SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
May 26, 2001 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
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Commission file number 0-24390
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TREND - LINES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2722797
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 Oxford Street, Lynn, Massachusetts 01901
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(781) 853 - 0900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 the past 90 days. Yes No \X\
------ -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING
CLASS AS OF MAY 26, 2001
- ----- -----------------------------
Class A Common Stock, $.01 par value 6,010,411
Class B Common Stock, $.01 par value 4,641,082
Trend-Lines, Inc. and Subsidiary
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 26, 2001 (Unaudited) and February 24, 2001 3
Condensed Consolidated Statements of Operations
Three Months Ended May 26, 2001 and
May 27, 2000 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended May 26, 2001 and
May 27, 2000 (Unaudited) 5 - 6
Notes to Condensed Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 13 - 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II - Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17 - 18
Signatures 19
2
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
(Unaudited)
May, 26 February 24,
2001 2001
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 13,105 $ 18,338
Accounts receivable, net 1,983 2,948
Inventories 39,515 44,102
Prepaid expenses and other current assets 1,488 1,656
--------- ---------
Total current assets 56,091 67,044
PROPERTY AND EQUIPMENT, NET 11,366 12,999
OTHER ASSETS 782 904
--------- ---------
$ 68,239 $ 80,947
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 42,566 $ 47,566
Note payable to officer 3,500 3,500
Current portion of capital lease obligations 139 218
Post-Petition accounts payable 686 1,060
Pre-Petition accounts payable 25,186 25,090
Net current liabilities of discontinued operations 14,394 14,042
Accrued expenses 5,250 5,897
Deferred liabilities 1,839 2,448
Other current liabilities 1,279 1,355
--------- ---------
Total current liabilities 94,839 101,176
========= =========
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION - -
--------- ---------
STOCKHOLDERS' (DEFICIT):
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,510,411 shares at May 26, 2001 and February 24, 2001 65 65
Class B --
Authorized - 5,000,000 shares
Issued and outstanding - 4,641,082 shares May 26, 2001 and
February 24, 2001 47 47
Additional paid-in capital 41,631 41,631
Retained deficit (65,883) (59,512)
Less: 500,000 Class A shares held in treasury at May 26, 2001 and February
24, 2001, respectively (2,460) (2,460)
--------- ---------
Total stockholders' deficit (26,600) (20,229)
--------- ---------
$ 68,239 $ 80,947
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
3
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended
May 26, May 27,
2001 2000
------------ ------------
Net sales $ 27,083 $ 44,132
Cost of sales 19,000 32,129
------------ ------------
Gross profit 8,083 12,003
Selling, general and administrative expenses 10,575 11,840
Reorganization expense 2,825 --
------------ ------------
(Loss) income from operations (5,317) 163
Interest expense, net 999 1,369
------------ ------------
(Loss) income before provision for income taxes
and discontinued operations (6,316) (1,206)
Provision for income taxes -- --
------------ ------------
(Loss) income from continuing operations (6,316) (1,206)
(Loss) income from discontinued operations (55) (2,608)
------------ ------------
Net (loss) income $ (6,371) $ (3,814)
============ ============
Basic net (loss) income per share
Continuing operations $ (6.01) $ (0.11)
Discontinued operations $ (0.05) $ (0.24)
------------ ------------
Basic net (loss) income per share
$ (6.06) $ (0.35)
============ ============
Diluted net (loss) income per share
Continuing operations $ (6.01) $ (0.11)
iscontinued operations $ (0.05) $ (0.24)
------------ ------------
Diluted net (loss) income per share
$ (6.06) $ (0.35)
============ ============
Basic weighted average shares outstanding (note 2) 10,651,493 10,651,493
============ ============
Diluted weighted average shares outstanding (note 2) 10,651,493 10,651,493
============ ============
See notes to condensed consolidated financial statements.
