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, 1998.

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

Commission file number  0-27132


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


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


1351 N.W. 22nd Street, Pompano Beach, Florida                  33069
---------------------------------------------       ---------------------------
(Address of Principal Executive Office)                     (Zip Code)


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


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


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

Applicable  only to  issuers  involved  in  bankruptcy  proceedings  during  the
preceding five years:

Check whether the  registrant  filed all  documents  and reports  required to be
filed by  Section  12 or 15(d) of the  Exchange  Act after the  distribution  of
securities under a plan confirmed by a court.   Yes         No
                                                   -------    -------


Applicable only to corporate issuers:

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable  date. As of the date of this report,  the
issuer had 8,548,905 shares of its common stock issued and outstanding.


Transitional Small Business Disclosure Format:

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


               This is page 1 of 14 sequentially numbered pages.

<PAGE>


TERRACE FOOD GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended September 30, 1998 
--------------------------------------------------------------------------------
INDEX                                                                           
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                Page
                                                                                ----
Part I.  FINANCIAL INFORMATION

Item 1:  Financial Statements
<S>                                                                           <C> 
         Consolidated Balance Sheet as at September 30, 1998 (Unaudited)....        3

         Statements of Operations for the three and nine month periods
         ended September 30, 1998 and 1997 (Unaudited)......................        4

         Statements of Cash Flow for the nine months ended
         September 30, 1998 and 1997 Unaudited..............................    5 & 6

         Notes to Financial Statements......................................   7 - 10

Item 2:  Management's Discussion and Analysis...............................  11 & 12

Part II.  OTHER INFORMATION

Item 6:  Exhibits and Reports on Form 8-K...................................        13

         Signatures.........................................................        14
</TABLE>


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



























                                        2
<PAGE>


Item 1.
TERRACE FOOD GROUP, INC. 
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
Current Assets:
<S>                                                                       <C>         
   Accounts Receivable (Less Reserve for Doubtful Accounts of $131,738)   $  4,020,933
   Inventory                                                                 1,536,189
   Restricted Cash                                                              34,893
   Current Portion of Note Receivable                                           53,000
   Other Current Assets                                                        550,476
                                                                          ------------

   Total Current Assets                                                      6,195,491

Equipment, Furniture and Fixtures - At Cost
   (Net of Accumulated Depreciation of $2,801,520)                           3,649,722

Intangible Assets (Net of Accumulated Amortization of $312,700)              4,834,933

Note Receivable                                                                106,000
                                                                          ------------

   Total Assets                                                           $ 14,786,146
                                                                          ============

Liabilities and Stockholders' Equity
Current Liabilities:
   Accounts Payable                                                       $  3,659,046
    Bank Overdraft                                                             445,421
   Accrued Expenses                                                            866,249
   Current Portion of Long-Term Debt                                           471,826
   Line of Credit                                                            1,898,494
                                                                          ------------

   Total Current Liabilities                                                 7,341,036

Long-term Debt                                                               2,018,982
Convertible Subordinated Notes                                               2,625,000
                                                                          ------------

   Total Liabilities                                                        11,985,018
                                                                          ------------

   Commitments and Contingencies

Stockholders' Equity:
   Common Stock - $.001 Par Value, 25,000,000 Shares
      Authorized, 8,498,905 Issued and Outstanding                               8,499

   Additional Paid-in Capital                                                9,725,757
   Accumulated Deficit                                                      (6,933,128)
                                                                          ------------

   Total Stockholder's Equity                                                2,801,128
                                                                          ------------

   Total Liabilities and Stockholders' Equity                             $ 14,786,146
                                                                          ============
</TABLE>

See Notes to Financial Statements 


                                        3
<PAGE>



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

                                                     Three months ended              Nine months ended
                                                     ------------------              -----------------
                                                        September 30,                   September 30,               
                                                        -------------                   -------------               

                                                     1998            1997            1998            1997
                                                 ------------    ------------    ------------    ------------

