-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzaVufcjmwZtQPVfePnKy/zBfm3e4eCptt89pSvUXP7dN+l21eb/stqMpfeiwokX S7fPCz/UDslaArezuxv2IA== 0001042645-98-000206.txt : 19981014 0001042645-98-000206.hdr.sgml : 19981014 ACCESSION NUMBER: 0001042645-98-000206 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980829 FILED AS OF DATE: 19981013 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TREND LINES INC CENTRAL INDEX KEY: 0000922978 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 042722797 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24390 FILM NUMBER: 98724861 BUSINESS ADDRESS: STREET 1: 135 AMERICAN LEGION HWY CITY: REVERE STATE: MA ZIP: 02151 BUSINESS PHONE: 7818930900 MAIL ADDRESS: STREET 1: 135 AMERICAN LEGION HWY CITY: REVERE STATE: MA ZIP: 02151 10-Q 1 TREND-LINES, INC. 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 AUGUST 29, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ------------------ TO ----------------- 0-24390 Commission file number . . . . . . . . . . . . . . . . . TREND - LINES, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Exact name of registrant as specified in its charter) Massachusetts 04-2722797 . . . . . . . . . . . .. . . . . . . .. . . . . . . (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 American Legion Highway, Revere , Massachusetts 02151 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . (Address of principal executive office) (Zip Code) (617) 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 ..X... No...... Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS NUMBER OF SHARES OUTSTANDING SEPTEMBER 10, 1998 Class A Common Stock, $.01 par value 5,923,841 Class B Common Stock, $.01 par value 4,726,794 TREND-LINES, INC. AND SUBSIDIARY INDEX PAGE Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets August 29, 1998 (Unaudited) and February 28, 1998 3 Condensed Consolidated Statements of Operations Three Months Ended August 29, 1998 and August 30, 1997 and Six Months Ended August 29, 1998 and August 30, 1997 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows Six Months Ended August 29, 1998 and August 30,1997 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations 8-11 Part II - Other Information Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TREND-LINES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
August 29 February 28, 1998 1998 (Unaudited) ---------- ------------ CURRENT ASSETS: Cash and cash equivalents ............... $ 984 $ 669 Accounts receivable, net ................ 19,338 18,546 Inventories ............................. 105,533 102,172 Prepaid expenses and other current assets 6,214 6,906 -------- -------- Total current assets . 132,069 128,293 PROPERTY AND EQUIPMENT, NET ................... 21,310 19,387 INTANGIBLE ASSETS, NET ........................ 6,797 6,973 OTHER ASSETS .................................. 720 799 -------- -------- $160,896 $155,452 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank credit facility ...................... $ 68,449 $ 43,801 Current portion of capital lease obligation s 816 777 Accounts payable .......................... . 45,249 53,830 Accrued expenses .......................... . 6,024 8,111 -------- -------- Total current liabilitie s 120,538 106,519 -------- -------- CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 769 1,182 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value - Class A -- Authorized - 20,000,000 shares Issued -6,423,841 and 6,385,178 shares at August 29, 1998 and February 28, 1998, respectively 64 64 Class B -- Authorized - 5,000,000 shares Issued and outstanding - 4,726,794 and 4,738,066 shares at August 29, 1998 and February 28, 1998, respectively 47 47 Additional paid-in capital ............................................ 41,624 41,524 Retained earnings ..................................................... 314 8,576 Less: 500,000 Class A shares held in treasury at August 29, 1998 and February 28, 1998, at cost ................................. (2,460) (2,460) --------- --------- Total stockholders' equity ......................... 39,589 47,751 --------- --------- $ 160,896 $ 155,452 ========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. TREND-LINES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (Unaudited)