4
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Three Months Ended
May 26, 2001 May 27, 2000
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,371) $ (3,814)
Add: loss from discontinued operations 55 --
-------- --------
Loss from continuing operations (6,316) (3,814)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities--
Depreciation and amortization 1,633 2,623
Reorganizational expenses 2,825 --
Changes in current assets and liabilities
Accounts receivable 965 114
Inventories 4,587 23,954
Prepaid expenses and other current assets 168 (1,166)
Post-petition accounts payable (374) --
Pre-petition accounts payable 96 (12,152)
Accrued expenses (647) (127)
Deferred liabilities (609) --
Other current liabilities (76) --
-------- --------
Net cash provided by operating activities 2,252 9,432
Net cash provided by discontinued operations 297 --
-------- --------
Net cash (used in) provided by operating activities
before reorganization expense 2,549 9,432
Operating cash flows from reorganization items
Professional fees paid for services rendered in bankruptcy (1,079) --
Interest income received 149 --
Other reorganization expenses paid (1,895) --
-------- --------
Net cash used by reorganization items (2,825) --
Net cash (used in) provided by operating activities (276) 9,432
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- (373)
Decrease (increase) in other assets 122 (12)
-------- --------
Net cash provided by (used in) investing activities 122 (385)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under bank credit facilities (5,000) (9,548)
Net payments on capital lease obligations (79) (188)
-------- --------
Net cash used in financing activities (5,079) (9,736)
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,233) (689)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,338 1,054
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,105 $ 365
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 1,047 $ 2,076
Income taxes $ -- $ 82
See notes to condensed consolidated financial statements.
5
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements of Trend-Lines, Inc. ("the
Company") and subsidiaries, have been prepared in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7: "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7")
and generally accepted accounting principles applicable to a going concern,
which principles, except as otherwise disclosed, assume that assets will be
realized and liabilities will be discharged in the normal course of business.
The Company filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on August 11, 2000 (the "Filing"). See Note 2 for
further information.
On August 23, 2000, the Company filed various sale motions seeking Bankruptcy
Court approval for the liquidation of the Golf Day division. The Company entered
into an agreement with a liquidation agency (the "Agency") which called for the
Agency to pay the Company 49.55% of the total retail value of the merchandise
included within the sale less 1.5% for defective and/or unsalable merchandise.
The Company, with the assistance of the liquidator, completed the liquidation of
the inventory of GolfDay and selected furniture, fixtures and equipment by
January 31, 2001. The sale generated approximately $21,100,000. From these
proceeds, the Company paid $20,773,000 to the Bank of America as payment for a
portion of the outstanding balance under the Bank Credit Facility discussed in
Note 2. The Company has retroactively presented the operations of the GolfDay
division as discontinued operations for all periods presented. See Note 7 for
further information.
With respect to the unaudited condensed consolidated financial statements for
the three months ended May 26, 2001, it is the Company's opinion that all
necessary adjustments (consisting of normal and recurring adjustments) have been
included to present a fair statement of results for the interim periods. Certain
prior-year amounts have been reclassified to conform to this year's
presentation.
These statements should be read in conjunction with the Company's financial
statements (Form 10-K) for the fiscal year ended February 24, 2001. Due to the
seasonal nature of the Company's business, operating results for the interim
periods are not necessarily indicative of results that may be expected for the
fiscal year ending February 23, 2002. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
pursuant to the general rules and regulations promulgated by the Securities and
Exchange Commission (the "SEC").
The Company's ability to continue as a going concern is dependent upon
consummation of the Company's amended plan of reorganization by the Bankruptcy
Court (Note 2), ability to make plan distributions under the amended plan of
reorganization, the ability to maintain compliance with debt covenants under the
New Bank Credit Facility (Note 5), achievement of profitable operations,
maintenance of adequate financing, and the resolution of the uncertainties of
the reorganization case discussed in Note 2. In an effort to return the Company
to profitability and accomplish its long-term goals, the Company disposed of its
GolfDay division (See Note 7) and is currently focusing on its woodworking
business.
6
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the "Company") for the interim
periods presented. The operating results for the three months ended May 26, 2001
are not necessarily indicative of the results to be expected for the fiscal year
ending February 23, 2002.
