option is
exercisable for approximately three years commencing April 1, 1998 until
February 17, 2001, or earlier under certain circumstances, exercise of the
option, is subject to shareholders' approval. The Company and Dr. Lasko agreed
to accelerate the exercise of his option, and in March 1998, he purchased
(subject to shareholder approval) LFKT and A&E in exchange for the
relinquishment of his employment contract and certain warrants. Dr. Lasko did
not purchase The Lasko Companies, Inc. however, but has agreed to manage it
for the Company (See Notes 16 and 17).
(12) COMMITMENTS AND CONTINGENCIES
(A) Operating Leases--The Company's operating facilities are leased from an
affiliate of A-One-A's officers. Future minimum rentals payments under
operating leases with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1998.......................... $ 240,852
1999.......................... 228,492
2000.......................... 221,544
2001.......................... 221,544
2002.......................... 221,544
Thereafter.................... 996,948
----------
Total..................... $2,130,924
==========
</TABLE>
F-15
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
Rent expense related to the leases for the years ended December 31, 1997 and
1996 was $142,630 and $15,900, respectively.
(B) Employment Agreements--In addition to the A-One-A employment agreements
(See Note 2), the Company has an employment agreement with Jonathan S. Lasko,
through August 31, 2000, for a base salary of $125,000 per year. The
employment agreement was amended in February 1997. The amendment eliminated
certain options in the agreement in consideration of the issuance of warrants
to purchase 375,000 shares of the Company's common stock. Additionally, the
agreement was amended to provide that certain other benefits be made available
to the executive.
In connection with the Bay Purveyors acquisition (See Note 2), A-One-A
entered into a 5-year employment agreement effective September 1, 1997 with an
upper level manager for a base salary of $65,000 per year.
(C) Standby Letter of Credit--The Company has available a standby letter of
credit in the amount of $100,000, which is being maintained as security for
payments related to purchases of inventory. The letter of credit expires May
1, 1998 and is collateralized by a blanket lien on the Company's assets. At
December 31, 1997, there was no balance outstanding pursuant to the letter of
credit.
(13) DESCRIPTION OF SECURITIES
(A) Convertible Preferred Stock--The Company is authorized to issue
10,000,000 shares of convertible preferred stock (the "Convertible Preferred
Stock"), par value $.001 per share. Pursuant to an offering memorandum dated
July 7, 1997, the Company offered 1,750,000 units of its securities at $2 per
unit (the "Preferred Units"). Each Preferred Unit consisted of one share of
Convertible Preferred Stock and two warrants, each to purchase one share of
Company common stock at an exercise price of $4 per share. As of December 31,
1997, 1,523,825 Preferred Units (including 171,325 Units issued as investment
banking placement fees) were issued for aggregate consideration of $2,673,300
net of offering costs. Each share of Convertible Preferred Stock is non-
voting, unless converted into common stock of the Company. The Convertible
Preferred Stock is entitled to preference in the declaration of dividends if
and when any dividends are declared or paid. There were no dividends declared
or paid on the Convertible Preferred Stock at December 31, 1997. The
Convertible Preferred Stock is entitled to preference over the common stock in
the event of dissolution, liquidation or winding-up the Company. Each share of
Convertible Preferred Stock is convertible into two shares of common stock of
the Company at the option of the holder. All shares of the Convertible
Preferred Stock not converted on or prior to July 31, 1998 will be
automatically converted, based on that ratio, into shares of common stock of
the Company on that date. The Company issued 156,325 Preferred Units to
Biltmore Securities, Inc., and 15,000 Preferred Units to Westport Capital
Markets, LLC, as placement fees (accounted for as offering costs) in
connection with the offering. Additionally, the Company issued to Biltmore and
its assignees, warrants to purchase 750,000 shares of Company common stock at
a price of $4.00 per share, exercisable through and including December 4,
2000.
(B) Common Stock--The Company is authorized to issue 25,000,000 shares of
common stock, par value $.001 per share.
Holders of common stock are entitled to dividends when, as and if declared
by the Board of Directors, subject to any priority as to dividends for any
preferred stock that may be outstanding. Holders of common stock are entitled
to cast one vote for each share held at all stockholder meetings for all
purposes, including the election of Directors.
F-16
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
In November 1997, the Company sold 200,000 shares of unregistered common
stock to an unrelated party for $1.10 per share. The issuance of these shares
resulted in a charge to operations of $180,000.
(C) Options and Warrants--In December 1995, the Company completed a public
offering (the "Offering") of 1,437,500 units ("Units") of its securities at
$3.75 per Unit.
Each Unit consisted of one share of common stock and one redeemable common
stock purchase warrant exercisable at $4.00 per share during the four year
period commencing one year after the December 5, 1995 effective date of the
Offering. The warrants ("Public Warrants") are redeemable under certain
conditions. The Offering resulted in net proceeds of approximately $4,347,000
to the Company. In connection with the Offering, the underwriter purchased an
option from the Company to purchase up to 125,000 Units (each Unit identical
to the Units sold in the Offering) and up to 16,500 shares of common stock.
The option is exercisable for a four-year period, which commenced December 5,
1996, and entitles the underwriter to purchase each unit and each share of
common stock at an exercise price of $4.50, subject to adjustment under
certain circumstances.
During 1995, prior to the Offering, the Company received an aggregate of
$400,000 in bridge loans. The loans were repaid from the proceeds of the
Offering. As additional consideration, solely for making the loans, the
Company granted the lenders the right to receive an aggregate of 200,000 units
("Bridge Units") which were substantially similar to the units sold in the
Offering.
Additionally, at December 31, 1997, the Company also had warrants
outstanding (the "Bridge Warrants") to purchase 200,000 shares of its common
stock at ten dollars ($10.00) per share. The terms and conditions of the
Bridge Warrants (other than the exercise price) are identical to the terms and
conditions of the Public Warrants.
On February 17, 1997, in connection with the Deering acquisition, the
Company issued; (i) warrants to purchase 250,000 shares of its common stock to
Biltmore Securities, Inc. as its investment banking fee; and (ii) warrants to
purchase 50,000 shares of its Common Stock to Bruce S. Phillips, a director of
the Company, in recognition of his efforts successfully to negotiate and
consummate this transaction. These warrants have an exercise price of $1.1875
exercisable commencing February 17, 1997, the closing date of the transaction,
and expiring on August 31, 2000.