Three months ended Six months ended August 29 August 30 August 29 August 30 1998 1997 1998 1997 ------------ ------------ ------------ ------------ NET SALES ...................................................... $ 64,897 $ 50,819 $ 124,536 $ 107,908 COST OF SALES .................................................. 44,890 34,406 86,948 72,563 ------------ ------------ ------------ ------------ Gross Profit ............................................ 20,007 16,413 37,588 35,345 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................... 23,240 14,942 46,658 32,543 ------------ ------------ ------------ ------------ Income (loss) from operations ........................... (3,233) 1,471 (9,070) 2,802 INTEREST EXPENSE, NET .......................................... 1,369 778 2,422 1,432 ------------ ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes (4,602) 693 (11,492) 1,370 PROVISION (BENEFIT) FOR INCOME TAXES ......................... (943) 270 (3,230) 534 ------------ ------------ ------------ ------------ Net income (loss) ....................................... $ (3,659) $ 423 $ (8,262) $ 836 ============ ============ ============ ============ BASIC NET INCOME (LOSS) PER SHARE .............................. $ (0.34) $ 0.04 $ (0.78) $ 0.08 ============ ============ ============ ============ DILUTED NET INCOME (LOSS) PER SHARE ............................ $ (0.34) $ 0.04 $ (0.78) $ 0.08 ============ ============ ============ ============ BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) ............. 10,650,344 10,568,298 10,646,097 10,577,129 ============ ============ ============ ============ DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) ........... 10,650,344 11,120,112 10,646,097 11,086,173 ============ ============ ============ ============
SEE NOTES TO CONDNSED CONSOLIDATED FINANCIAL STATEMENTS. TREND-LINES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six months ended August 29 August 30 1998 1997 -------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............................................. $ (8,262) $ 836 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization .......................... 2,245 1,249 Changes in current assets and liabilities Accounts receivable ............................ (792) (206) Inventories .................................... (3,361) 5,554 Prepaid expenses and other current assets ...... 692 489 Accounts payable ............................... (8,581) (18,913) Accrued expenses ............................... (2,087) 125 ------- -------- Net cash (used in) operating activities . (20,146) (10,866) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ........................... (3,993) (2,766) Proceeds from sale of property and equipment .................. -- 9 Increase in other assets ...................................... 79 81 -------- -------- Net cash (used in) investing activities . (3,914) (2,676) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under bank credit facilities ................... 24,648 13,392 Payments on capital lease obligations ......................... (374) (384) Proceeds from exercise of stock options ....................... 101 65 Purchases of treasury stock ................................... -- (310) -------- -------- Net cash provided by financing activities 24,375 12,763 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... 315 (779) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................... 669 1,006 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... $ 984 $ 227 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for - Interest ............................................... $ 2,308 $ 1,328 ======== ======== Income taxes ........................................... $ 339 $ 1,581 ======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. TREND-LINES, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION 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 six months ended August 29, 1998 are not necessarily indicative of the results to be expected for the fiscal year ending February 27, 1999. The financial statements presented herein should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year February 28, 1998. Certain information in footnote disclosures normally included in financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. 2. EARNINGS PER SHARE DATA In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 EARNING PER SHARE, which changed the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing the net 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. The Company adopted SFAS 128 in the fourth quarter of fiscal 1997. All prior period per share amounts have been restated to comply with SFAS 128. Potentially dilutive securities include outstanding options under the Company's stock option plan. For the quarter ended, August 29, 1998, the diluted earnings per share calculation has been computed using the basic weighted average shares outstanding, as the potentially dilutive securities are anti-dilutive. The number of potentially dilutive shares excluded from the earnings per share calculation was 214,998 for quarter ended August 29, 1998 and 418,182 for six months ended August 29, 1998. Below is a