<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                 FORM 10-KSB/A
(Mark One)

[X]  Annual report under Section 13 or 15(d) of the Securities Exchange Act of
     1934 (Fee required)

     for the fiscal year ended December 31, 1997.

[_]  Transition report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934 (No fee required)

     for the transition period from _________________ to ___________________

     Commission file number       0-27132
                           -------------------------------------------------

                            Terrace Holdings, Inc.
             ---------------------------------------------------------------
                (Name of Small Business Issuer in Its Charter)

            Delaware                                       65-0594270
------------------------------------               -------------------------
(State or Other Jurisdiction of                         (I.R.S. Employer
Incorporation or Organization)                         Identification No.)

 1325 N.W. 22nd Street, Pompano Beach, Florida               33069
----------------------------------------------     -------------------------
(Address of Principal Executive Office)                   (Zip Code)

                                (954) 917-7272
               ------------------------------------------------
               (Issuer's Telephone Number, Including Area Code)

     Securities registered under Section 12(b) of the Exchange Act:

                                                Name of Each Exchange
         Title of Each Class                     on Which Registered
--------------------------------------  --------------------------------------
 
_____________________________________   _____________________________________
 
_____________________________________   _____________________________________

          Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.001 par value
-----------------------------------------------------------------------
                               (Title of Class)
                                        
                   Redeemable Common Stock Purchase Warrants
--------------------------------------------------------------------------------
                               (Title of Class)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.

Yes   X          No
    ------     ------    

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     Issuer's revenues for its most recent fiscal year. $8,929,464.

     Aggregate market value of the voting stock held by non-affiliates computed
by reference to the price of which the stock was sold, or the average bid and
asked prices of such, as of a specified date within the past 60 days.

The aggregate market value on April 13, 1998: $8,389,207.

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     As of December 31, 1997, the total number of shares of common stock
     outstanding: 5,006,400.

           This is page 1 of  ________  sequentially numbered pages.


Item 13 - Exhibits and Reports on Form 8-K
------------------------------------------

(a) Exhibits

 
     (10) Material Contracts
     -----------------------

     The following Material Contracts are supplemented to the Registrant's form
     10-KSB and filed herewith:

     10.7   Sale of Assets Agreement, dated September 1, 1997, between Terrace
            Holdings, Inc. and Dry Dock Distributors, Inc. d/b/a Bay Purveyors
            Terrace Holdings, Inc. 1997 Stock Option Plan
     
     10.12  Asset Purchase Agreement, dated December 31, 1997, between D.M.S.
            Food Distributors, Inc. (Gourmet Distributors) and the Registrant
     
     10.13  Form of Contract for Sale of Business between The Lasko Family
            Companies, Inc. and Steven Newman, relating to the Terrace Oceanside
            Restaurant
            
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                                  SIGNATURES

     In accordance with Section 13 of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


 
                            TERRACE HOLDINGS, INC.
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                                  Registrant

By:                    /s/ Samuel H. Lasko, President
--------------------------------------------------------------------------------
                           Samuel H. Lasko, President

Date:                              April 24, 1998
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     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature                 Title                          Date
---------                 -----                          ----

/s/ Samuel H. Lasko       President and Director         April 24, 1998
-------------------
Samuel H. Lasko


/s/ Jonathan S. Lasko     Executive Vice-President,      April 24, 1998
---------------------     Secretary, Chief Operating
Jonathan S. Lasko         Officer, Principal Financial
                          Officer and Director

/s/ Bruce S. Phillips     Director                       April 24, 1998
---------------------
Bruce S. Phillips


                          Director                       April__, 1998
-------------------
Richard Power


                          Director, Principal Executive  April__, 1998
-------------------       Officer
Steven Shulman


/s/ Fred A. Siegel        Director                       April 27, 1998
-------------------
Fred Siegel


                          Director                       April__, 1998
-----------------------
Bernard Rubin, M.D.


/s/ Mario Jacobs          Principal Accounting Officer   April 24, 1998
-------------------
Mario Jacobs