U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB
(Mark One)

[x]      QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 FOR THE TRANSITION PERIOD FROM  __________  TO  __________.

Commission file number:  0-27132


                            Terrace Food Group, Inc.
                  ---------------------------------------------
              (Exact Name of Small Business Issuer in its Charter)


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


1351 NW 22nd Street, Pompano Beach, FL                      33069
----------------------------------------           ------------------------
(Address of Principal Executive Offices)                  (Zip Code)


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


   ---------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for past 90 days. Yes X No .

Applicable only to corporate issuers:

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable  date. As of the date of this report,  the
issuer had 948,342 shares of its common stock issued and outstanding.

Transitional Small Business Disclosure Format:

Check one:  Yes        No   X
                -----     -----



               This is page 1 of 18 sequentially numbered pages.
<PAGE>



TERRACE FOOD GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended September 30, 1999
--------------------------------------------------------------------------------
INDEX
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                     <C>
Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheet as of September 30, 1999 (Unaudited)........          3

         Consolidated Statements of Operations for the three months and nine
         months ended September 30, 1999 and 1998 (Unaudited)...................          4

         Consolidated Statements of Cash Flow for the nine months ended
         September 30, 1999 and 1998 (Unaudited)................................          5-6

         Notes to Financial Statements..........................................          7-12

Item 2.  Management's Discussion and Analysis...................................         13-15

Part II.  OTHER INFORMATION

Item 2.  Changes in Securities..................................................         16

Item 4.  Submission of Matters to Votes of Securities Holders...................         16

Item 6.  Exhibits and Reports on Form 8-K.......................................         17

         Signatures.............................................................         18
</TABLE>


                             . . . . . . . . . . . .








                                       2

<PAGE>



Item 1.
TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999
(UNAUDITED)
--------------------------------------------------------------------------------

Assets:
Current Assets:
   Accounts Receivable (Less Reserve for
      Doubtful Accounts of $105,193)                               $  4,205,857
   Inventory                                                          1,951,377
   Current Portion of Note Receivable - Stockholder                      53,000
   Other Current Assets                                                 373,030
                                                                   ------------

   Total Current Assets                                               6,583,264

Property and Equipment - At Cost -
   (Net of Accumulated Depreciation of $849,534)                      5,160,483

Note Receivable - Stockholder                                            53,000

Cost in Excess of Net Assets of Business Acquired
  (Net of Accumulated Amortization of $482,216)                       4,029,912

Other Assets - net                                                      327,591
                                                                   ------------

   Total                                                           $ 16,154,250
                                                                   ============

Liabilities and Stockholders' Deficit
Current Liabilities:
   Accounts Payable                                                $  3,582,026
   Cash Overdrafts                                                      954,771
   Accrued Expenses                                                     741,753
   Current Portion of Long-Term Debt                                    679,983
   Line of Credit                                                     3,084,598
                                                                   ------------
   Total Current Liabilities                                          9,043,131

Long-Term Debt                                                        2,188,904
Convertible Subordinated Notes                                        2,956,682
Other Non-Current Liabilities                                           151,666
                                                                   ------------
   Total Liabilities                                                 14,340,383
                                                                   ------------

   Commitments and Contingencies

Preferred Stock                                                       1,878,440


Common Stockholders'Deficit:
   Common Stock - $.001 Par Value, 25,000,000 Shares
      Authorized, 948,342 Issued and Outstanding                            948
   Additional Paid-in Capital                                        10,563,472
   Accumulated Deficit                                              (10,628,993)
                                                                   ------------
   Total Stockholders' Deficit                                          (64,573)
                                                                   ------------
   Total                                                           $ 16,154,250
                                                                   ============

See Notes to Financial Statements.






                                       3

<PAGE>




TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                       Three months ended                Nine  months ended
                                                       ------------------                ------------------
                                                           September 30,                   September 30,
                                                           -------------                   -------------
                                                        1999            1998            1999           1998
                                                   ------------    ------------    ------------    ------------
<S>                                                <C>             <C>              <C>             <C>
Net Sales                                          $  8,891,047    $  7,960,569     $29,756,053     $21,390,087

   Cost of Sales                                      6,982,070       6,219,064      22,625,748      15,944,242
                                                   ------------    ------------    ------------    ------------

   Gross Profit                                       1,908,977       1,741,505       7,130,305       5,445,845
                                                   ------------    ------------    ------------    ------------