<S>                                              <C>             <C>             <C>             <C>         
Revenue                                          $  7,960,569    $  3,574,304    $ 21,390,087    $  3,574,304
Cost of Sales                                       6,219,064       2,671,090      15,944,242       2,671,090
                                                 ------------    ------------    ------------    ------------

   Gross Profit                                     1,741,505         903,214       5,445,845         903,214
                                                 ------------    ------------    ------------    ------------

Operating Expenses:
   Selling, General & Administrative                2,509,499       1,130,960       6,073,212       1,538,664
   Provision for Doubtful Accounts                     32,000            --           137,608            --
                                                 ------------    ------------    ------------    ------------
   Total Operating Expenses                         2,541,499       1,130,960       6,210,820       1,538,664
                                                 ------------    ------------    ------------    ------------

   Loss from Operations                              (799,994)       (227,746)       (764,975)       (635,450)
                                                 ------------    ------------    ------------    ------------

Other Income (Expense)
Royalty Income                                         27,500            --            53,500            --
Interest Income                                         4,189           2,105           7,369          23,817
Interest Expense                                     (160,767)        (28,556)       (320,692)        (32,502)
                                                 ------------    ------------    ------------    ------------

   Other (Expense), Net                              (129,078)        (26,451)       (259,823)         (8,685)
                                                 ------------    ------------    ------------    ------------

Loss from Continuing Operations                      (929,072)       (254,197)     (1,024,798)       (644,135)

Income (Loss) from Discontinued Operations            (14,911)       (128,821)        (14,882)         60,746
                                                 ------------    ------------    ------------    ------------

   Net Loss                                      $   (943,983)   $   (383,018)   $ (1,039,680)   $   (583,389)
                                                 ============    ============    ============    ============

Income (Loss) Per Share of Common Stock
   Loss from Continuing Operations               $       (.13)   $       (.06)   $       (.18)   $       (.14)
    Income (Loss) from Discontinued Operations           --              (.03)           --               .01
                                                 ------------    ------------    ------------    ------------

Basic and Diluted Net Income (Loss) Per Share
   of Common Stock                               $       (.13)   $       (.09)   $       (.18)   $       (.13)
                                                 ============    ============    ============    ============


Weighted Average Shares of Common Stock             7,153,976       4,498,066       5,675,127       4,498,066
                                                  
</TABLE>

See Notes to Financial Statements.



                                        4
<PAGE>


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

                                                                     Nine months ended
                                                                     -----------------
                                                                        September 30,
                                                                        -------------
                                                                      1998          1997 
                                                                   ----------    ----------
Operating Activities:
<S>                                                              <C>            <C>         
   Loss from Continuing Operations                               $ (1,024,798)  $  (254,197)
                                                                   ----------    ----------

   Adjustments to Reconcile (Loss) to Net Cash
   (Used For) Provided by Operating Activities

     Depreciation and Amortization                                    425,669       117,761
     Increase in Reserve for Doubtful Accounts                         71,738          --

   Changes in Assets and Liabilities:
     (Increase) Decrease in:
      Accounts Receivable                                          (1,788,726)   (1,226,503)
      Inventory                                                      (457,198)     (997,429)
      Other Current Assets                                           (382,084)   (1,116,118)
      Due from Related Party                                          122,752          --
      Notes Receivable                                               (159,000)         --
      Due on Sale of Discontinued Operations                           90,000
      Other Assets                                                     14,442      (468,241)

   Increase (Decrease) in:
      Accounts Payable                                              2,101,003     1,749,240
      Accrued Expenses and other Current Liabilities                   93,431        80,380
      Deferred Revenue                                                   --        (130,112)
                                                                   ----------    ----------
   Total Adjustments                                                  132,027    (1,991,022)

   Net Cash - Operating Activities                                   (892,771)   (2,245,219)
                                                                   ----------    ----------