(D) Reduction in Warrant Price--During a 60-day period ("Temporary Exercise
Period") commencing with the effective date of a pending registration
statement, the Company will temporarily reduce the exercise price of certain
warrants with an exercise price of $4.00 per share to $1.25 to attempt to
secure additional cash liquidity for immediate working capital and to increase
the Company's equity capital base. After the expiration of the Temporary
Exercise Period, the exercise price of the warrants will return to the
original $4.00 per share for the balance of the term of the warrants.
(14) STOCK OPTION PLAN AND WARRANTS
The Company adopted the 1997 Stock Option Plan (the "Plan") which enables
its Board of Directors to grant options for the purchase of shares of its
common stock. The Plan authorizes the grant of options to purchase up to an
aggregate of 1,250,000 shares of the Company's Common Stock, to (i) officers
and other full-time salaried employees of the Company and its subsidiaries
with managerial, professional or supervisory
F-17
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
responsibilities, and (ii) consultants and advisors who render bona fide
services to the Company and its subsidiaries, in each case, where the
compensation committee of the Board of Directors determines that such officer,
employee, consultant or advisor has the capacity to make a substantial
contribution to the success of the Company. The purposes of the Plan are to
enable the Company to attract and retain persons of ability as officers and
other key employees with managerial, professional or supervisory
responsibilities, to retain able consultants and advisors, and to motivate
such persons to use their best efforts on behalf of the Company by providing
them with an equity participation in the Company.
Pursuant to the Plan, in February 1997, the Board of Directors granted
certain officers, directors and significant employees 630,000 options to
purchase Company common stock at an exercise price of $1.185 per share. The
options of which the majority vest over a 3 year period, one-third per year
and expire on February 20, 2007.
In July and September 1997, the Board of Directors granted certain employees
108,000 options to purchase Company common stock at an exercise price of $2.31
per share. The options vest over a 3 year period , one-third per year and
expire on June 30, and September 21, 2007.
As per the amended employment agreements with two executives, they each
received warrants to purchase 375,000 shares of Company common stock at
$1.1875 per share which warrants are immediately exercisable at any time
through August 31, 2000.
The Company also issued two directors warrants to purchase 40,000 shares of
the Company common stock at $1.1875 per share which are exercisable at any
time through August 31, 2000.
During 1997, the Company issued 300,000 stock options to consultants at an
exercise price of $1.1875 at the date of grant, and having a weighted average
exercise price of $1.1875. The total cost of issuing these stock options to
consultants during 1997 is approximately $207,000 which is being charged to
operations for the year ended December 31, 1997. The weighted average fair
value of stock options granted to consultants during 1997 is estimated at $.69
using the Black-Scholes option-pricing model and using a weighted average
risk-free interest rate of 6% and a weighted average expected life of 3.8
years with an estimated volatility of 75%. No dividends are expected to be
paid during the expected life of the options.
A summary of the options and warrants is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995............... -- $ --
Granted...................................... -- --
Exercised.................................... -- --
Expired/Canceled............................. -- --
--------- -----
Outstanding at December 31, 1996............... -- --
Granted...................................... 1,453,000 1.27
Exercised.................................... -- --
Expired/Canceled............................. -- --
--------- -----
Outstanding at December 31, 1997............... 1,453,000 $1.27
========= =====
Exercisable at December 31, 1997............... 717,667 $1.24
========= =====
</TABLE>
F-18
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
If compensation cost (totaling approximately $890,000), for options issued
under the Plan had been determined based on the fair value at the grant dates
for awards under Plan, consistent with the alternative method set forth under
SFAS No. 123, the Company's net loss and basic and diluted net loss per share
of common stock would have been reduced on a pro forma basis as indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Loss:
As Reported................................. $(4,352,053) $(1,156,027)
Pro Forma................................... $(5,242,053) $(1,156,027)
Basic and Diluted Net Loss Per Share of Common
Stock:
As Reported................................. $ (.98) $ (.35)
Pro Forma................................... $ (1.18) $ (.35)
</TABLE>
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 the grants awarded in 1997 and 1996, respectively:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
--------- ----
<S> <C> <C>
Dividend Yields.......................................... 0% -- %
Expected Volatility...................................... 76% -- %
Risk-Free Interest Rate.................................. 6.0% -- %
Expected Lives........................................... 4.0 Years --
</TABLE>
The weighted-average fair value of options granted was $.76 and $-0- for the
years ended December 31, 1997 and 1996, respectively.
The following table summarizes information about stock options and warrants
at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
------------------------ --------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$1.185-$1.1875.......... 1,345,000 9.2 Years $1.186 681,667 $1.186
$2.31................... 108,000 9.5 Years $ 2.31 36,000 $ 2.31
--------- --------- ------ ------- ------
Totals.............. 1,453,000 9.3 Years $ 1.27 717,667 $ 1.40
========= ========= ====== ======= ======
</TABLE>
(15) NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Management is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating
segments are reported in annual financial statements and requires the
reporting of selected information about operating segments in interim
financial reports issued to
F-19
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
shareholders. SFAS No. 131 is effective for periods beginning after December
15, 1997, and comparative information for earlier years is to be restated.
SFAS No. 131 need not be applied to interim financial statements in the
initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact
on the Company's consolidated results of operations; financial position or
cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal
years beginning after December 15, 1997. The modified disclosure requirements
are not expected to have a material impact on the Company's results of
operations, financial position or cash flows.
(16) SUBSEQUENT EVENTS
In January 1998, the Company entered into an employment agreement with its
Chief Financial Officer. The compensation for services rendered under this
agreement is $90,000 per annum and includes an incentive bonus. The agreement
also includes options to purchase the Company's stock and a severance package.
In January 1998, the Company purchased certain non-cash assets of D.M.S.
Food Distributors, Inc., a Florida Corporation d/b/a Gourmet Distributors
("Gourmet"). Gourmet is a wholesaler of dry goods. In consideration for the
purchase, the Company paid approximately $254,000 including inventory and
furniture and fixtures, which resulted in costs in excess of net assets of
approximately $125,000 which will be allocated to intangible assets.
In February 1998, the Company purchased all of the outstanding stock of
Fresh, Inc., ("Fresh") a related entity (See Note 11). Fresh is a wholesaler
which sells packaged and cut fresh produce. 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 resulted in costs in excess of net assets
of approximately $350,000 which will be allocated to intangible assets.
On March 13, 1998, the Company sold its A&E Management Corp. and The Lasko
Family Kosher Tours, Inc., subsidiaries to Samuel H. Lasko for consideration
aggregating $575,000 in accordance with an independent fair value opinion
received by the Company, subject to the affirmative vote of shareholders at
the next annual meeting. On that date the Company also entered into a
management agreement with Dr. Lasko to operate and manage the business and
activities of The Lasko Companies, Inc. ("TLC") which operates a restaurant
business (the "Restaurant"). The agreement will terminate upon the sale or
other disposition of the Restaurant or the The Lasko Companies. (See Notes 3
and 17).