Operating Expenses:
   Selling, General & Administrative                  2,542,364       2,509,499       7,924,651       6,073,212
   Provision for Doubtful Accounts                       14,433          32,000          52,690         137,608
                                                   ------------    ------------    ------------    ------------
   Total Operating Expenses                           2,556,797       2,541,499       7,977,341       6,210,820
                                                   ------------    ------------    ------------    ------------
   Loss from Operations                                (647,820)       (799,994)       (847,036)       (764,975)
Other Income (Expense)
   Royalty Income                                          --            27,500            --            53,500
   Interest Income                                        1,930           4,189           7,679           7,369
   Interest Expense                                    (452,388)       (160,767)     (1,176,724)       (320,692)
                                                   ------------    ------------    ------------    ------------
   Other (Expense), Net                                (450,458)       (129,078)     (1,169,045)       (259,823)


   Loss from Continuing Operations                   (1,098,278)       (929,072)     (2,016,081)     (1,024,798)

Loss from Discontinued Operations                          --           (14,911)           --           (14,882)
                                                   ------------    ------------    ------------    ------------

Net Loss                                           $ (1,098,278)   $   (943,983)   $ (2,016,081)   $ (1,039,680)
                                                   ============    ============    ============    ============

Basic and Diluted Loss Per Share
  of Common Stock
   Loss from Continuing Operations                 $      (1.26)   $      (1.30)   $      (2.30)   $      (1.80)

   Loss from Discontinued Operations                       --              (.02)           --              (.03)
                                                   ------------    ------------    ------------    ------------

   Net Loss                                        $      (1.26)   $      (1.32)   $      (2.30)   $      (1.83)
                                                   ============    ============    ============    ============
Weighted Average Shares of Common
   Stock Outstanding                                    948,342         715,398         948,342         567,513
                                                   ============    ============    ============    ============

</TABLE>

Basic and  Diluted  Net Loss per Share of Common  Stock  include  the  effect of
$99,773 and  $168,547,  ($.11 and $.18) Per Share,  of accrued  Preferred  Stock
dividends  for the  three  and nine  month  periods  ended  September  30,  1999
respectively.


See Notes to Financial Statements.



                                        4

<PAGE>



TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                   Nine months ended
                                                                   -----------------
                                                                     September 30,
                                                                     -------------
                                                                1999                1998
                                                            -----------         -----------
Operating Activities:

<S>                                                         <C>                 <C>
   Loss from Continuing Operations                          $(2,016,081)        $(1,024,798)
                                                            -----------         -----------

   Adjustments to Reconcile Loss to Net Cash
   (Used For) Provided by Operating Activities
     Depreciation and Amortization                              755,184             425,669
     Provision for Doubtful Accounts                             52,690              71,738
      Subordinated Debt Interest                                704,660              80,260

   Changes in Assets and Liabilities:
     (Increase) Decrease in:
      Accounts Receivable                                      (250,394)         (1,788,726)
      Inventory                                                (323,501)           (457,198)

      Other Current Assets                                     (206,600)           (382,084)
      Due from Related Party                                       --               122,752
      Note Receivable - Stockholder                              53,000            (159,000)
      Due on Sale of Discontinued Operations                       --                90,000

      Restricted Cash and Other Assets                          (47,536)            117,250

     Increase (Decrease) in:
      Accounts Payable and Cash Overdrafts                       43,901           2,154,403
      Accrued Expenses and other Current Liabilities           (329,078)             13,171
      Other Liabilities                                         (32,500)               --
                                                            -----------         -----------
   Total Adjustments                                            419,826             288,235
                                                            -----------         -----------

   Net Cash - Operating Activities                           (1,596,255)           (736,563)
                                                            -----------         -----------

    Investing Activities:
   Acquisition of Equipment, Furniture & Fixtures              (415,886)           (991,160)
   Purchase of Business Net of Cash Acquired                       --            (3,893,013)
                                                            -----------         -----------

   Net Cash - Investing Activities                             (415,886)         (4,884,173)
                                                            -----------         -----------
Financing Activities:
   Net Borrowings Under Line of Credit                          238,789             544,410
   Proceeds From Warrants Exercised                                --               218,750
   Long-term Debt Borrowing (Repayment)                         (26,548)          2,247,058
   Proceeds from Issuance of
      Preferred Stock and Warrants                            1,799,900                --
   Proceeds from Issuance of Convertible
      Subordinated Notes                                           --             2,625,000
                                                            -----------         -----------
Net Cash-Financing Activities                                 2,012,141           5,635,218
                                                            -----------         -----------

Net (Decrease) Increase in Cash & Cash Equivalents
      Continuing Operations                                        --                14,482
                                                            -----------         -----------



See Notes to Financial Statements.