summary of the shares used in calculating basic and diluted earnings per share: Three Months Ended Six Months Ended August 29 August 30 August 29 August 30 1998 1997 1998 1997 Basic weighted average shares outstanding 10,650,344 10,568,298 10,646,097 10,577,129 Dilutive effect of stock options 0 551,814 0 509,044 _________ ___________ ___________ __________ Dilutive weighted average shares outstanding 10,650,344 11,120,112 10,646,097 11,086,173 =========== ========== ========== ========== 3. BANK CREDIT FACILITY During fiscal 1996, the Company entered into a secured line-of-credit agreement with a bank (the "credit facility") that, as amended during fiscal 1997, expires on December 31, 2000. The credit facility bears interest at the bank's reference rate plus .75% (9.50% at August 29, 1998) or LIBOR plus 2.25% (7.875% at August 29, 1998). If for any 12 month rolling period the fixed charges ratio exceeds certain limits, as defined, the bank's interest rate on the credit facility is decreased by .25% for the period immediately following such rolling period. A commitment fee of .375% per year of the average unused commitment amount, as defined, is payable monthly. The credit facility allows for borrowing up to $80 million based on a percentage of inventory (the "advance rate"). Borrowings include 50% of the amounts reserved for outstanding letters of credit. At August 29, 1998, the Company had approximately $68.5 million of borrowings outstanding and approximately $0.6 million of letters of credit outstanding. The Company had approximately $2.1 million in available borrowings under this facility at August 29, 1998. The bank has a security interest in substantially all assets of the Company. The bank credit facility agreement contains certain financial covenants, including, but not limited to, maintaining minimum levels of tangible net worth and interest coverage ratios and limitations on capital expenditures. At August 29, 1998, the Company was not in compliance with the tangible net worth or interest coverage ratio covenants. Pursuant to a waiver and amendment with its bank dated as of September 30, 1998, the bank waived compliance with such covenants through August 29, 1998. In addition, the credit facility agreement was amended to increase the advance rate to 70% through December 31, 1998. On January 1, 1999 and forward the advance rate will return to 65%. The Company has agreed to pay a fee of $100,000 to the bank in connection with the waiver and amendment. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the second quarter of fiscal 1998 increased by $14.1 million, or 27.8%, from $50.8 million for the second quarter of fiscal 1997 to $64.9 million. Net catalog sales for the second quarter of fiscal 1998 increased $.4 million or 3.4%, from $11.7 million for the second quarter of fiscal 1997 to $12.1 million for fiscal 1998. Net retail sales for the second quarter of 1998 increased $13.7 million or 35.0% from $39.1 million for the second quarter of fiscal 1997 to $52.8 million. The increase in net catalog sales was attributed to the Company's shipment of backlogged orders, which originated from problems encountered during the implementation of a new warehouse management system. The revenue growth of retail stores is attributable to the maturation and expansion of the Company's retail store base. The store base expanded over 29.2% from 168 locations at the end of the second quarter of fiscal 1997 to 217 locations at the end of the second quarter of fiscal 1998. Comparable net store sales for Woodworkers Warehouse / Post Tool stores and Golf Day stores for the second quarter of fiscal 1998 increased by 1.1% as compared to the second quarter of fiscal 1997. Net sales for the first six months of fiscal 1998 increased by $16.6 million, or 15.4%, from $107.9 million for the first six months of fiscal 1997 to $124.5 million for the first six months of fiscal 1998. Comparable net store sales for Woodworkers Warehouse / Post Tool Stores and Golf Day for the first six months of fiscal 1998 decreased by .2% as compared to the first six months of fiscal 1997. Catalog sales for the first six months of fiscal 1998 decreased $7.1 million, or 23.8%, from $29.8 million for the first six months of fiscal 1997 to $22.7 million for the first six months of fiscal 1998. Retail sales for the first six months of fiscal 1998 increased $23.8 million, or 30.5%, from $78.0 million for the first six months of fiscal 1997 to $101.8 million for the first six months of fiscal 1998. The decrease in net catalog sales was attributable to the Company's difficulties in shipping merchandise on a timely basis to its catalog customers as a result of the problems encountered during implementation of its new warehouse management