(17) SUBSEQUENT EVENTS--UNAUDITED (SUBSEQUENT TO THE DATE OF THE REPORT OF
INDEPENDENT AUDITORS)
On March 23, 1998, the Company entered into a contract to sell its wholly-
owned subsidiary, The Lasko Companies, Inc. The sale price $90,000 to be paid
as follows, with $25,000 paid at the execution of the agreement (currently
held in escrow by the seller's attorney) and $65,000 to be paid by cash or
certified check upon execution and delivery of Bill of Sale. The sale was
completed on May 29, 1998.
On July 15, 1998, the Company received funding from an institutional lender,
providing the Company and its wholly-owned subsidiaries an aggregate of up to
$6,000,000 in senior secured financing, the proceeds of
F-20
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
which have been or will be used for (i) repayment of senior indebtedness, (ii)
acquisition of a privately held company, and (iii) ongoing working capital. As
of the date of this Prospectus, the new financing arrangement is being
documented.
On June 25, 1998, the Company issued to a private investor $2,625,000
principal amount of 12% Convertible Subordinated Notes ("Notes"), and warrants
to purchase 400,000 shares of Common Stock of the Company. The proceeds of the
Notes have been added to the working capital of the Company. The Notes will be
repaid from the first net proceeds, if any, received by the Company from the
exercises of its $4.00 warrants at the temporary $1.25 per share exercise
price. At any time subsequent to the expiration of the 60-day Temporary
Exercise Period, the Notes are convertible at the option of the private
investor, at the rate of one share of Common Stock for each $1.25 of principal
and accrued but unpaid interest, and the warrants are exercisable at a price
of $1.25 per share of Common Stock. At any time subsequent to the Temporary
Exercise Period, any Notes not then converted or repaid, will be converted by
the Company, into $1.25 Redeemable Convertible 8% Cumulative Preferred Stock
("Preferred Stock") of the Company. The Notes, warrants and Preferred Stock
issued to the private investor are subject to anti-dilution adjustments,
registration rights, interest and dividend adjustments and payment by the
Company of certain fees and expenses in connection with the transaction. A
discount of approximately $300,000 will be amortized to interest expense over
the period from the date the security is issued to the date it first becomes
convertible. In addition, the Company has granted to such private investor an
option expiring no later than December 31, 1998 to purchase 500,000 shares of
the Company's Common Stock at a price determined on the basis of the average
closing price for the Company's Common Stock for the ten trading days
immediately following the expiration of the Temporary Exercise Period. See
"Risk Factors--Warrants Subject to Redemption; Temporary Exercise Price."
On July 15, 1998, the Company acquired the assets and substantially all the
liabilities of Banner Beef and Seafood Co., Inc. ("Banner") a privately held
south Florida company engaged in the business of processing meat, seafood and
poultry. The base purchase price is $1,800,000 and was financed through the
Company's new senior secured financing arrangement described below. The
acquisition was accounted for as a purchase effective July 17, 1998. The
operations of Banner Beef and Seafood Co., Inc. will be included in the
Company's results of operations from that date. The excess purchase price is
allocated to property and equipment based upon appraisals the Company received
from an independent third party.
As part of the acquisition, the Company entered into a five year Employment
Agreement with its Chief Executive Officer (the "CEO") at an annual base
salary of $200,000. The CEO is a shareholder of the former Banner Beef and
Seafood Co., Inc. and was its Chief Operating Officer.
The former Banner Beef and Seafood Co., Inc. has been in business since
1965. As part of the acquisition, the Company also acquired the land and
building in Miami, Florida, where the Banner business and offices are located.
In addition, the Company has entered into a five-year lease for the building
and real estate located in Hialeah, Florida, where the Banner seafood
operations are housed. This facility is approximately 22,000 square feet of
processing, warehouse and office space and is leased at approximately $120,000
per year. During the term of the lease, provided it is not in default, the
Company has an option to purchase this property for the lesser of $1,270,000
or its independently appraised value. The owners of this real estate are the
two principal shareholders of the former Banner Beef and Seafood Co., Inc.,
each of whom has executed a Non-Competition Agreement with the Company.
The following pro forma information presents the results of the combined
operations of Terrace, A-One-A and Banner Beef and Seafood Co., Inc., treating
the latter two as if they were subsidiaries of Terrace for the full
F-21
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION FOR JUNE 30, 1998 AND 1997 IS UNAUDITED)
period then ended. This pro forma information does not purport to be
indicative of what would have occurred had the acquisitions been completed as
of January 1, 1996 or results which may occur in the future.
Pro forma unaudited information:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEARS ENDED
30, DECEMBER 31,
------------------------ ------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues.......... $16,250,821 $11,360,389 $23,192,237 $20,579,194
Net Loss ............... $ (532,336) $ (230,671) $(2,042,745) $ (396,916)
Basic and Diluted Net
Loss Per Share of
Common Stock........... $ (--) $ -- $ (.46) $ (.12)
</TABLE>
On July 29, 1998 Dr. Lasko replaced certain warrants he had given as partial
consideration for his purchase of LFKT and A&E (see Notes 3(B) and 11) with
his promissory note in the principal amount of $159,000, bearing interest at
8%. See "Business--Hospitality."
In July 1998, the Company and its subsidiaries secured a financing agreement
with IBJ Schroder Business Credit Corporation ("IBJ") under which IBJ agreed
to provide a revolving loan subject to available collateral to a maximum of
$4,000,000. The principal balance incurs interest at .5% above the bank's
prime rate. The loan is collateralized by virtually all assets of the Company.
In July 1998, the Company and its subsidiaries also obtained a term note
from IBJ in the principal amount of $2,000,000. The note is payable in thirty-
six monthly installments of $23,810 plus interest of 1% above the bank's prime
rate, per annum, through July 2001, collateralized by virtually all assets of
the Company.
(18) UNAUDITED INTERIM PERIODS
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information 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.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Banner Beef and Seafood Co., Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Banner Beef and Seafood Co., Inc.