                                       5

<PAGE>



TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW, Sheet #2
(UNAUDITED)
--------------------------------------------------------------------------------

                                                                   Nine months ended
                                                                   -----------------
                                                                     September 30,
                                                                     -------------
                                                                1999                1998
                                                            -----------         -----------


   Decrease in Cash and Cash Equivalents -
   Discontinued Operations                                        - 0 -             (14,482)
   Cash and Cash Equivalents - Beginning of Period                - 0 -               - 0 -
                                                            -----------         -----------

   Cash and Cash Equivalents - End of Period                $     - 0 -         $     - 0 -
                                                            ===========         ===========

Supplemental Disclosures of Cash Flow Information
Cash Paid During the Periods For:

   Interest                                                 $   385,958         $   233,112
   Taxes                                                          - 0 -               - 0 -

</TABLE>



Supplemental Disclosures of Non-Cash Investing
And Financing Activities:

During the second  quarter of 1999,  the Company  issued  $630,292 of additional
Convertible  Subordinated  Notes.  $280,292 of that amount was reclassified from
accrued expenses.

During the second and third  quarters of 1999,  the Company issued 20,772 shares
of Preferred Stock at a discount of $367,306 from redemption value. The discount
is being amortized to Additional  Paid-in Capital over the term of the Preferred
Stock.



See Notes to Financial Statements.




















                                        6

<PAGE>




TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------

(1) Basis of Reporting

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-QSB and Item 310(b)
of Regulation S-B.  Accordingly,  they do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.

In  the  opinion  of  management,   such  statements   include  all  adjustments
(consisting only of normal  recurring  items) which are considered  necessary in
order to make the financial statements not misleading. The results of operations
for the periods  presented are not  necessarily  indicative of the results to be
expected for the full year.

The  accompanying   unaudited  consolidated  financial  statements  include  the
accounts of Terrace  Food Group,  Inc.  and its  subsidiaries.  All  significant
intercompany balances and transactions have been eliminated in consolidation.

It is suggested that these financial  statements be read in conjunction with the
consolidated financial statements and notes for the year ended December 31, 1998
included in the Terrace Food Group, Inc.
Form 10-KSB.

(2) Reverse Split of Common Stock

Effective March 15, 1999, the Shareholders of the Company approved a one for ten
reverse  split of the  Company's  common  stock  without  any other  changes  in
authorization  par value or  otherwise.  All per share and share amounts for all
periods presented have been adjusted to reflect this reverse split.

(3) Name Change

In August 1998 the Company's  shareholders  approved the change of the Company's
name to Terrace Food Group, Inc.

(4) Loss Per Share

The  computation  of Loss per  share of  common  stock is based on the  weighted
average number of common shares  outstanding  for each period  presented.  There
were no potential common shares included as they were considered  anti-dilutive.
Securities  that  could  potentially  dilute  earnings  per share in the  future
include warrants and options to purchase common stock representing approximately
1,197,000  Common Shares.  The Company has 948,342 shares of Common Stock issued
and outstanding at September 30, 1999.








                                        7

<PAGE>




TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Sheet #2
(UNAUDITED)
--------------------------------------------------------------------------------

(5) Inventories

Inventories for the Company's Food  Distribution  segment include  produce,  and
dairy products.  Food Processing and Manufacturing  inventories include raw meat
and seafood, other ingredients and processed products. Inventories are stated at
the lower of cost (determined on a first-in, first-out basis) or market.

(6) Line of Credit and Term Loan

The Company and its  subsidiaries  maintain a financing  arrangement with a bank
under which the bank provides a line of credit  subject to available  collateral
to a maximum of  $4,000,000  and a term loan.  The loans are  collateralized  by
virtually  all assets of the Company.  All cash  received by the Company must be
remitted to the bank so long as there is an  outstanding  balance under the line
of  credit,  which  will  expire on July 15,  2001.  The line of credit  accrues
interest at .5% over the bank's prime lending rate.  The term loan is payable in
thirty-six monthly  installments of $23,810 plus annual interest of 1% above the
bank's  prime rate through July 2001,  with the  remaining  balance then due. At
September 30, 1999 the outstanding balance on the term loan was $1,666,660.