2. Reorganization Plan
In the Chapter 11 case, substantially all liabilities as of the date of the
Filing were subject to settlement under the First Amended Joint Reorganization
Plan of Trend-Lines, Inc. and the Official Committee of Unsecured Creditors (the
"Plan") that was confirmed by the Bankruptcy Court on October 17, 2001. On
October 29, 2001, the effective date of the Plan (the "Effective Date") the
Company emerged from bankruptcy and merged into its wholly-owned subsidiary
Woodworkers Warehouse, Inc. Woodworkers Warehouse, Inc., became the surviving
corporation. The following is a brief summary of how the Plan organized and
treated certain Company liabilities:
Class 1 - Bank of America Bank Credit Facility
The Bank Credit Facility discussed in Note 5 issued to the Company by the Bank
of America was a secured claim and was impaired under the Plan. On October 29,
2001 as part of the Plan, the outstanding balance under the Bank Credit Facility
was paid in full in connection with the closing of a new senior secured
revolving credit facility referred to as the Exit Financing Facility. See Note 5
for the terms of the Exit Financing Facility.
Class 2 - Other Secured Claims
These secured claims consist of various vendors who leased furniture, fixtures
and equipment for retail stores and the corporate offices of the Company. These
holders received (a) some or all of the collateral securing the leases, (b) cash
in an amount equal to the proceeds received from the sale of the collateral or
(c) such other treatment as was agreed upon by the Company and the Bankruptcy
Committee and the holder. In the event the value of the collateral securing a
Class 2 claim was less than the total amount of the claim, the difference was
treated as a Class 5 general unsecured claim.
Class 3- Other Priority Claims
These claims are claims other than administrative, professional fee or priority
tax claims entitled to priority pursuant to Section 507(a) of the Bankruptcy
Code and were deemed to be unimpaired by Plan. These claims were entitled to
payment in full.
Class 4 - Convenience Claims
These claims consist of claims that would otherwise be a Class 5 General
Unsecured Claim that is equal to or less than $2,000 or reduced to $2,000
pursuant to the election by the holder of the Claim. These claims have deemed to
be impaired by the Plan. Each holder of a Class 4 claim will receive cash in an
amount equal to 25% of such claim.
Class 5 - General Unsecured Claims
These claims are general unsecured, pre-petition trade claims, reclamation
claims, lease rejection claims and any deficiency claims of BankofAmerica and
the Other Secured Claims. The Company estimated the total amount of Class 5
claims to be $55,000,000. Each holder of a claim in Class 5 is scheduled to
receive in full satisfaction of such allowed claims, its pro rata share, based
on the principal amount of each holder's claim, of $2,000,000 on January 15,
2002 and 5,280,000 shares of new common stock on the Effective Date.
7
Class 6 - Common Stock Equity Interest and Claims
On the Effective Date, all common stock equity interests were extinguished and
the certificates and all other documents representing such common stock equity
interests were deemed cancelled and of no force or effect. The holders of the
common stock equity interests did not receive or retain any interest or property
under the Plan.
The foregoing description is qualified in its entirety by the Plan, as filed as
an exhibit to the Form 8-K of Woodworkers Warehouse, Inc., the successor of
Trend-Lines, Inc., on October 31, 2001 and included as an exhibit hereto by
reference.
All amounts presented in the accompanying financial statements may be subject to
future adjustments depending on Bankruptcy Court actions, further developments
with respect to disputed claims, determination as to the security of certain
claims, the value of any collateral securing such claims, or other events. The
Company expects to reflect the reorganization plan using fresh-start accounting
in its financial statements for the interim period ending November 25, 2001.
3. Reorganization Items
The Company provided for or incurred the following expense items during the
three months ended May 26, 2001, directly associated with the Chapter 11
reorganization proceedings (in thousands):
Three Months
Ended May 26,
2001
--------------
Professional Fees $(1,079)
Provision for retention of key employees (201)
Interest income 149
Provision for occupancy and other store closing costs (732)
Net asset/liability write-offs (943)
Misc. Expense (19)
-------
Total Reorganization Expense $(2,825)
=======
4. (Loss) Earnings Per Share Data
Basic (loss) earnings per share is computed by dividing the net (loss) income
available to common shareholders by the weighted average number of shares of
common stock outstanding. For the purposes of calculating diluted earnings per
share, the denominator includes both the weighted average number of common stock
outstanding and the dilutive effect of common stock equivalents such as stock
options and warrants. For the quarter ended May 26, 2001 no options to purchase
common stock were included in the earnings per share calculation as their effect
would have been antidilutive.