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Miami, Florida
June 12, 1998
F-23
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ -- $ 48,044 $ 195,114
Accounts receivable.................... 524,605 535,226 783,808
Inventories............................ 656,287 763,246 1,545,987
Prepaid expenses and other current
assets................................ 88,928 93,895 49,175
---------- ---------- ----------
Total current assets................. 1,269,820 1,440,411 2,574,084
Fixed assets, net........................ 761,019 810,738 808,593
Deposits and other assets................ 11,703 11,703 11,703
---------- ---------- ----------
$2,042,542 $2,262,852 $3,394,380
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.. $ 327,154 $ 375,649 $ 521,944
Bank overdrafts........................ 1,118 -- --
Line of credit payable to bank......... 500,000 325,000 600,000
Current portion of debt................ 406,313 406,313 241,813
---------- ---------- ----------
Total current liabilities............ 1,233,467 1,106,962 1,363,757
Long term debt, less current portion..... 90,556 121,111 200,556
---------- ---------- ----------
Total liabilities........................ 1,325,141 1,228,073 1,564,313
---------- ---------- ----------
Stockholders' equity:
Common stock, no par value, 100 shares
authorized, issued and outstanding.... 100,000 100,000 100,000
Additional paid in capital............. 150,000 150,000 150,000
Retained earnings...................... 467,401 784,779 1,580,067
---------- ---------- ----------
Total stockholders' equity............... 717,401 1,034,779 1,830,067
---------- ---------- ----------
$2,042,542 $2,262,852 $3,394,380
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ ----------------------
1998 1997 1997 1996
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales....................... $2,821,303 $3,179,701 $6,082,085 $9,922,547
Cost of sales................... 2,550,591 2,772,185 5,384,848 8,454,264
---------- ---------- ---------- ----------
Gross profit.................... 270,712 407,516 697,237 1,468,283
---------- ---------- ---------- ----------
Operating expenses:
Selling....................... 231,203 277,586 526,500 397,955
General and administrative.... 332,599 449,296 873,880 1,075,365
---------- ---------- ---------- ----------
563,802 726,882 1,400,380 1,473,320
---------- ---------- ---------- ----------
Loss from operations............ (293,090) -- (703,143) (5,037)
Other income.................... 32,459 31,782 16,381 32,169
Interest expenses............... (56,747) (47,931) (108,526) (101,455)
---------- ---------- ---------- ----------
Net loss........................ $ (317,378) $ (335,515) $ (795,288) $ (74,323)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance--December 31,
1995................... 100 $100,000 $150,000 $1,654,390 $1,904,390
Net loss.............. -- -- -- (74,323) (74,323)
--- -------- -------- ---------- ----------
Balance--December 31,
1996................... 100 100,000 150,000 1,580,067 1,830,067
Net loss.............. -- -- -- (795,288) (795,288)
--- -------- -------- ---------- ----------
Balance--December 31,
1997................... 100 100,000 150,000 784,779 1,034,779
Net loss.............. -- -- -- (317,378) (317,378)
--- -------- -------- ---------- ----------
Balance--June 30, 1998
(unaudited)............ 100 $100,000 $150,000 $ 467,401 $ 717,401
=== ======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------------- --------------------
1998 1997 1997 1996
----------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(317,378) $(335,515) $(795,288) $ (74,323)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Depreciation and
amortization................ 62,664 53,836 111,494 104,146
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable....... 10,621 222,252 248,582 88,230
(Increase) decrease in
inventories............... 106,959 691,528 782,741 (102,776)
Increase in prepaid
expenses and other current
assets.................... 4,967 2,105 (44,720) (1,092)
Increase (decrease) in
accounts payable, accrued
expenses and bank
overdrafts................ (47,377) (252,706) (146,295) (57,004)
--------- --------- --------- ---------
Net cash (used in)
provided by operating
activities.............. (179,544) 381,500 156,514 (42,819)
--------- --------- --------- ---------
Cash flows used in investing
activities:
Capital expenditures, net...... (12,945) 82,091 (113,639) (47,168)
--------- --------- --------- ---------
Net cash used in
investing activities.... (12,945) 82,091 (113,639) (47,168)
--------- --------- --------- ---------
Cash flows from financing
activities:
Net borrowings (repayments)
under line of credit payable
to bank....................... 175,000 (425,000) (275,000) 250,000
Proceeds from loans payable to
shareholders.................. -- 162,980 164,500 21,690
Principal payments on long term
debt.......................... (30,555) (205,147) (79,445) (73,333)
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities.............. 144,445 (467,167) (189,945) 198,357
--------- --------- --------- ---------
Net (decrease) increase in cash
and cash equivalents............ (48,044) (167,758) (147,070) 108,370
Cash and cash equivalents,
beginning of period............. 48,044 195,114 195,114 86,744
--------- --------- --------- ---------
Cash and cash equivalents, end of
period.......................... $ 0 $ 27,356 $ 48,044 $ 195,114
========= ========= ========= =========
Supplemental disclosure of cash
flow information:
Cash paid during the year for
interest...................... $ 41,763 $ 40,596 $ 88,593 $ 100,755
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Banner Beef and Seafood Co., Inc. (the "Company") is engaged in the
processing and wholesale distribution of meat, poultry and seafood products.
A summary of significant accounting principles followed in the preparation
of the accompanying financial statements is presented below:
Accounting 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.
Cash and cash equivalents
The Company has defined cash and cash equivalents as those highly liquid
investments with an original maturity of three months or less.
Inventories
Inventories are recorded at the lower of cost or market, cost being
determined under the first-in, first-out method.
Fixed assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation
is provided using the straight line method over the estimated useful lives of
the related assets. Expenditures for maintenance and repairs which do not
extend the useful life of the asset are charged to expense as incurred.
Expenditures for betterments and major renewals are capitalized.
Income taxes
The Company has elected to be taxed as an S Corporation. Under the S
Corporation provisions of the Internal Revenue Code, the Company's taxable
income or loss is included in the federal tax return of its stockholders.
Revenues recognition
Revenue is recognized at the time of delivery.
Reclassifications
Certain amounts have been reclassified from the prior year to conform to
current year's presentation.
F-28
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- ----------
<S> <C> <C>
Unprocessed goods.................................... $112,619 $ 138,120
Finished goods:
Seafood products................................... 618,481 1,348,959
Meat and poultry products.......................... 32,146 58,908
-------- ----------
$763,246 $1,545,987
======== ==========
</TABLE>
3. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------ USEFUL LIVES
1997 1996 (IN YEARS)
----------- ----------- ------------
<S> <C> <C> <C>
Land............................... $ 45,000 $ 45,000
Buildings and improvements......... 1,111,835 1,111,835 30
Machinery.......................... 1,968,698 1,858,982 5-8
Office furniture and equipment..... 147,007 143,083 5
Automobiles........................ 136,212 136,212 5
----------- -----------
3,408,752 3,295,112
Less accumulated depreciation...... (2,598,014) (2,486,519)
----------- -----------
$ 810,738 $ 808,593
=========== ===========
</TABLE>
4. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Line of credit payable to a bank, interest at
prime plus 1/2% (8.75% at December 31, 1997).... $ 325,000 $ 600,000
Stockholders' loans, unsecured, interest at 9% in
1997, no specific principal repayment terms..... 332,980 168,480
Mortgage note payable to a bank, payable in equal
monthly installments of $6,111 plus interest at
prime plus 1/2% (8.75% at December 31, 1997).... 194,444 273,889
--------- ----------
852,424 1,042,369
Less current portion of debt..................... (731,313) (841,813)
--------- ----------
$ 121,111 $ 200,556
========= ==========
</TABLE>
Interest expense to related parties in 1997 and 1996 was approximately
$20,000 and $13,000, respectively.