At September 30, 1999,  the Company was not in conformity  with two covenants of
the financing agreement.  The bank has agreed to waive its right to consider the
loans in default. If the Company is unable to comply with these covenants in the
future,  there is no assurance the bank will continue to provide  waivers of its
rights.

(7) Convertible Subordinated Notes

In 1998, the Company issued to a private investor $2,625,000 principal amount of
Convertible Subordinated Notes ("Notes"), and warrants to purchase 40,000 shares
of Common Stock of the Company.  The exercise  price of the Warrants is the same
as the conversion rate of the Notes.  The Notes could be converted at the option
of the Company,  into  Redeemable  Convertible  8%  Cumulative  Preferred  Stock
("Preferred Stock") of the Company. The Notes,  Warrants and any 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.  The
Company  received  proceeds  of  $2,500,000,  with  $281,000  attributed  to the
Warrants and Option and $2,219,000 to the Note. The Note discount of $406,000 is
being amortized over the term of the Note.

The Note agreement required the Company to attain a specified earnings level for
1998,  which was not attained.  Accordingly,  the Company has issued the private
investor  additional  warrants to purchase  25,000 shares of Common Stock of the
Company that are  exercisable  at $6.00 per share and the  interest  rate of the
notes was increased to 14%.

On April 13,  1999,  the Company and the  private  investor  agreed to amend the
terms of the Notes.  The  maturity  date was  extended  to March 31,  2000,  the
Conversion  Price of the Notes to  either  Common or  Preferred  Shares  and the
Exercise  Price of the Warrants was set at $6.00 per share  through the maturity
date.  Any default  which may have  occurred  under the  agreement was waived or
deemed cured. The






                                        8

<PAGE>




TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Sheet #3
(UNAUDITED)
--------------------------------------------------------------------------------

Company  has issued the  private  investor  an  additional  $631,000 in Notes as
payment for accrued and unpaid  interest on the Notes through April 13, 1999 and
other  considerations.  The Company has also issued the private  investor 25,000
additional Warrants to purchase the Company's Common Stock at $9.00 per share.

(8) Commitments

In connection with the  acquisition of A-One-A  Produce & Provisions,  Inc., the
Company  entered into 5-year  employment  agreements  with two of its  officers,
effective  July 1, 1997.  The employment  agreements  call for aggregate  annual
compensation of $240,000.

In connection with the acquisition of Banner Beef and Seafood, Inc., the Company
entered into a 5-year employment agreement with its Operations Vice President at
an annual base salary of $200,000.

The Company has an employment  agreement with Jonathan S. Lasko,  Executive Vice
President,  through  August 31,  2000,  for a base salary of $125,000  per year.
Additionally,  the  agreement  provides  that  certain  other  benefits  be made
available to the Executive.

(9) Preferred Stock

In the second and third  quarters,  the Company  issued  20,772  shares of newly
authorized  Series of Preferred Stock together with Warrants to purchase 360,000
shares of the Company's  Common Stock. The shares and warrants were purchased by
a private  investor  group that included four of the  Company's  Directors.  The
Company received proceeds of approximately $1,800,000 in these transactions that
are being used for operating purposes.

The Preferred  Stock was issued at a discount,  calculated to yield an effective
annual  dividend of  approximately  15%. The Preferred  Stock is redeemable,  in
cash,  at the option of the  Company  through  March 30,  2000,  when it becomes
mandatorily  redeemable  either in cash or  through  conversion  into 17% Senior
Notes which would mature on March 31, 2003. The stock purchase  warrants,  which
expire  four  years  from  their  date of issue,  provide  for the  purchase  of
Company's Common Stock at $9.00 per share during the first year, $7.50 per share
during the second year and $6.00 per share thereafter.  The discount of $367,306
from the redemption value of $2,077,200 is being amortized to Additional Paid-in
Capital to March 31, 2000.

(10) Segment Data

The  Company's  two  business   units  have   distinct   management   teams  and
infrastructures,  offer  different  products  and are  evaluated  separately  in
assessing performance and allocating  resources.  These units are being reported
as two segments:  Food Distribution and Food Processing and Manufacturing.  Each
segment  is  managed  separately,  has a  distinct  customer  base and  requires
different  strategic  and  marketing  efforts.  Food  Distribution  includes the
operations of the Company's A-One-A Produce and Provisions, Inc. and Fresh, Inc.
subsidiaries.  The Food Processing and  Manufacturing  segment is represented by
Banner Beef and Seafood Co. Inc.