8
Below is a summary of the shares used in calculating basic and diluted (loss)
earnings per share:
Three Months Ended
-------------------------
May 26, May 27,
2001 2000
---------- ----------
Weighted average number of shares of common
stock outstanding 10,651,493 10,628,538
Dilutive effect of stock options -- 66,939
---------- ----------
Diluted weighted average shares outstanding 10,651,493 10,695,477
========== ==========
5. Bank Credit Facility
At May 26, 2001, the Company had approximately $42.6 million of borrowings
outstanding and approximately $120,000 of letters of credit outstanding. The
bank has a security interest in substantially all assets of the Company.
Pursuant to an amendment and waiver dated as of June 9, 2000 the bank amended
the credit facility with respect to the financial covenants and advance rates
for future periods. The amended credit facility bore interest at the bank's
reference rate plus 0.75% (7.75% at May 26, 2001) or LIBOR plus 2.25% (6.49% at
May 26, 2001). The amended credit facility allowed for borrowings up to $100
million based on a percentage of inventory (the "Advance Rate"). Borrowings
include 50% of the amount reserved for outstanding letters of credit. At May 26,
2001, the Company was not in compliance with the financial covenants of the
facility, and continued to use cash collateral to fund its operations (with
court approval).
The amended credit facility also gave the bank warrants for the purchase of
200,000 shares of the Company's class A common stock, exercisable at the lowest
price during the 60 - day period starting June 9, 2000. The valuation of these
warrants was deemed to be immaterial. As of May 26, 2001, the warrants were not
exercised and were canceled in connection with the Plan discussed in Note 2.
Pursuant to the Plan discussed in Note 2, on October 29, 2001, the Company
entered into a $30.0 million Senior Secured Revolving facility with the Bank of
America (the "Exit Financing Facility"). The Exit Financing Facility bears
interest equal to LIBOR plus 3.25% (7.49% at May 26, 2001) or the rate plus
1.00% (7.25% at May 26, 2001). Under the Exit Financing Facility, the Company
borrowing base through March 31, 2002 is up to 65% of the cost value of eligible
store and warehouse inventory, plus 50% of the value of inventory covered by
Merchandise Letters of Credit, plus 85% of the value of eligible credit card and
trade accounts receivable plus $500,000 against the value of the Company's
Seabrook, NH facility plus an overadvance capability equal to $3.0 million for
60 days from the Effective Date, $2.5 million for the next thirty days and $2.0
million thereafter with amortization of $166,667 per month beginning February
28, 2002. After March 31, 2002 the company's borrowing base is equal to 65% of
the cost of eligible store and warehouse inventory or 85% of the OLV value of
the inventory from an appraiser acceptable to BankofAmerica, plus 50% of the
value of inventory covered by Merchandise Letters of Credit plus 85% of the
value of eligible credit card and trade accounts receivable plus $500,000
against the value of the Company's Seabrook, NH facility until the facility is
sold. The Exit Financing Facility matures on October 29, 2003.
9
6. Selected Information By Business Segment
As discussed in Note 1, the Company disposed of its golf business. As a result,
the segment information below has been realigned to reflect the Company's
results from continuing operations. Information as to the operations of the
different business segments with respect to sales and operating income is set
forth below for the three months ended May 26, 2001 and May 27, 2000 (in
thousands):
Net sales 2001 2000
-------- --------
Retail $ 25,548 $ 39,440
Catalog 1,535 4,692
-------- --------
$ 27,083 $ 44,132
-------- --------
Income (loss) from continuing operations
Retail $ (840) $ 971
Catalog (416) 529
General corporate expenses (5,060) (2,706)
-------- --------
$ (6,316) $ (1,206)
-------- --------
The Company sells its products through its Woodworker's Warehouse retail stores
and its catalog. These businesses have been aggregated into their respective
reportable segments based on the management reporting structure. The Company
operated from a distribution center in Revere, Massachusetts for its Woodworkers
Warehouse operations.