Investing Activities:
   Acquisition of Equipment, Furniture & Fixtures                    (991,160)   (1,221,445)
   Purchase of Business Net of Cash Acquired                       (3,199,440)   (3,108,708)
   Increase in Intangible Assets                                     (693,573)      (19,699)
                                                                   ----------    ----------
   Net Cash - Investing Activities                                 (4,884,173)   (4,349,852)

Financing Activities:
   Reduction in Restricted Cash                                       102,808          --
   Proceeds from Subordinated Convertible Notes                     2,625,000          --
   Cash Overdrafts                                                     53,400          --
   Net Borrowings Under Line of Credits                               544,410          --
   Proceeds From Warrants Exercised                                   218,750          --
   Net Long-term Debt Borrowing                                     2,247,058          --
   Proceeds from Demand Notes Payable                                    --       2,492,713
   Proceeds from Issuance of Common Stock                                --       2,800,000
                                                                   ----------    ----------

   Net Cash-Financing Activities                                    5,791,426     5,292,713
                                                                   ----------    ----------

   Net (Decrease) Increase in Cash and Cash
      Equivalents - Operations                                         14,482    (1,302,358)
                                                                   ----------    ----------

</TABLE>


                                        5
<PAGE>


TERRACE FOOD GROUP, INC.   
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOW, Sheet #2
(UNAUDITED)  
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                      
                                                                     Nine months ended
                                                                     -----------------
                                                                        September 30,
                                                                        -------------
                                                                      1997          1998 
                                                                   ----------    ----------

<S>                                                               <C>             <C>    
   Net (Decrease) Increase in Cash and Cash Equivalents -  
   Discontinued Operations                                            (14,482)      (111,259)

   Cash and Cash Equivalents - Beginning of Period                $      - 0 -      1,570,907
                                                                  ------------    -----------

   Cash and Cash Equivalents - End of Period                      $      - 0 -    $   157,290
                                                                  ============    ===========


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

   Interest                                                          $233,112       $149,177
   Taxes                                                                 - 0 -          - 0 -

</TABLE>


Supplemental Disclosures of Non-Cash Investing and Financing Activities:

During the nine months ended  September  30, 1998,  the Company  issued  138,948
shares of common stock in connection with the acquisition of Fresh, Inc., 30,000
shares  of common  stock  associated  with the  acquisition  of Banner  Beef and
100,907  of  common  stock to  satisfy  an  outstanding  liability  incurred  in
conjunction with the acquisition of Down East Frozen Desserts.

See Notes to Financial Statements.





















                                        6
<PAGE>


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

(1)      Basis of Reporting

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

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

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

It is suggested that these financial  statements be read in conjunction with the
financial  statements  and notes for the period ended December 31, 1997 included
in the Terrace Holdings, Inc. 10-KSB.


(2)      Name Change

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


(3)      Income Per Share

Income per share of common stock is based on weighted  average  number of common
shares  outstanding for each period  presented.  There were no potential  common
shares included as they were all considered to be anti-dilutive. Securities that
could  potentially  dilute earnings per share in the future include common stock
purchase   warrants   and  options  to  purchase   common   stock   representing
approximately  7,888,000  Common  Shares.  The Company has  8,498,905  shares of
Common Stock issued and outstanding at September 30, 1998. On July 31, 1998, all
of the Company's  outstanding Preferred Stock,  1,523,825 shares,  automatically
converted  at the rate of two  Common  Shares  for  each  Preferred  Share  into
3,047,650 shares of the Company's Common Stock.


(4)      Inventories

Inventories  for the Company's  Foodservice  distribution  and vegetable  precut
business include produce,  grocery dry goods, and dairy products.  Banner Beef &
Seafood,  Inc.  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.









                                        7
<PAGE>


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

(5)      Convertible Subordinated Notes

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 temporarily  reduced  exercise price of $1.00,  during
the 60-day period ending  December 4, 1998. At any time after  December 4, 1998,
the Notes are  convertible  at the option of the private  investor,  into Common
Stock of the Company at a rate of the lower of $1.00 per share,  or a rate based
on the market  price of the  Company's  Common  Stock during the 30 trading days
prior to that date. The exercise price of the Warrants is calculated identically
to the  conversion  rate of the Notes.  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.  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.