                                        9
<PAGE>



TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Sheet #4
(UNAUDITED)
--------------------------------------------------------------------------------

(10) Segment Data - continued

Terrace  evaluates  performance  based on operating  profit before  interest and
taxes. Accordingly, interest has not been allocated to the operating segments.

Quarter ended September 30, 1999
--------------------------------
<TABLE>
<CAPTION>
                                                                           Food
                                                       Food             Processing and
                                               Distribution              Manufacturing                Total
                                               ------------              -------------                -----

<S>                                              <C>                      <C>                  <C>
Sales                                            $7,415,355               $1,475,692           $   8,891,047
Depreciation and amortization                       138,778                  141,411                 280,189
Loss from operations                               (146,104)                (298,309)               (444,413)
Segment assets                                    9,468,256                6,109,487              15,577,743
Expenditures for segment property
     and equipment                                   22,123                  125,808                 147,931


Reconciliation of segment amounts to consolidated amounts:

Loss from continuing operations:
   Total segments                                                                              $    (444,413)
   Interest expense                                                                                 (452,388)
   Amortization of deferred financing costs                                                        (  39,679)
   Interest income                                                                                     1,930
   Corporate expenses                                                                               (163,728)
                                                                                               -------------
     Total                                                                                     $  (1,098,278)
                                                                                               =============

Assets:
    Total segments                                                                               $15,577,743
    Note Receivable                                                                                  106,000
    Other current assets                                                                             142,916
    Other Assets                                                                                     327,591
                                                                                              --------------
     Total                                                                                    $   16,154,250
                                                                                              ==============
</TABLE>


Quarter ended September 30, 1998
--------------------------------
<TABLE>
<CAPTION>
                                                                             Food
                                                       Food             Processing and
                                               Distribution              Manufacturing                Total
                                               ------------              -------------                -----
<S>                                              <C>                      <C>                     <C>
Sales                                            $6,401,279               $1,559,290              $7,960,569
Depreciation and amortization                       139,966                   17,316                 157,282
Loss from operations                               (390,084)                 (81,959)               (472,043)
Segment assets                                    9,312,164                4,293,622              13,605,786
Expenditures for segment property
   and equipment                                     22,123                  260,068                 282,191






                                       10

<PAGE>




TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Sheet #5
(UNAUDITED)
--------------------------------------------------------------------------------

(10) Segment Data - continued

Reconciliation of segment amounts to consolidated amounts:

Loss from continuing operations:
   Segment                                                                                       $  (472,043)
   Interest expense                                                                                 (160,767)
   Interest income                                                                                     4,189
   Royalty income                                                                                     27,500
   Corporate expenses                                                                               (327,951)
                                                                                              --------------
Total                                                                                         $     (929,072)
                                                                                              ==============

Assets:
    Segment                                                                                   $   13,605,786
    Restricted cash                                                                                   34,893
    Notes Receivable                                                                                 159,000
    Other current assets                                                                             293,089
                                                                                             ---------------
    Other Assets                                                                                     693,378
                                                                                             ---------------
Total                                                                                        $    14,786,146
                                                                                             ===============

</TABLE>


Nine Months ended September 30, 1999
------------------------------------
<TABLE>
<CAPTION>
                                                                              Food
                                                       Food             Processing and
                                               Distribution              Manufacturing                Total
                                               ------------              -------------                -----
<S>                                             <C>                       <C>                    <C>
Sales                                           $26,186,579               $3,569,474             $29,756,053
Depreciation and amortization                       413,222                  201,126                 614,348
Income (loss) from operations                       748,620                 (939,682)               (191,062)
Segment assets                                    9,468,256                6,109,487              15,577,743
Expenditures for segment property
and equipment                                       185,819                  260,068                 445,887



Reconciliation of segment amounts to consolidated amounts:

Loss from continuing operations:
   Total segments                                                                              $    (191,062)
Interest expense                                                                                  (1,176,724)
   Amortization of deferred financing costs                                                         (140,842)
   Interest income                                                                                     7,679
   Corporate expenses                                                                               (515,132)
                                                                                               -------------
    Total                                                                                      $  (2,016,081)
                                                                                               =============
</TABLE>




                                       11

<PAGE>




TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Sheet #6
(UNAUDITED)
--------------------------------------------------------------------------------