system as well as to the Company's openings of retail stores in areas previously only served by its catalogs.The revenue growth of retail stores is attributed to the maturation and expansion of the Company's retail base. Gross profit for the second quarter of fiscal 1998 increased $3.6 million, or 21.9%, from $16.4 million for the second quarter of fiscal 1997 to $20.0 million for the second quarter of fiscal 1998. As a percentage of net sales, gross profit decreased from 32.3% of net sales for the second quarter of fiscal 1997 to 30.8% of net sales in the second quarter of fiscal 1998. The decrease in gross profit as a percentage of net sales was primarily due to the Company's changing sales mix, given the 29% increase in retail store sales, as the catalog business has higher gross margins than retail store operations. Gross profit for the first six months of fiscal 1998 decreased $2.2 million from $35.3 million for the first six months of fiscal 1997 to $37.6 million for the first six months of fiscal 1998. As a percentage of net sales, gross profit decreased from 32.8% of net sales for the first six months of fiscal 1997 to 30.2% for the first six months of fiscal 1998. Selling, general and administrative expenses for the second quarter of fiscal 1998 increased $8.3 million, or 55.5%, from $14.9 million for the second quarter of fiscal 1997 to $23.2 million for the second quarter of fiscal 1998. As a percentage of net sales, selling, general and administrative expenses increased from 29.4% of net sales in the second quarter of fiscal 1997 to 35.8% of net sales in the second quarter of fiscal 1998. The dollar increases in selling, general and administrative expenses are primarily related to the Company's continuing retail expansion. The Company also experienced significant, increased operating expenses due to the resolution of problems encountered in the implementation of its warehouse management system and due to the Company's retail store expansion to 217 locations, which is a 29% increase in the number of stores operated. The increase in selling, general and administrative expense as a percentage of net sales is primarily attributable to the inefficiency associated with a shipping backlog of catalog orders and lower than anticipated retail store sales, coupled with increases in administrative and store staffing levels. Selling, general and administrative expense for the first six months of fiscal 1998 increased 43.4%, or $14.1 million, from $32.5 million for the first six months of fiscal 1997 to $46.7 million for the first six months of fiscal 1998. As a percentage of net sales, selling, general and administrative expense increased 7.3% from 30.2% of net sales for the first six months of fiscal 1997 to 37.5% of net sales for the first six months of fiscal 1998. The dollar increases in selling, general, and administrative expenses are primarily related to the Company's continuing retail expansion. Interest expense, net of interest income, for the second quarter of fiscal 1998 increased by $592,000 from $777,000 in the second quarter of fiscal 1997 to $1.4 million in the second quarter of fiscal 1998. The increase in interest expense is attributable to the increase in the amount outstanding under the Company's credit facility. Interest expense, net of interest income, for the first six months of fiscal 1998 increased $1.0 million from $1.4 million for the first six months of fiscal 1997 to $2.4 million in first six months of fiscal 1998. The Company recognized a tax benefit for the second quarter of 1998 and the first six months of 1998 only to the extent that a tax loss carryback was available. As a result, the tax benefit in the second quarter was 20.5% compared to a normal rate of approximately 40%. LIQUIDITY AND CAPITAL RESOURCES The Company incurred operating losses during the first six months of fiscal 1998 and used funds provided by its bank credit facility to meet its cash operating needs during this period. The bank credit facility agreement contains certain financial covenants, including, but not limited to, maintaining minimum levels of tangible net worth and interest coverage ratios and limitations on capital expenditures. At August 29, 1998, the Company was not in compliance with the tangible net worth or interest coverage ratio covenants. Pursuant to a waiver and amendment with its bank dated as of September 30, 1998, the bank waived compliance with such covenants through August 29, 1998. In addition, the credit facility agreement was amended with respect to financial covenants and advance rates for future periods. The modified covenants require the Company to maintain an interest coverage ratio of 1.80:1.00 for the third quarter of fiscal 1998 and 2.50:1.00 thereafter, and