(6)      Acquisition of Banner Beef and Seafood

On July 15,  1998,  the Company  acquired the assets and  substantially  all the
liabilities  of Banner Beef and Seafood Co.,  Inc.  ("Banner")  a South  Florida
company  engaged in the business of processing  meat,  seafood and poultry.  The
base cash purchase price was $1,800,000 plus the assumption of debt of $670,536,
which was immediately  paid off. The acquisition was accounted for as a purchase
effective  July 17, 1998.  The  operations  of Banner Beef and Seafood Co., Inc.
have been included in the Company's  results of operations  from that date.  The
excess  purchase  price is  allocated  to  property  and  equipment  based  upon
independent appraisals.

As part of the  acquisition,  the Company  entered  into a five year  Employment
Agreement  with its  Operations  Vice  President  at an  annual  base  salary of
$200,000.

In  addition,  the  Company has  entered  into a five-year  lease for a building
located in Hialeah,  Florida, which Banner uses as a processing facility. During
the term of the lease,  the Company has an option to purchase  this property for
the lesser of $1,270,000 or its independently appraised value.

The  following  pro forma  information  presents  the  results  of the  combined
operations  of Terrace  Food Group,  Inc. and Banner as if the  acquisition  had
occurred at the beginning of each fiscal year and were carried  forward  through
the period  presented.  The amounts  presented  for 1997  include the results of
operations of A-One-A Produce and Provisions,  Inc. on a pro forma basis for the
first six months of that year. The pro forma  information  may not be indicative
of the results  that  actually  would have  occurred had the  acquisitions  been
effective January 1, 1997 or may be obtained in the future.






                                        8
<PAGE>

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

                                                 Nine months ended
                                                 -----------------
                                                   September 30,
                                                   -------------
                                                 1997            1998 
                                             ------------    ------------

   Total Revenue                             $ 24,211,390    $ 16,486,919

   Net Loss                                  $ (1,476,319)   $ (1,363,701)

   Net Loss Per Share                        $       (.26)   $       (.30)
                                             ============    ============


(7)  Financing Arrangements

In July 1998,  the Company and its  subsidiaries  secured a financing  agreement
with a bank under which the bank agreed to provide a revolving  loan  subject to
available  collateral to a maximum of $4,000,000.  The loan is collateralized by
virtually all assets of the Company and accrues  interest at .5% over the bank's
prime lending rate. The Company and its  subsidiaries  also obtained a term loan
from the same bank in the principal amount of $2,000,000. The 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. The
loan is collateralized by virtually all assets of the Company.  At September 30,
1998 the  Company is not in  conformity  with two  convenants  of the  financing
agreement.  The Company is currently negotiating with the bank to amend the loan
and security agreement to provide a waiver of these covenants.


(8)       Incorporation of New Subsidiary

On June 4, 1997 the Company  incorporated  Terrace Fresh, Inc. as a wholly owned
subsidiary  to operate the  business of  A-One-A's  affiliate,  Fresh,  Inc. The
Registrant  consummated  its  purchase  of Fresh,  Inc.  on  February  2,  1998,
effective as of January 1, 1998. In consideration for the purchase,  the Company
paid  $105,000  in cash and  issued  138,948  shares of common  stock  valued at
$270,000.

The acquisition of Fresh, Inc. was accounted for as a purchase effective January
1, 1998. The operations of Fresh,  Inc. are included in the Company's results of
operations from that date.

The cost in excess of net assets acquired  recorded for the acquisition is to be
amortized over 20 years using the straight-line method.














                                        9
<PAGE>


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


(9)      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.

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.