(10) Segment Data - continued


Nine months ended September 30, 1998
------------------------------------
<TABLE>
<CAPTION>
                                                                              Food
                                                       Food             Processing and
                                               Distribution              Manufacturing                Total
                                               ------------              -------------                -----
<S>                                             <C>                       <C>                   <C>
Sales                                           $19,830,797               $1,559,290            $ 21,390,087
Depreciation and amortization                       299,647                   17,316                 316,963
Loss from operations                               (172,737)                 (81,959)               (254,696)
Segment assets                                    9,468,256                6,109,487              15,577,743
Expenditures for segment property
and equipment                                       185,819                  260,068                 445,887

Reconciliation of segment amounts
   to consolidated amounts:

Loss from continuing operations:
   Segment                                                                                      $   (254,696)
   Interest expense                                                                                 (320,692)
   Interest income                                                                                     7,369
   Royalty income                                                                                     53,500
   Corporate expenses                                                                               (510,279)
                                                                                                 -----------
                                                                                                 $(1,024,798)
                                                                                                 ===========
</TABLE>












                                       12
<PAGE>




Item 2.
TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

The  Company's  revenues  are derived  from A-One-A  Produce &  Provisions,  its
distribution and processing  subsidiary and Banner Beef & Seafood, a value added
Home Meal Replacement and custom manufacturing unit. The Company's  consolidated
revenues  for the nine  months  ended  September  30,  1999  were  approximately
$29,756,000 compared to approximately $21,390,000 for the same period in 1998 an
increase of  approximately  $8,366,000 or 39%.  Losses before  interest,  taxes,
depreciation and amortization  (EBITDA) were  approximately  $92,000 compared to
approximately  $403,000  in 1998,  a 77%  improvement.  Losses  from  continuing
operations were  approximately  $2,016,000,  approximately  $991,000 higher than
1998, due largely to increased  interest expense of approximately  $856,000.  Of
the total 1999  interest of  approximately  $1,176,000,  approximately  $705,000
relates to the Company's  Convertible  Subordinated  Notes. This interest is not
payable  until  the  maturity  of the  notes in  March  2000.  For the  quarter,
consolidated sales of approximately  $8,891,000 were approximately  $930,000, or
12% higher than the  comparable  1998  quarter.  EBITDA  improved  approximately
$415,000 or 61% over 1998 from a loss of approximately $676,000 to approximately
$261,000  in  1999.  The  loss  from  continuing  operations  was  approximately
$1,098,000,  approximately  $169,000  higher than the  comparable  1998 quarter.
Interest  expense of which  approximately  $340,000  related to the  Convertible
Subordinated  Notes was approximately  $355,000 higher than in 1998. The Company
realized  strong  growth in its  distribution  subsidiaries  sales and operating
income and further  integration at Banner Beef & Seafood was experienced  during
the third quarter of 1999.

SEGMENT ANALYSIS
----------------

Food Distribution
-----------------

The Company's  distribution  segment is comprised of A-One-A Produce & Provision
and Fresh, Inc. which distributes and processes fresh produce and dairy products
to its  customers in South  Florida as well as cruise ship and export  accounts.
Sales  for the nine  months  ended  September  30,  1999  reached  approximately
$26,187,000  an increase  approximately  $6,356,000  or 32% from the same period
1998. The Segment's  operating income for the nine months reached  approximately
$749,000  compared to an operating loss of  approximately  $173,000 during 1998.
For  the  quarter  ended  September  30,  1999  sales  increased   approximately
$1,014,000  or  11.6%  to  approximately  $7,400,000.   The  operating  loss  of
approximately  $146,000 represents a approximately $244,000 improvement over the
preceding year period.  The Company continued its aggressive sales and marketing
initiative directed at large hotels, hospitals and cruise ship accounts that had
a strong impact on sales.  Management believes that its distribution  segment is
appropriately  positioned to continue it profitability  and maximize its account
exposure into future periods.