adjusted tangible net worth as of the last day of the third quarter of fiscal 1998 of $39.5 million and as of the last day of each quarter through the second quarter of fiscal 1999 of $41.0 million and for each fiscal quarter thereafter of $42.0 million. The Company believes that projected cash flows from operations in combination with current available resources are sufficient to meet the working capital needs, such as store openings and debt payments. Achievement of projected cash flows from operations, however will be dependent upon the Company's attainment of sales, gross profit, expense and trade support levels that are consistent with its financial plans. Such operating performance will be subject to financial, economic and other factors affecting the industry and operations of the Company including factors beyond its control and there can be no assurance that the Company's plans will be achieved. If projected cash flows from operations are not realized, then the Company may have to explore various available alternatives including obtaining further modification to its existing lending arrangement or attempting to locate additional sources of financing. The Company's working capital decreased by $10.2 million, from $21.8 million as of February 28, 1998 to $11.5 million as of August 29, 1998. The decrease resulted primarily from an increase in the net borrowings under the Company's bank credit facility of $24.6 million, which was partially offset by a $10.7 million decrease in accounts payable and accrued expenses. The cash used in operating activities was approximately $20.1 million. The primary use of the cash was a net loss of $8.3 million, a $3.4 million increase in inventories, and a $8.6 million and $2.1 million decrease in accounts payable and accrued expenses, respectively. The net cash used in investing activities was approximately $4.0 million. The main use of the cash was for the purchase of property and equipment required for the Company's retail expansion. The net cash provided by investing activities was approximately $24.4 million, primarily attributable to the increase in borrowings on the Company's bank credit facility of $24.6 million. The Company has used its bank credit facility over the last several years primarily to finance its operations and retail expansion. The maximum amount available under the credit facility is $80 million, as amended during fiscal 1997 and which expires on December 31, 2000, of which $68.5 million (including letters of credit totaling approximately $0.6 million) was outstanding as of August 29, 1998. The Company is permitted to borrow against its bank credit facility based on a borrowing formula related to inventory levels (the "advance rate"). The Company had approximately $2.1 million in available borrowings under this facility at August 29, 1998. Under the terms of the agreement, the facility contains financial covenants and bears interest at the bank's reference rate plus .75% (9.50% at August 29, 1998) or LIBOR plus 2.25% (7.875% at August 29, 1998). If for any 12 month rolling period the fixed charges ratio exceeds certain levels, as defined, the bank's interest rate on the facility is decreased by .25% for the period immediately following such rolling period. In addition, the agreement provides that the Company will pay a commitment fee of .375% per year of the average unused committed amount. As described above, in September 1998, the Company obtained a waiver from its bank regarding violations of certain second quarter, 1998 financial covenants. In addition, the bank credit facility agreement was amended to increase the advance rate to 70% through December 31, 1998. On January 1, 1999 and forward the advance rate will return to 65%. The bank credit facility agreement includes certain financial covenants (primarily related to tangible net worth, interest coverage ratios and limitations on capital expenditures) that were also modified. The Company has agreed to pay a fee of $100,000 to the bank in connection with the waiver and amendment. The Company anticipates that in fiscal 1998, it will continue to invest in leasehold improvements and equipment to support its retail store expansion plans. In addition, the Company's expansion plans will require the use of cash to fund increased inventories associated with the operation of additional retail stores. The Company estimates that the cost of opening a new store (exclusive of distribution center inventory) averages approximately $350,000, including $290,000 of inventory, in the case of tool store, and approximately $425,000, including $300,000 of inventory, in the case of a golf store. In each case, a portion of the inventory investment is financed with trade credit. The Company