(10)  Limited Comparable Results for 1997 Periods

In November 1997, the Company decided to dispose of certain of its subsidiaries:
including its Restaurant, Catering and Hospitality businesses. These operations,
which represented all of the Company's  operations for the first two quarters of
1997 were discontinued as of year-end.  Therefore,  the only comparable  results
for 1997  periods  are for the  operations  of  A-One-A  Produce  and  Provision
business which was acquired as of July 1, 1997.

(11)  Subsequent Event

Effective  October 5, 1998,  the  Company  temporarily  reduced the price of its
outstanding  $4.00 warrants to $1.00 for a sixty day period expiring December 4,
1998. As of November 18, 1998,  approximately  $138,000 was invested pursuant to
the temporary price reduction of the $4.00 warrants. In addition, as of November
18, 1998, the Company has raised  additional  equity of  approximately  $797,000
from private  investors,  directors,  officers and other key  management  of the
Company.




































                                     10
<PAGE>



Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------

The Company operates in two segments of the Food Industry.  It's A-One-A Produce
and Provisions,  Inc.  subsidiary sells and distributes  fresh produce and dairy
products to  Foodservice,  export and cruise  ship  customers  throughout  South
Florida. Fresh, Inc. operates a pre-cut ready to eat produce-processing facility
nearby A-One-A's  warehouse  facility and sells its products  primarily  through
A-One-A's  marketing  organization.  In July of this year, the Company purchased
Banner  Beef and  Seafood,  Inc.,  a  processor  of value added meat and seafood
products selling primarily to Foodservice  institutional customers. The Company,
in continuing with its strategy to become a major force in the  distribution and
processing of fresh produce,  beef and seafood has positioned  itself to realize
profitability through continued sales growth and resulting economies of scale.


Results of Operations - Distribution
------------------------------------

A-One-A  Produce and  Provisions,  Inc. - Three months ended  September 30, 1998
compared to the three months ended September 1997.

Revenues for the period ended September 30, 1998 were  approximately  $6,623,000
versus  $3,574,000 for the same period in 1997.  This increase of  approximately
85% is attributable to several factors. Management has been extremely aggressive
in its selling efforts during 1998 in an attempt to gain greater market share of
the Foodservice  produce  business in its South Florida  distribution  area. The
Company's  Foodservice sales increased by approximately 46% from the prior year.
As well in July,  A-One-A  created  a cruise  ship  division  to  service  South
Florida's rapidly growing cruise market.  Revenues during its first three months
of operation  were  approximately  $865,000.  A-One-A's  operating  loss for the
period  ended  September  30,  1998  was  approximately   $380,000  compared  to
approximately  $66,000 for the year prior period. This increase of $314,000 from
the year prior period is a result of a large increase in the selling,  marketing
and operational  costs incurred in accordance with its program to build a larger
sales base.  In September of 1997,  the Company  moved into its new facility and
continued  to incur  costs  associated  with the  larger  facility.  In order to
realize  profitability from A-One-A,  the sales volume has to reach a level that
will  profitably  support its fixed  expenses in the new facility.  Although the
sales growth has taken longer than expected,  the current sales run rate has put
A-One-A  in a position  to  realize  profit  from its  operation  for the fourth
quarter of 1998 and into the future.


Processing Operations
---------------------

Fresh,  Inc. - In January of 1998, the Company  finalized its purchase of Fresh,
Inc. a "value  added"  processor of fresh  fruits and  vegetables.  Fresh,  Inc.
operates a processing  plant in close  proximity to the  A-One-A's  distribution
facility.   This   subsidiary   custom  cuts  produce  to  individual   customer
specifications  on a "just in time" basis.  There is a positive trend within the
Foodservice  sector to reduce labor and associated  costs by buying ready to use
produce.  Management is currently in negotiations  to relocate Fresh,  Inc. to a
state of the art  processing  plant,  which it feels will  greatly  enhance  its
market  penetration.  Management  expects a positive earnings  contribution from
this subsidiary as revenue continues to grow.