Food Processing and Manufacturing
---------------------------------

The Company's  food  processing  and  manufacturing  segment is comprised of its
Banner Beef & Seafood  subsidiary.  The Company  continues to pursue  growth for
this  segment in the value  added  segment  of the food  industry.  This  market
includes Home Meal  Replacement,  custom  manufactured  product lines and retail
ethnic  products.  Revenues for the nine months ended September 30, 1999 reached
approximately $3,569,000 with an operating loss of approximately $940,000. There
is no comparable  revenue or operating income information for the same period in
1998, as the Company  purchased  Banner Beef & Seafood in July of that year. For
the quarter, segment sales were approximately





                                       13
<PAGE>


Item 2.
TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS, Sheet #2
--------------------------------------------------------------------------------

$1,476,000 with an operating loss of approximately $298,000 compared to sales of
approximately  $1,559,000 and an operating loss of approximately  $82,000 in the
comparable  1998  quarter.  The Company  continues  to work  towards it goals of
revenue growth and profitability with its test marketing and roll out of several
new  products  within its  manufacturing  program.  The  Company's  test markets
include several of the largest retail and mass merchandisers in the country. The
Company is focusing on the Home Meal Solution and ethnic  markets that are among
the fastest  growing  segments in the food  industry.  The Company has  tailored
these programs in accordance  with its desire to offer the consumer high quality
prepared convenience products.  With continued effort on the sales and marketing
and product development of new items,  management believes positive results will
be realized in future periods.

Liquidity and Capital Resources
-------------------------------

At September 30, 1999 the Company had a cash deficit of  approximately  $954,000
and a working capital deficit of approximately $2,459,000.

During the first six months of 1999,  management  believes the food distribution
operations  have  improved  with  the  securing  of  substantial  new  business,
particularly  with high volume  institutional  accounts.  Management  intends to
continue its  aggressive  marketing  efforts in these areas as well as to cruise
line and export customers.

Management  further  believes that a key element in its plan is to substantially
increase sales volume at Banner,  where the Company has developed the capability
of producing  high  quality  innovative  products for the Home Meal  Replacement
market.

During 1999, the Registrant issued 20,772 shares of a newly authorized Preferred
Stock  together with  Warrants to purchase  360,000  shares of the  Registrant's
Common Stock. The shares and warrants were purchased by a private investor group
that  included  four of the  Registrant's  Directors.  The  Registrant  received
proceeds of approximately  $1,800,000 in this  transaction  which are being used
for working capital.

The Company and its  subsidiaries  maintain a financing  arrangement with a bank
under which the bank provides a line of credit  subject to available  collateral
to a maximum of  $4,000,000  and a term loan.  The loans are  collateralized  by
virtually  all assets of the  Company.  At  September  30, 1999 the  outstanding
balance on the line of credit was $3,084,598 amd $1,666,660 on the term loan. At
that date the Company was not in conformity  with two covenants of the financing
agreement  and the bank has agreed to waive its right to  consider  the loans in
default.  If the Company is unable to comply with these covenants in the future,
there is no assurance the bank will continue to provide waivers of its rights.


Year 2000 Compliance
--------------------

The   inability   of   computers,   software  and  other   equipment   utilizing
microprocessors  to  recognize  and  properly  access data fields  containing  a
two-digit year is commonly  referred to as the Year 2000 compliance  issue. Such
systems that are not Year 2000  compliant may not be able to properly  interpret
dates beyond the Year 1999, which could lead to business disruptions in the U.S.
and internationally.  The potential costs and uncertainties  associated with the
Year 2000 issue will depend on a number of factors, including software, hardware
and the  nature  of the  industry  in which a  company  operates.  Additionally,
companies must  coordinate  with other  entities with which they  electronically
interact, such as customers, creditors and borrowers.



                                       14
<PAGE>

Item 2.
TERRACE FOOD GROUP, INC.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS, Sheet #3
--------------------------------------------------------------------------------


During 1998, the Company  completed the replacement of the Company's  accounting
system as part of an overall plan to update these systems and related  software.
The Company has received Year 2000 compliance certification from the supplier of
its new accounting system and software.  In addition,  the Company has completed
an assessment of other  internal  systems that could  potentially be affected by
Year 2000, which consist principally of personal computers and related software.
The Company believes that all noncompliant  internal  software and hardware have
been replaced or upgraded to reach Year 2000 compliance.

To date, all third party suppliers that the Company has  communicated  with have
advised the Company  that they are Year 2000  compliant  or plan to be Year 2000
complaint  or  substantially  compliant  by year end.  However,  there can be no
assurance that the computer  systems of third party  suppliers will be Year 2000
compliant on a timely basis.

The Company relies  principally on produce and other food  wholesalers to supply
most of the  products  sold or used as  ingredients  by the  Company.  If  these
vendors were to experience  Year 2000 computer  failures,  these  failures could
have  a  material  adverse  affect  on the  Company's  business,  including  the
possibility of delivery delays in deliveries.  The Company believes that such an
adverse  impact would not be  prolonged  because  there are several  alternative
sources of supply that could be accessed by the Company.