7. DISCONTINUED OPERATIONS
As discussed in Note 1, the Company disposed of its golf business. Pursuant to
Accounting Principles Board (APB) Opinion No. 30, REPORTING RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, (APB
30) the consolidated financial statements of the Company have been presented to
reflect the disposition of the golf business as a discontinued operation.
Accordingly, revenues, expenses, and cash flows of the golf division have been
excluded from the respective captions in the accompanying consolidated
statements of operations and consolidated statements of cash flows. The net
assets and liabilities of the golf business have been reported as "Net assets or
liabilities of discontinued operations" in the accompanying consolidated balance
sheets; the net operating (losses) income of the golf business have been
reported as "Net (loss) income from discontinued operations" in the accompanying
consolidated statements of operations; the net loss from the disposal of the
golf business has been presented as "Net loss on disposal"; and the net cash
flows of the golf division have been reported as "Net cash provided by (used in)
discontinued operations" in the accompanying consolidated statements of cash
flows. Net sales for the golf business were approximately $26,000 for the three
months ended May 27, 2000. There were no net sales from the golf business during
the three months ended May 26, 2001. Net assets (liabilities) of discontinued
operations were as follows (in thousands):
10
May 26, February 26,
2001 2001
-------- --------
Accounts receivable, net $ 1,916 $ 2,607
Pre-petition accounts payable 13,620 13,620
Post-petition accounts payable -- 7
Accrued expenses 2,238 2,571
Deferred liabilities 452 451
-------- --------
$(14,394) $(14,042)
======== ========
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the first quarter of fiscal 2001 decreased by $17.0 million, or
38.6%, from $44.1 million for the first quarter of fiscal 2000 to $27.1 million.
Net retail sales for the first quarter of fiscal 2001 decreased $13.9 million or
35.2% from $39.4 million for the first quarter of fiscal 2000 to $25.5 million.
The retail sales decrease was attributable to implications from the Company's
bankruptcy filing in August 2000. Catalog sales for the first quarter of fiscal
2001 decreased $3.2 million, or 67.3%, from $4.7 million for the first quarter
of fiscal 2000 to $1.5 million. Catalog sales were impacted due to fewer
catalogs being mailed during the period.
The following table presents net sales and gross margin data of the Company for
the periods indicated:
Three Months Ended
--------------------------------------
May 26, May 27,
2001 2000
------- -------
(In thousands, except percentage data)
Net Sales:
Retail $25,548 $39,440
Catalog 1,535 4,692
------- -------
Total $27,083 $44,132
======= =======
Gross Margin 29.8% 27.2%
======= =======
Gross profit for the first quarter of fiscal 2001 decreased $3.9 million, or
32.7%, from $12.0 million for the first quarter of fiscal 2000 to $8.1 million.
As a percentage of net sales, gross profit increased 2.6% from 27.2% of net
sales for the first quarter of fiscal 2000 to 29.8% of net sales in the first
quarter of fiscal 2001. Aggressive promotional advertising and the change in
sales mix is the primary cause for the change in gross margin.
Selling, general and administrative expenses for the first quarter of fiscal
2001 decreased $1.3 million, or 10.7%, from $11.8 million for the first quarter
of fiscal 2000 to $10.6 million for the first quarter of fiscal 2001. The
decrease in selling, general and administrative expenses is primarily related to
cost reductions related to the reorganization of the company. Reorganization
expenses resulted in a net charge of $3.0 million or 11% of net sales for the
first quarter of fiscal 2001. These amounts related directly to the Chapter 11
proceedings and associated restructuring of our operations and are discussed in
Note 2 to the Condensed Consolidated Financial Statements.
Interest expense for the first quarter of fiscal 2001, net of interest income,
decreased by $.5 million from $1.4 million in the first quarter of fiscal 2000
to $0.9 million in the second quarter of fiscal 2000. The decrease in interest
expense is attributable to the decrease in the amount outstanding under the
Company's existing bank credit facility.
12
Liquidity and Capital Resources
The Company's working capital deficiency increased by $4.6 million, from $34.1
million as of February 24, 2001 to $38.7 million as of May 26, 2001. The
increase resulted primarily from a decrease in inventories of $4.5 million,
which was offset by an increase in pre-petition and post-petition accounts
payable of $17.1 million, collectively.