opened three new tool stores and one new golf store, and closed one golf store and one tool store in the second quarter of fiscal 1998. For fiscal 1998, the Company currently plans to open approximately 30 to 35 retail stores. Like many other companies, the Year 2000 computer issue creates risk for the Company. If both information technology systems and imbedded technology do not correctly recognize date information when the year changes to 2000, it could have an adverse impact on the Company's operations. The Company is currently updating its software to accommodate programming logic that properly interprets Year 2000 dates, and plans to review embedded technology used in equipment provided by other manufacturers with those manufacturers. Except for merchandising and call center applications, all software is under maintenance agreements by software companies that provide updated, Year 2000 compliant software. Also, the Company does not anticipate difficulty to resolve issues related to embedded technology in the equipment provided by other manufacturers. The Company is in the process of replacing its call center and merchandising software with new Year 2000 compliant applications to be supplied by outside vendors at a cost estimated at approximately $2.0 million. Based on the Company's work-to-date and assuming that the Company's call center and merchandising software replacement projects can be implemented as planned, the Company believes that it will be Year 2000 compliant on a timely basis and that future costs relating to the Year 2000 issue will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Once the Year 2000 remidiation process reaches a higher percentage of completion, the Company intends to work on a contingency plan to address remaining material risks, if any. 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 and/or golf sectors 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 as well as year end inventory and adjustments; (v) the timing and effectiveness of programs dealing with the Year 2000 issue and the Company's warehouse management system; and (vi) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. TREND-LINES, INC. AND SUBSIDIARY PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders was held on July 13, 1998. Proxies for the Annual Meeting were solicited pursuant to Section 14 of the Securities Exchange Act of 1934, as amended and regulations promulgated thereunder. At the Annual Meeting, a total of 4,673,892 shares of Class A Common Stock and 4,726,794 shares of Class B Common Stock were represented by proxy. Each share of Class A Common Stock has one vote per share and each share of Class B Common Stock has 10 votes per share. The shares represented were voted in the following manner upon the proposal put forth at the meeting: FOR WITHHELD BROKER NON VOTE To elect Messrs. Stanley D. Black, Richard Griner, Karl P. Sniady, Ronald L. Franklin, Richard A. Mandell and Irwin Winter as directors of the Company Class A shares 4,228,985 429,807 N/A to 444,907 Class B shares 47,267,940 (total votes) -0- N/A FOR AGAINST ABSTAIN BROKER NON VOTE To amend the Company's 1993 Employee Stock Option Plan to increase the total number of shares of the Company's Class A Common Stock from 1,525,000 to 2,275,000 for issuance thereunder. Class A shares 1,190,250 937,257 -0- -0- Class B shares 47,267,940 -0- -0- -0- (total votes) ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits EXHIBIT NUMBER 10.1 Amendment No. 5, dated July 31, 1998 to the Loan and Security Agreement dated as of July 3, 1996, among the Registrant, Post Tool, Inc. and BankAmerica Business Credit, Inc. 10.2 Waiver and Amendment No. 6, dated September 30, 1998 to the Loan and Security Agreement dated as of July 3, 1996, among the Registrant, Post Tool, Inc. and BankAmerica Business Credit, Inc. 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 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 Date: October 13, 1998 /s/ Stanley D. Black ___________________________ Stanley D. Black (Chief Executive Officer) /s/ Karl Sniady ____________________________ Karl P. Sniady (Executive Vice President, Chief Financial Officer) TREND-LINES, INC. AND SUBSIDIARY EXHIBIT INDEX Exhibit Number 10.1 Amendment No. 5, dated July 31, 1998 to the Loan and Security Agreement dated as of July 3, 1996, among the Registrant, Post Tool, Inc. and BankAmerica Business Credit, Inc. 10.2 Waiver and Amendment No. 6, dated September 30, 1998 to the Loan and Security Agreement dated as of July 3, 1996, among the Registrant, Post Tool, Inc. and BankAmerica Business Credit, Inc. 27 Financial Data Schedule EX-10.1 2 AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT AMENDMENT No. 5, dated as of July 31, 1998, (this "Amendment"), to the Loan and Security Agreement, dated as of July 3, 1996 (as heretofore amended, supplemented or otherwise modified, the "Agreement") among Trend-Lines, Inc. and Post Tool, Inc. (collectively, the "Borrowers") and BankAmerica Business Credit, Inc. (the "Lender"). WITNESSETH: WHEREAS, the Borrowers and the Lender are parties to the Agreement; WHEREAS, Borrowers have requested that Lender modify certain provisions of the Agreement and the Lender is willing to do so on the terms and conditions as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein have the respective meanings ascribed thereto in the Agreement. 