The  Company  does not  expect to expend a  significant  amount to  address  the
Company's Year 2000 compliance issues.


                                   ---xxxx---


This report contains certain  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created hereby.  All  forward-looking  statements involve risks
sand uncertainty.  Although the Company believes that the assumptions underlying
the  forward-looking  statements  contained  herein are  reasonable,  any of the
assumptions could be inaccurate,  and therefore,  there can be no assurance that
the  forward-looking  statements  included  in  this  report  will  prove  to be
accurate. Important factors that could cause actual results to differ materially
from  the  forward-looking  statements  include,  but are not  limited  to,  the
adequacy of the Company's financial resources, the Company's Food Processing and
Manufacturing  business  reaching a  profitable  level of  operations,  changing
market conditions, the Company's success in establishing new corporate alliances
and  the  impact  of  competitive   pricing  and  products.   In  light  of  the
uncertainties  inherent in the  forward-looking  statements included herein, the
inclusion of such information  should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.









                                       15

<PAGE>




Part II.  OTHER INFORMATION
--------------------------------------------------------------------------------

Item 2.  Changes in Securities  -  The following  unregistered  securities  were
         issued by the Company during the quarter ended September 30, 1999.

              Description of               Number of Shares/     Offering
Date          Securities Issued            Warrants Sold         Price Per Share
----          -----------------            -------------         ---------------

July 1999     Series C Preferred Stock          1,154               $86.65
              With Common Stock
              Purchase Warrants                20,000

The  issuance  of these  securities  is claimed to be exempt  from  registration
pursuant  to  Section  4 (2) of the  Securities  Act of  1933,  as  amended,  as
transactions  by an  issuer  not  involving  a public  offering.  There  were no
underwriting  discounts or commissions  paid in connection  with the issuance of
any of these securities.

Item 4.  Submission of Matters to Vote of Securities Holders - An Annual Meeting
         of  Shareholders  was held on  September  15,  1999.  All  nominees for
         director,  as listed in the Proxy Statement for the Annual Meeting were
         elected.  Listed below are the matters voted on by stockholders and the
         number of votes cast at the Annual Meeting.

(a) Election of Members of Board of Directors

                                                    Votes       Broker Non-Votes
                           Voted For    Against     Withheld    and Abstentions
                           ---------    -------     --------    ---------------

Steven Shulman             598,921      1,195       ----        ----
Jon Lasko                  598,921      1,195       ----        ----
Richard Power              598,921      1,195       ----        ----
Fred Seigel                598,921      1,195       ----        ----
Houssam Aboukhater         598,921      1,195       ----        ----
Salvatore Bommarito        598,921      1,195       ----        ----

(b)  Amendment to Company's 1997  Stock  Option Plan to increase  the number  of
     shares of Common Stock which may be subject to Stock Options  granted under
     the Plan from 175,000 to 350,000.

     Voted For:                       314,260
     Voted Against:                     8,960
     Voted Abstained:                     100
     Broker Non-Votes:                278,076

(c)  Ratification of Deloitte and Touche,  LLP as independent public accountants
     for fiscal year ending December 31, 1999.

     Voted For:                       599,156
     Voted Against:                     2,240
     Voted Abstained:                    ----
     Broker Non-Votes:                   ----






                                       16
<PAGE>




Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

     Number         Description
     ------         -----------
         27         Financial Data Schedule


(b) Reports on Form 8-K

     The  Registrant  filed a Report on Form 8-K dated August 13, 1999 to report
     the  dismissal of Moore  Stephens,  P.C. the  independent  accounting  firm
     previously  engaged as the principal  accountant to audit the  Registrant's
     financial statements.

     The Registrant  filed a Report on Form 8-K dated October 26, 1999 to report
     the  engagement  of  Deloitte & Touche LLP as  independent  accountant  and
     auditor for the fiscal year ending December 31, 1999.
































                                       17

<PAGE>




SIGNATURES
--------------------------------------------------------------------------------


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


                                     TERRACE FOOD GROUP, INC.
                                     (Registrant)


Dated: November 15, 1999             By: /s/Jonathan S. Lasko
                                         -------------------------------------
                                            Jonathan S. Lasko,
                                            Executive Vice President &
                                            Chief Operating Officer


Dated:  November 15, 1999            By: /s/William P. Rodrigues, Jr.
                                         -------------------------------------
                                            William P. Rodrigues, Jr.,
                                            Principal Financial Officer
































                                       18