During the three month period ended May 26, 2001, the cash used by operating
activities was $.2 million.
The net cash provided by investing activities was approximately $ 0.1 million.
The main source of cash was from the decrease in other assets.
The net cash used in financing activities was approximately $5.1 million and was
primarily attributable to the decrease in borrowings on the Company's bank
credit facility of $5.0 million.
At May 26, 2001, the Company had approximately $42.6 million of borrowings
outstanding and approximately $0.1 million of letters of credit outstanding. The
bank has a security interest in substantially all assets of the Company. The
company was continuing to use the bank's cash collateral to fund its operations
while in bankruptcy.
On June 9, 2000, prior to the Company filing for bankruptcy, pursuant to an
amendment and waiver dated as of June 9, 2000 the bank amended the credit
facility with respect to the financial covenants and advance rates for future
periods. The amended credit facility will bear interest at the bank's reference
rate plus 0.75% (7.00 % at May 26, 2001) or LIBOR plus 2.25% (6.49% at May 26,
2001). The amended credit facility allows for borrowings up to $100 million
based on a percentage of inventory (the "Advance Rate"). Borrowings include 50%
of the amount reserved for outstanding letters of credit. At May 26, 2001, the
Company was not in compliance with their financial covenants.
The amended credit facility also gave the bank warrants for the purchase of
200,000 shares of the Company's Class A Common Stock, exercisable at the lowest
price during the 60 - day period starting June 9, 2000. The valuation of these
warrants was deemed to be immaterial. As of May 26, 2001, the warrants have not
been exercised.
Pursuant to the Plan discussed in Note 2, on October 29, 2001, the Company
entered into a $30.0 million Senior Secured Revolving facility with the Bank of
America (the "Exit Financing Facility"). The Exit Financing Facility bears
interest equal to LIBOR plus 3.25% (7.49% at May 26, 2001) or the rate plus
1.00% (7.25% at May 26, 2001). Under the Exit Financing Facility, the Company
borrowing base through March 31, 2002 is up to 65% of the cost value of eligible
store and warehouse inventory, plus 50% of the value of inventory covered by
Merchandise Letters of Credit, plus 85% of the value of eligible credit card and
trade accounts receivable plus $500,000 against the value of the Company's
Seabrook, NH facility plus an overadvance capability equal to $3.0 million for
60 days from the Effective Date, $2.5 million for the next thirty days and $2.0
million thereafter with amortization of $166,667 per month beginning February
28, 2002. After March 31, 2002 the company's borrowing base is equal to 65% of
the cost of eligible store and warehouse inventory or 85% of the OLV value of
the inventory from an appraiser acceptable to BankofAmerica, plus 50% of the
value of inventory covered by Merchandise Letters of Credit plus 85% of the
value of eligible credit card and trade accounts receivable plus $500,000
against the value of the Company's Seabrook, NH facility until the facility is
sold. The Exit Financing Facility matures on October 29, 2003.
13
Impact of Inflation
The Company does not believe that inflation has had a material impact on its net
sales or results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements included in this report that do not relate to present or historical
conditions are "forward-looking statements" within the meaning of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents other than
this report that are filed with the Securities and Exchange Commission. Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this report and
elsewhere may include without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources and are intended to be made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Words such as "believes,"
"forecasts," "intends," "possible," "expects," "estimates," "anticipates," or
"plans" and similar expressions are intended to identify forward-looking
statements. Investors are cautioned that such forward-looking statements involve
risks and uncertainties including without limitation the following: (i) the
Company's plans, strategies, objectives, expectations and intentions are subject
to change at any time at the discretion of the Company; (ii) increased
competition, a change in the retail business in the tool sector or a change in
the Company's merchandise mix; (iii) a change in the Company's advertising,
pricing policies or its net product costs after all discounts and incentives;
(iv) the Company's plans and results of operations will be affected by the
Company's ability to manage its growth and inventory; (v) the Company's
continued compliance with the financial covenants under it's bank credit
facility, as the same may be in effect from time to time; (vi) the Company's
ability to achieve its plans and strategies of growth will be dependent on
maintaining adequate bank and other financing; and (vii) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the market risk associated with the
Company's financial instruments. The Company is exposed to market risk from
changes in interest rates which may adversely affect the Company's financial
position, results of operations and cash flows. In seeking to minimize the risks
from interest rate fluctuations, the Company manages exposures through its
regular operating and financing activities. The Company does not use financial
instruments for trading or other speculative purposes and is not party to any
leveraged financial instruments. The Company is exposed to interest rate risk
primarily through its borrowings under the Exit Financing Facility (see Note 5
to the Condensed Consolidated Financial Statements).