The line of credit has a maximum borrowing base of $500,000 or 30% of
certain inventory and 75% of eligible receivables. The line of credit is
secured by all the Company's assets and the personal guarantee of the
Company's shareholders. The line of credit is cross collateralized with a note
payable secured by a building owned by the Company. Under the terms of the
line of credit agreement there are, among others, covenants regarding debt to
net worth restrictions. The line of credit expires on July 31, 1998.
The mortgage note is secured by a building owned by the Company, all Company
assets and by the personal guarantees of the principal shareholders.
F-29
<PAGE>
BANNER BEEF AND SEAFOOD CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PRINCIPAL CUSTOMERS AND SUPPLIERS
The Company had sales of approximately $4,907,000 to one customer for the
year ended December 31, 1996. Purchases of approximately $1,027,000 and
$1,845,000 during 1997 and 1996, respectively, were made from two third party
suppliers.
6. COST OF SALES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Beginning inventory............................... $1,545,987 $1,443,211
Purchases......................................... 2,765,136 6,537,822
Salaries.......................................... 945,220 908,352
Depreciation and amortization..................... 96,895 89,646
Repairs and maintenance........................... 180,270 307,003
Other............................................. 614,586 714,217
Less ending inventory............................. (763,246) (1,545,987)
---------- ----------
$5,384,848 $8,454,264
========== ==========
</TABLE>
During 1997 and 1996, the Company purchased approximately $362,000 and
$1,144,000, respectively, of seafood products from an affiliated company in
Panama.
7. SELLING EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Commissions (approximately $42,000 and $60,000 to
stockholders in 1997 and 1996, respectively)......... $237,261 $118,589
Freight............................................... 131,561 182,226
Other................................................. 157,678 97,140
-------- --------
$526,500 $397,955
======== ========
</TABLE>
8. GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- ----------
<S> <C> <C>
Salaries.............................................. $719,893 $ 857,781
Other................................................. 153,987 217,584
-------- ----------
$873,880 $1,075,365
======== ==========
</TABLE>
9. SUBSEQUENT EVENT
In February 1998, the Company entered into an acquisition agreement with
Terrace Holdings, Inc. Under the terms of the acquisition agreement the
Company will sell to Terrace Holdings, Inc., all assets and liabilities of the
Company with the exception of its stockholders' loans.
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation eliminates the personal liability
of directors to the Company or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Delaware law. The
Company's Certificate of Incorporation and By-Laws provide that the Company
shall indemnify its officers and directors to the extent permitted by
Subsection 145 of the General Corporation Law of the State of Delaware, which
authorizes a corporation to indemnify directors, officers, employees or agents
of the Corporation in non-derivative suits if such party acted in good faith
and in a manner such party reasonably believed to be in or not opposed to the
best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection 145 further provides that indemnification shall be provided if the
party in question is successful on the merits or otherwise.
Reference is hereby made to the caption "Management--Limitation of Liability
and Indemnification of Directors" in the Prospectus which is a part of this
Registration Statement for a description of indemnification arrangements
between the Company and its directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which are to be borne by
the Company, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 10,000
NASD Fee....................................................... 4,000
NASDAQ Fees.................................................... 4,000
Transfer Agent Fees............................................ 2,000
Accounting Fees and Expenses................................... 50,000
Legal Fees and Expenses........................................ 40,000
Printing and Engraving......................................... 5,000
Miscellaneous.................................................. 5,000
--------
Total...................................................... $120,000*
========
</TABLE>
- --------
* All amounts are estimates.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On February 17, 1997, the Company consummated an Asset Acquisition Agreement
("Agreement") acquiring all of the assets and related liabilities of DownEast
Frozen Desserts, LLC ("DE"), a Delaware limited liability company unaffiliated
with the Company, which manufactures and markets frozen desserts under the
name Deering Ice Cream with its principal offices located in Portland, Maine.
Under the Agreement signed as of December 9, 1996, and as amended as of
February 7, 1997, the Company's wholly-owned subsidiary, Deering Ice Cream,
Inc. ("Deering"), acquired such assets and related liabilities to continue the
business of manufacturing and marketing frozen desserts.
The consideration given by the Company for the acquisition of the above
assets, arrived at through arms-length negotiations between the parties,
consisted of: (1) 918,900 shares of the Company's Common Stock; (2) Warrants
to purchase 250,000 additional shares of the Company's Common Stock at an
exercise price of $1.1875 exercisable commencing February 17, 1997, the
closing date of the transaction, and expiring on August 31, 2000, and (3)
approximately $114,000.
On February 17, 1997, the existing employment agreements for both Samuel H.
Lasko, the Company's President, and Jonathan S. Lasko, the Company's Executive
Vice President and Chief Operating Officer, were amended to delete the
provision which granted each of them performance based warrants to purchase
750,000
II-1
<PAGE>
shares of the Company's Common Stock. In lieu thereof, Samuel and Jonathan
Lasko each received Warrants to purchase 375,000 shares of the Company's
Common Stock at $1.1875 per share which Warrants are immediately exercisable
at any time through August 31, 2000.
On February 17, 1997, in connection with the DownEast transaction, the
Company issued: (i) warrants to purchase 250,000 shares of its Common Stock to
Biltmore Securities, Inc. as its investment banking fee; and (ii) warrants to
purchase 50,000 shares of its Common Stock to Bruce S. Phillips, a director of
the Company, in recognition of his efforts successfully to negotiate and
consummate this transaction. These warrants have an exercise price of $1.1875
exercisable commencing February 17, 1997, the closing date of the transaction,
and expiring on August 31, 2000.
On February 17, 1997, in connection with the DownEast transaction, the
Company issued 75,000 shares of its Common Stock to Barclay Partners, L.L.C.
as an investment banker's or finder's fee.