                                       11
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS, Sheet #2 
--------------------------------------------------------------------------------
                                                              
Banner Beef and  Seafood,  Inc. - In July of 1998,  the Company  purchased  this
Miami based processor of chicken, beef and seafood.  With this acquisition,  the
Company has shown its commitment to rapid growth in the  manufacturing and sales
of value  added  food  items to its  customers.  The  Company  invested  capital
resources  in the third  quarter  to  participate  in the  Country's  newest and
fastest growing food industry segment Home Meal Replacement  (HMR). In September
Banner  introduced a nationwide  twelve item HMR program into one of the nations
largest club store chains.  Management believes that although it has experienced
extensive start up costs in order to roll out this program, the long term growth
potential of this and other  retail and  institutional  programs  will more than
overcome  these  initial  increased  expenses.  Ready to eat food  products  and
complete  meals  appears to be one of the fastest  growing  segments in the food
industry.  With  more  and  more  dual  working  households  than  ever  before,
convenience  plays a major  role in the  dining  decision.  Banner  with its two
manufacturing  facilities is currently working on other HMR programs in addition
to its current products.  Banner's  manufacturing programs are "value added" and
carry higher margins than the Company's other  operations.  Management  believes
that as the market penetration of its HMR programs, and other products currently
in  the  retail  and  institutional   marketplace  continue  to  grow,  Banner's
contribution will have a positive impact on the Company's earnings.


Terrace Food Group (Consolidated)
---------------------------------

Sales  for  the  three  months  ended  September  30,  1998  were  approximately
$8,000,000 with a loss from continuing operations of approximately $929,000. The
loss incurred by the Company during this period  resulted from several  factors.
The Company's  A-One-A  subsidiary  experienced  much higher operating costs and
lower gross  profit  margin  resulting  from its moving to its new  facility its
first summer season in the larger building, and the rollout of its higher volume
lower margin cruise ship division. As sales reach higher levels and economies of
scale are realized,  the Company expects to realize  immediate  profits from its
distribution business. In addition, the Company experienced  significant startup
and  rollout  cost  associated  with its recent  acquisition  of Banner Beef and
Seafood's new Home Meal Replacement Program. The Company expects to recoup these
costs and realize  profitability  from this and other retail  programs in future
periods.

Management  believes  that with all of its  efforts  and  resources  now clearly
focused on the Company's core businesses,  the short term effects it has endured
from the rapid  growth and  expansion  will  ultimately  result in positive  net
income and greater shareholder value.




















                                       12
<PAGE>


Part II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

           (3)(i) Articles of Incorporation *
           ----------------------------------

           (3)(ii) By-laws *
           -----------------

           (4) Instruments defining the rights of holders *
           ------------------------------------------------

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

======================================================= 


*    Incorporated by this reference to the Registrant's  registration statements
     #33-96892-A and 333-45195

**   All  material  contracts  presently  in full  force  and  effect  have been
     heretofore  filed  with  the  Commission  is  hereby  incorporated  by this
     reference to Registrant's  registration statement  #33-96892-A,  and to its
     Form 10-KSB, which was filed with the Commission April 15, 1996.


(b)      Reports on Form 8-K

         The Registrant  filed a Report on Form 8-K dated July 30, 1998, for the
purpose of reporting its purchase of all of the operating assets and liabilities
of Banner Beef and Seafood Co.,  Inc. The  Registrant  also filed two reports on
Form 8-K/A both dated April 28,  1998,  for the purpose of  reporting  pro forma
financial  information as it related to the 1997  acquisition of A-One-A Produce
and the sale of the Deering Ice Cream business in December 1997, respectively.




























                                       13
<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 18, 1998                  By: /s/Jonathan S. Lasko  
                                               ------------------------------ 
                                                  Jonathan S. Lasko, 
                                                  Executive Vice President &
                                                  Chief Operating Officer


Dated:  November 18, 1998                  By: /s/William P. Rodrigues, Jr.
                                               ------------------------------ 
                                                  William P. Rodrigues, Jr.,
                                                  Principal Financial Officer









































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