15
Part II - Other Information
Item 1. Legal Proceedings
The Company filed a petition in the United States Bankruptcy Court for the
District of Massachusetts under Chapter 11 of the United States Bankruptcy
Code on August 11, 2000. The First Amended Joint Reorganization Plan of
Trend-Lines, Inc. and the Official Committee of Unsecured Creditors (the
"Plan") dated as of September 7, 2001, as modified by the Joint Motion to
Approve Nonmaterial Modification to the First Amended Joint Reorganization
Plan of Trend-Lines, Inc. and the Official Committee of Unsecured
Creditors, was confirmed by the Bankruptcy Court on October 17, 2001. The
Effective Date of the Plan was October 29, 2001 (the "Effective Date"). On
the Effective Date, the Company emerged from bankruptcy and merged into its
wholly-owned subsidiary, Woodworkers Warehouse, Inc. Woodworkers Warehouse,
Inc. became the surviving corporation.
Item 2. Changes in Securities and Use of Proceeds
In connection with the reorganization under the Plan, on the Effective
Date, all common stock equity interests were extinguished and the
certificates and all other documents representing such common stock equity
interests were deemed cancelled and of no force or effect.
Item 3. Defaults Upon Senior Securities
Due to the bankruptcy filing the Company was in default under their bank
credit facility as of May 26, 2001. On October 29, 2001 the Company emerged
from bankruptcy and entered into the Exit Financing Facility with
BankofAmerica.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
2.1 Order Confirming First Amended Joint Reorganization Plan of
Trend-Lines, Inc. and the Official Committee of Unsecured Creditors,
dated as of October 17, 2001, filed as an exhibit to Woodworkers
Warehouse, Inc.'s Form 8-K as filed with the Securities and Exchange
Commission on October 31, 2001, and incorporated herein by reference.
16
2.2 First Amended Joint Reorganization Plan of Trend-Lines, Inc. and the
Official Committee of Unsecured Creditors, dated as of September 7,
2001, filed as an exhibit to Woodworkers Warehouse, Inc.'s Form 8-K as
filed with the Securities and Exchange Commission on October 31, 2001,
and incorporated herein by reference.
2.3 Joint Motion to Approve Nonmaterial Modification to First Amended
Joint Reorganization Plan of Trend-Lines, Inc. and the Official
Committee of Unsecured Creditors, dated as of October 11, 2001, filed
as an exhibit to Woodworkers Warehouse, Inc.'s Form 8-K as filed with
the Securities and Exchange Commission on October 31, 2001, and
incorporated herein by reference.
2.4 First Amended Disclosure Statement with Respect to First Amended Joint
Reorganization Plan of Trend-Lines, Inc. and the Official Committee of
Unsecured Creditors, dated as of September 7, 2001, filed as an
exhibit to Woodworkers Warehouse, Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on October 31, 2001, and
incorporated herein by reference.
27 Financial Data Schedule (furnished to the Securities and Exchange
Commission for Electronic Data Gathering, Analysis and Retrieval
[Edgar] purposes only)
(b) Reports on Form 8-K - not applicable
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TREND-LINES, INC.
Registrant
By: Woodworkers Warehouse, Inc.,
as successor to Trend-Lines, Inc.
Date: 1/14/02 /s/ Walter S. Spokowski
------------------------------------------
Walter S. Spokowski
(Chief Executive Officer)
/s/ Ronald L. Franklin
------------------------------------------
Ronald L. Franklin
(Executive Vice President,
Chief Financial Officer)