On July 1, 1997, the Company consummated an Investment Banking Agreement
with Biltmore Securities, Inc. having its principal business offices in Fort
Lauderdale, Florida to perform services related to corporate finance and other
matters. The consideration given by the Company for the acquisition of the
above assets, arrived at through arms-length negotiations between the parties,
consisted of Warrants to purchase 750,000 shares of Common Stock of the
Company at a price of four dollars ($4.00) per share, exercisable through and
including December 4, 2000.
In August, 1997, the Company consummated an Asset Acquisition Agreement,
effective July 1, 1997, to acquire all of the assets and related liabilities
of A-One-A Wholesale Produce, Inc. ("A One A"), a Florida-based produce
distributor, unaffiliated with the Company, that sells and distributes fresh
fruit and vegetables to hotels, restaurants, and other businesses in south and
central Florida. Under the Agreement, A One A became a wholly-owned subsidiary
of the Company.
The consideration given by the Company for the acquisition of A-One-A's
assets, arrived at through arms-length negotiations between the parties, was
paid at closing and consisted of: (1) $3,130,000 in cash; and (2) 500,000
unregistered shares of the Company's Common Stock, par value $.001 per share.
In August, 1997, the Company completed a private placement to accredited
investors of 1,352,500 units of its securities, each Unit consisting of one
share of convertible Preferred Stock and two Preferred Warrants to purchase
shares of the Company's Common Stock. Each share of Preferred Stock is
convertible into two shares of the Company's Common Stock and each Preferred
Warrant was issued on the exact same terms as that of the Public Warrants.
In connection with the Company's August, 1997 placement of Preferred Units,
the Company issued 156,325 Preferred Units to Biltmore Securities, Inc., and
15,000 Preferred Units to Westport Capital Markets, LLC.
In November, 1997, the Company sold 200,000 shares of unregistered Common
Stock to Michael Feinberg the owner of The Club at Emerald Hills, Hollywood,
Florida, at $1.10 per share.
In February, 1998, the Company consummated a Stock Purchase Agreement,
effective January 1, 1998, to acquire all of the stock of Fresh, Inc., an
affiliate of A-One-A. In consideration for the purchase, the Company paid
$105,000 in cash and issued an aggregate of 138,948 unregistered shares of the
Company's Common Stock.
Each of the foregoing transactions was exempt from registration under the
Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2)
thereof as not involving any public offering. With respect to each
transaction, no person acting on the Company's behalf offered or sold the
securities by means of any form of general solicitation or general
advertising.
On June 25, 1998, the Company issued to an unaffiliated private investor,
Network Funds III, Ltd., (the "Fund") $2,625,000 principal amount of 12%
Convertible Subordinated Notes ("Notes"), and warrants to
II-2
<PAGE>
purchase 400,000 shares of Common Stock of the Company. The proceeds of the
Notes have been added to the working capital of the Company. The Notes will be
repaid from the first net proceeds, if any, received by the Company from the
exercise of its $4.00 warrants at the temporary $1.25 per share exercise
price. At any time subsequent to the expiration of the 60-day Temporary
Exercise Period, the Notes are convertible at the option of the Fund, at the
rate of one share of Common Stock for each $1.25 of principal and accrued but
unpaid interest, and the warrants are exercisable at a price of $1.25 per
share of Common Stock. At any time subsequent to the Temporary Exercise
Period, any Notes not then converted or repaid, will be converted by the
Company, into $1.25 Redeemable Convertible 8% Cumulative Preferred Stock
("Preferred Stock") of the Company. The Notes, warrants and Preferred Stock
issued to the Fund are subject to anti-dilution adjustments, registration
rights, interest and dividend adjustments and payment by the Company of
certain fees and expenses in connection with the transaction. In addition, the
Company has granted to the Fund an option expiring no later than December 31,
1998 to purchase 500,000 shares of the Company's Common Stock at a price
determined on the basis of the average closing price for the Company's Common
Stock for the ten trading days immediately following the expiration of the
Temporary Exercise Period. See "Risk Factors--Warrants Subject to Redemption;
Temporary Exercise Price."
ITEM 27. EXHIBITS.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of Terrace Holdings, Inc.(3)
3.2 By-laws of Terrace Holdings, Inc.(3)
3.3 Agreement of Merger dated September 7, 1995 between Bon Adventure
Kosher Tours, Inc. and Terrace Holdings, Inc.(3)
3.4 Certificate of Ownership and Merger of Bon Adventure Kosher
Tours, Inc. into Terrace Holdings, Inc.(3)
3.5 Certificate of Incorporation of A&E Management Corp.(3)
3.6 By-laws of A&E Management Corp.(3)
3.9 Certificate of Incorporation of The Lasko Companies, Inc.(3)
3.10 By-laws of The Lasko Companies, Inc.(3)
3.11 Certificate of Incorporation of A One A Produce & Provisions,
Inc.(1)
3.12 By-laws of A One A Produce & Provisions, Inc.(1)
3.13 Certificate of Incorporation of Terrace Fresh, Inc.(1)
3.14 By-laws of Terrace Fresh, Inc.(1)
4.1 Form of Specimen Preferred Stock Certificate(2)
4.2 Form of Specimen Private Placement Warrant Certificate(3)
4.3 Certificate of Resolutions designating rights and preferences of
Preferred Stock(2)
4.4 Form of Specimen Warrant Certificate(3)
4.5 Form of Underwriter's Purchase Option(3)
4.6 Form of Warrant Agreement(3)
5.1 Opinion of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson P.C., regarding the legality of the securities being
registered(2)
10.1 Employment Agreement, dated as of September 1, 1995, between
Terrace Holdings, Inc. and Samuel H. Lasko(3)
10.2 Amendment to Employment Agreement, dated February 17, 1997,
between Terrace Holdings, Inc. and Samuel H. Lasko(4)
10.3 Form of Employment Agreement, dated September 1, 1995, between
Terrace Holdings, Inc. and Jonathan Lasko(3)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.4 Amendment to Employment Agreement, dated February 17, 1997,
between Terrace Holdings, Inc. and Jonathan S. Lasko(4)
10.5 Employment Agreement dated as of July 1, 1997, between Terrace
Holdings, Inc. and Scott Davis(5)
10.6 Employment Agreement, dated as of July 1, 1997, between Terrace
Holdings, Inc. and Virgil Scarbrough(5)
10.7 Employment Agreement, dated as of July 17, 1997, between Terrace
Holdings, Inc. and Kenneth Cohen(5)
10.8 Agreement between Bonaventure Resort & Spa and Bon Adventure
Kosher Tours, Inc.(3)
10.9 Agreement for Lease dated October 20, 1993 relating to premises
at The Club of Emerald Hills(3)
10.10 Lease Agreement, dated May 10, 1995, as amended, between The
Hemispheres Condominium Association, Inc. and The Lasko
Companies, Inc. relating to a portion of The Hemispheres Ocean
Club, 1960 South Ocean Drive, Hallandale, Florida(3)
10.14 Investment Banking Agreement, dated July 1, 1997 between Terrace
Holdings, Inc. and Biltmore Securities, Inc.(5)
10.16 Agreement to Assign and Other Matters, dated January 16, 1996,
between Terrace Holdings, Inc. and International Tours and
Catering by Ambassador, Inc.(6)
10.17 Asset Acquisition Agreement, dated December 9, 1996 and Amended
February 17, 1997, between Terrace Holdings, Inc. and DownEast
Frozen Desserts, LLC(4)
10.18 Asset Acquisition Agreement, dated July 6, 1997, between Terrace
Holdings, Inc. and A One A Wholesale Produce, Inc.(5)
10.19 Stock Purchase Agreement, dated February 2, 1998, between Terrace
Holdings, Inc. and Virgil Scarbrough and Scott Davis(5)
10.20 Sale of Assets Agreement, dated September 1, 1997, between
Terrace Holdings, Inc. and Bay Purveyors(5)
10.21 Guaranty dated August 7, 1997, by Terrace Holdings, Inc. in favor
of Foothill Capital Corporation(5)
10.22 Option Agreement, dated as of February 17, 1997, between Terrace
Holdings, Inc. and Samuel H. Lasko and Jonathan S. Lasko(2)
10.23 Agreement to Sell and Purchase, dated as of March 2, 1998,
between the Registrant and Samuel H. Lasko, relating to The Lasko
Family Kosher Tours, Inc. and A&E Management, Inc.(5)
10.24 Management Agreement dated as of March 2, 1998, relating to the
Terrace Oceanside Restaurant(5)
10.25 Terrace Holdings, Inc. 1997 Stock Option Plan(5)
10.26 Asset Purchase Agreement, dated December 31, 1997, between D.M.S.
Food Distributors, Inc. (Gourmet Distributors) and the
Registrant(5)
10.27 Form of Contract for Sale of Business between The Lasko
Companies, Inc. and Steven Newman, relating to the Terrace
Oceanside Restaurant(5)
10.28 Agreement dated as of June 25, 1998, between Terrace Holdings,
Inc. and Network Funds III, Ltd.(8)
10.29 Asset Acquisition Agreement dated as of June 25, 1998 between
Terrace Holdings, Inc. and Banner Beef and Seafood Co., Inc.(8)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.30 Revolving Credit Term Loan and Security Agreement between Terrace
Holdings, Inc. and IBJ Schroder Credit Corp. dated July 15,
1998.(7)
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Moore Stephens, P.C. (located on page II-8)
23.2 Consent of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson, P.C. (included in Exhibit 5.1)
23.3 Consent of PricewaterhouseCoopers, LLP (located on page II-9)
</TABLE>
- --------
(1) Heretofore filed as an exhibit to the initial filing of this Registration
Statement on January 29, 1998.
(2) Heretofore filed as an exhibit to Amendment #1 to this Registration
Statement on April 29, 1998.
(3) Heretofore filed as an exhibit to the Registrant's Registration Statement
on Form SB-2 (Commission File No. 33-96892A).
(4) Incorporated by reference to the Registrant's reports on Form 8-K filed
March 4, 1997.
(5) Heretofore filed as an exhibit to the Registrant's Form 10-KSB, as
amended, for the year ended December 31, 1997 and by this reference
incorporated as an exhibit hereto.
(6) Incorporated by reference to the Registrant's reports on Form 8-K filed on
January 31, 1996.
(7) Incorporated by reference to Registrant's reports on Form 8-K filed on
July 30, 1998.
(8) Heretofore filed as an exhibit to Amendment #3 to this Registration
Statement on August 16, 1998.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
twenty percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
provided, however, paragraphs (a)(i) and (a)(ii) do not apply if the
registration statement is on Form S-3 or S-8, and the information required
in a post-effective amendment is incorporated by reference from periodic
reports filed by the small business issuer under the Securities Exchange
Act of 1934.
(b) that for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) to file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(d) to provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-5
<PAGE>
(e) if the Registrant relies on Rule 430A under the Securities Act, the
Registrant will:
(i) for determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 424(b)(1), or
(4), or 497(h) under the Securities Act as part of this Registration
Statement as of the time the Commission declares it effective;
(ii) for determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS AMENDMENT
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF POMPANO BEACH, STATE OF FLORIDA, ON
THE DAY OF SEPTEMBER, 1998.
Terrace Holdings, Inc.
/s/ Steven Shulman
By: ____________________________
Steven Shulman
President
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
STEVEN SHULMAN HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER
OF SUBSTITUTION AND RESUBSTITUTION FOR HIM IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN THIS REGISTRATION STATEMENT AND ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT ON FORM SB-2 AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven Shulman* President, Chairman of the September , 1998
____________________________________ Board of Directors, Chief
Steven Shulman Executive Officer and
Director
/s/ Jonathan S. Lasko* Executive Vice-President, September , 1998
____________________________________ Secretary, Chief Operating
Jonathan S. Lasko Officer and Director
/s/ William P. Rodrigues, Jr. Vice President-Finance, September , 1998
____________________________________ Treasurer and Principal
William P. Rodrigues, Jr. Financial & Accounting
Officer
/s/ Richard D. Power* Director September , 1998
____________________________________
Richard D. Power
/s/ Fred A. Seigel Director September , 1998
____________________________________
Fred A. Seigel
/s/ Houssam T. Aboukhater Director September , 1998
____________________________________
Houssam T. Aboukhater
</TABLE>
II-7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 (File No. 333-45195) of our report dated
March 13, 1998, relating to the financial statements of Terrace Holdings,
Inc., which appear in such Prospectus. We also consent to the reference to our
firm under the captions "Experts."
/s/ Moore Stephens, P.C.
By: _________________________________
MOORE STEPHENS, P.C.
Certified Public Accountants
New York, New York
September 10, 1998
II-8
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated June 12, 1998,
relating to the financial statements of Banner Beef and Seafood Co. Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the headings "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
September 10, 1998
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT NUMBER
------- -------- ----------
<C> <S> <C>
3.1 Certificate of Incorporation of Terrace Holdings, Inc.(3)
3.2 By-laws of Terrace Holdings, Inc.(3)
3.3 Agreement of Merger dated September 7, 1995 between Bon
Adventure Kosher Tours, Inc. and Terrace Holdings,
Inc.(3)
3.4 Certificate of Ownership and Merger of Bon Adventure
Kosher Tours, Inc. into Terrace Holdings, Inc.(3)
3.5 Certificate of Incorporation of A&E Management Corp.(3)
3.6 By-laws of A&E Management Corp.(3)
3.9 Certificate of Incorporation of The Lasko Companies,
Inc.(3)
3.10 By-laws of The Lasko Companies, Inc.(3)
3.11 Certificate of Incorporation of A One A Produce &
Provisions, Inc.(1)
3.12 By-laws of A One A Produce & Provisions, Inc.(1)
3.13 Certificate of Incorporation of Terrace Fresh, Inc.(1)
3.14 By-laws of Terrace Fresh, Inc.(1)
4.1 Form of Specimen Preferred Stock Certificate(2)
4.2 Form of Specimen Private Placement Warrant Certificate(3)
4.3 Certificate of Resolutions designating rights and
preferences of Preferred Stock(2)
4.4 Form of Specimen Warrant Certificate(3)
4.5 Form of Underwriter's Purchase Option(3)
4.6 Form of Warrant Agreement(3)
5.1 Opinion of Fishman, Merrick, Miller, Genelly, Springer,
Klimek & Anderson P.C., regarding the legality of the
securities being registered(2)
10.1 Employment Agreement, dated as of September 1, 1995,
between Terrace Holdings, Inc. and Samuel H. Lasko(3)
10.2 Amendment to Employment Agreement, dated February 17,
1997, between Terrace Holdings, Inc. and Samuel H.
Lasko(4)
10.3 Form of Employment Agreement, dated September 1, 1995,
between Terrace Holdings, Inc. and Jonathan Lasko(3)
10.4 Amendment to Employment Agreement, dated February 17,
1997, between Terrace Holdings, Inc. and Jonathan S.
Lasko(4)
10.5 Employment Agreement dated as of July 1, 1997, between
Terrace Holdings, Inc. and Scott Davis(5)
10.6 Employment Agreement, dated as of July 1, 1997, between
Terrace Holdings, Inc. and Virgil Scarbrough(5)
10.7 Employment Agreement, dated as of July 17, 1997, between
Terrace Holdings, Inc. and Kenneth Cohen(5)
10.8 Agreement between Bonaventure Resort & Spa and Bon
Adventure Kosher Tours, Inc.(3)
10.9 Agreement for Lease dated October 20, 1993 relating to
premises at The Club of Emerald Hills(3)
10.10 Lease Agreement, dated May 10, 1995, as amended, between
The Hemispheres Condominium Association, Inc. and The
Lasko Companies, Inc. relating to a portion of The
Hemispheres Ocean Club, 1960 South Ocean Drive,
Hallandale, Florida(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT NUMBER
------- -------- ----------
<C> <S> <C>
10.14 Investment Banking Agreement, dated July 1, 1997 between
Terrace Holdings, Inc. and Biltmore Securities, Inc.(5)
10.16 Agreement to Assign and Other Matters, dated January 16,
1996, between Terrace Holdings, Inc. and International
Tours and Catering by Ambassador, Inc.(6)
10.17 Asset Acquisition Agreement, dated December 9, 1996 and
Amended February 17, 1997, between Terrace Holdings, Inc.
and DownEast Frozen Desserts, LLC(4)
10.18 Asset Acquisition Agreement, dated July 6, 1997, between
Terrace Holdings, Inc. and A One A Wholesale Produce,
Inc.(5)
10.19 Stock Purchase Agreement, dated February 2, 1998, between
Terrace Holdings, Inc. and Virgil Scarbrough and Scott
Davis(5)
10.20 Sale of Assets Agreement, dated September 1, 1997,
between Terrace Holdings, Inc. and Bay Purveyors(5)
10.21 Guaranty dated August 7, 1997, by Terrace Holdings, Inc.
in favor of Foothill Capital Corporation(5)
10.22 Option Agreement, dated as of February 17, 1997, between
Terrace Holdings, Inc. and Samuel H. Lasko and Jonathan
S. Lasko(2)
10.23 Agreement to Sell and Purchase, dated as of March 2,
1998, between the Registrant and Samuel H. Lasko,
relating to The Lasko Family Kosher Tours, Inc. and A&E
Management, Inc.(5)
10.24 Management Agreement dated as of March 2, 1998, relating
to the Terrace Oceanside Restaurant(5)
10.25 Terrace Holdings, Inc. 1997 Stock Option Plan(5)
10.26 Asset Purchase Agreement, dated December 31, 1997,
between D.M.S. Food Distributors, Inc. (Gourmet
Distributors) and the Registrant(5)
10.27 Form of Contract for Sale of Business between The Lasko
Companies, Inc. and Steven Newman, relating to the
Terrace Oceanside Restaurant(5)
10.28 Agreement dated as of June 25, 1998, between Terrace
Holdings, Inc. and Network Funds III, Ltd.(8)
10.29 Asset Acquisition Agreement dated as of June 25, 1998
between Terrace Holdings, Inc. and Banner Beef and
Seafood Co., Inc.(8)
10.30 Revolving Credit Term Loan and Security Agreement between
Terrace Holdings, Inc. and IBJ Schroder Credit Corp.
dated July 15, 1998.(7)
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Moore Stephens, P.C. (located on page II-8)
23.2 Consent of Fishman, Merrick, Miller, Genelly, Springer,
Klimek & Anderson, P.C. (included in Exhibit 5.1)
23.3 Consent of PricewaterhouseCoopers, LLP (located on page
II-9)
</TABLE>
- --------
(1) Heretofore filed as an exhibit to the initial filing of this Registration
Statement on January 29, 1998.
(2) Heretofore filed as an exhibit to Amendment #1 to this Registration
Statement on April 29, 1998.
(3) Heretofore filed as an exhibit to the Registrant's Registration Statement
on Form SB-2 (Commission File No. 33-96892A).
(4) Incorporated by reference to the Registrant's reports on Form 8-K filed
March 4, 1997.
(5) Heretofore filed as an exhibit to the Registrant's Form 10-KSB, as
amended, for the year ended December 31, 1997 and by this reference
incorporated as an exhibit hereto.
(6) Incorporated by reference to the Registrant's reports on Form 8-K filed on
January 31, 1996.
(7) Incorporated by reference to Registrant's reports on Form 8-K filed on
July 30, 1998.
(8) Heretofore filed as an exhibit to Amendment #3 to this Registration
Statement on August 16, 1998.