2. Amendments to the Agreement. The agreement is hereby amended as follows: (a) The definition of Adjusted Net Worth in Section 1 of the Agreement is amended in its entirety to read as follows: "Adjusted Tangible Net Worth" means, at any date: (a) the book value (after deducting related depreciation, obsolescence, amortization, valuation, and other proper reserves as determined in accordance with GAAP) at which the assets of Trend-Lines and its Subsidiaries would be shown on a consolidated balance sheet of Trend-Lines at such date prepared in accordance with GAAP less (b) the amount at which Trend-Lines consolidated liabilities would be shown on such balance sheet, including as liabilities all reserves for contingencies and other potential liabilities which in accordance with GAAP would be shown on such balance sheet. (b) The definition of Additional Availability Period in Section 1 of the Agreement is amended in its entirety to read as follows: "Additional Availability Period" means the period, if any, (a) commencing on the fourth Business Day after the delivery to the Lender of the certificate referred to in Section 8.2(c) relating to the Interest Coverage Ratio which shows an Interest Coverage Ratio of greater than 1.5 to 1.0 for the period ending on the last day of the second fiscal quarter of 1998; 1.85 to 1.0 for the period ending on the last day of the third fiscal quarter of 1998; 2.0 to 1.0 for the period ending on the last day of the fourth fiscal quarter of 1998; 2.25 to 1.0 for the period ending on the last day of the first fiscal quarter of 1999; and 2.5 to 1.0 for any subsequent period; and (b) ending on the earlier of (i) the occurrence of an Event of Default, (ii) the subsequent delivery to the Lender of the certificate referred to in Section 8.2 (c) relating to the Interest Coverage Ratio which shows an Interest Coverage Ratio of less than or equal to the ratios set forth in clause (a) for the periods specified therein, or (iii) the subsequent failure of the Borrowers to deliver to Lender the certificate referred to in Section 8.2(c) relating to the Interest Coverage Ratio within the time required under such Section 8.2(c). At the end of any Additional Availability Period, any Additional Availability Loans outstanding shall be immediately repaid by the applicable Borrower. No Additional Availability Period shall commence during the continuance of an Event of Default. 3. Representations and Warranties. To induce Lender to enter into this Amendment, Borrowers hereby represent and warrant as follows, with the same effect as if such representations and warranties were set forth in the Agreement: (a) Each Borrower has the power and authority to enter into this Amendment and has taken all corporate action required to authorize its execution, delivery and performance of this Amendment. This Amendment has been duly executed and delivered by each Borrower and the Agreement, as amended hereby, constitutes the valid and binding obligation of Borrowers, enforceable against each Borrower in accordance with its terms. The execution, delivery, and performance of this Amendment and the Agreement, as amended hereby, by each Borrower, will not violate its respective certificate of incorporation or by-laws or any agreement or legal requirement binding on such Borrower. (b) On the date hereof and after giving effect to the terms of this Amendment, (i) the Agreement and the other Loan Documents are in full force and effect and, to the extent that a Borrower is a party thereto, constitutes its binding obligation, enforceable against it in accordance with their respective terms; (ii) no Default or Event of Default has occurred and is continuing; and (iii) no Borrower has any defense to or setoff, counterclaim or claim against payment of the Obligations and enforcement of the Loan Documents based upon a fact or circumstance existing or occurring on or prior to the date hereof. 4. Limited Effect. Except as expressly amended hereby, all of the covenants and provisions of the Agreement are and shall continue to be in full force and effect. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import and each reference in the other Loan Documents to the Agreement shall mean and be a reference to the Agreement as amended hereby. 5. Conditions of Effectiveness. This Amendment shall become effective when and only when (i) this Amendment shall be executed by the Borrowers and (ii) the Lender shall have received such other documents, as the Lender shall request. 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK. 7. Counterparts. This Amendment may be executed by the parties hereto in any number of separate counterparts, each of which shall be an original, and all of which taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. TREND-LINES, INC. By: /s/ Stanley D. Black Name: Stanley D. Black Title: Chief Executive Officer POST TOOL, INC. By: /s/ Stanley D. Black Name: Stanley D. Black Title: Chief Executive Officer BANKAMERICA BUSINESS CREDIT, INC. By: /s/ William J. Wilson Name: William J. Wilson Title: Senior Account Executive EX-10.2 3 AMENDMENT NO. 6 TO LOAN AND SECURITY AGREEMENT WAIVER AND AMENDMENT No. 6, dated as of September 30, 1998, (this Amendment), to the Loan and Security Agreement, dated as of July 3, 1996 (as heretofore amended, supplemented or otherwise modified, the ("Agreement") among Trend-Lines, Inc. and Post Tool, Inc. (collectively, the "Borrowers") and BankArnerica Business Credit, Inc. (the Lender"). WITNESSETH: WHEREAS, the Borrowers and the Lender are parties to the Agreement; WHEREAS, Borrowers have requested that Lender waive compliance with certain covenants and modify certain provisions of the Agreement and the Lender is willing to do so on the terms and conditions as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein have the respective meanings ascribed thereto in the Agreement. 2. Waiver. Lender waives compliance by the Borrowers with the provisions of Sections 10.22 and 10.27 for the period through the end of the second fiscal quarter of 1998. 3. Amendments to the Agreement. The Agreement is hereby amended as follows: (a) The definition of Additional Availability Period in Section 1 of the Agreement is amended in its entirety to read as follows: "Additional Availability Period" means the period from October 1, 1998 through December 31, 1998 and, thereafter, the period, if any, (a) commencing on the fourth Business Day after the delivery to the Lender of the certificate referred to in Section 8.2(c) relating to the Interest Coverage Ratio which shows an Interest Coverage Ratio of greater than 2.5 to 1.0 for the period ending on the last day of the third fiscal quarter of 1998; and 2.5 to1.0 for any subsequent fiscal quarter period; and (b) ending on the earlier of (i) the occurrence of an Event of Default, (ii) the subsequent delivery to the Lender of the certificate referred to in Section 8.2 (c) relating to the Interest Coverage Ratio which shows an Interest Coverage Ratio of less than or equal to 2.5 to 1 .0, or (iii) the subsequent failure of the Borrowers to deliver to Lender the certificate referred to in Section 8.2(c) relating to the Interest Coverage Ratio within the time required under such Section 8.2(c). At the end of any Additional Availability Period, any Additional Availability Loan outstanding shall be immediately repaid by the applicable Borrower. No Additional Availability Period shall commence during the continuance of an Event of Default. " (b) Section 3.6 of the Agreement is amended in its entirety to read as follows: "Additional Availability Fee. Effective on January 1, 1999, if an Additional Availability Period is not in effect and the Borrowers have not repaid all outstanding Additional Availability Loans as required hereunder, the Borrowers shall pay Lender (i) a fee in the amount of $500,000, which shall be charged to Borrowers' loan account effective January 1, 1999 and (ii) a fee in the $50,000 on the first day of each month thereafter, until no Additional Availability Loans remain outstanding." (c) The definition of Borrowing Base in Section 1 of the Agreement is amended in its entirety to read as follows: "Borrowing Base" means, with respect to either Borrower, (a) sixty-five percent (65%) of the value, at the lower of cost (on a first-in-first-out basis) or market, of all Eligible Inventory of such Borrower plus, (b) without duplication, 50% of undrawn face amount of Letters of Credit issued or caused to be issued by the Lender for the account of such Borrower for the purchase of goods which will become Eligible Inventory plus (c) during an Additional Availability Period, the Additional Availability of such Borrower. (d) The following representation is added to the Agreement as Section 9.29: "9.29 Year 2000. On the basis of the Borrowers' review and assessment of its systems and equipment, Borrowers reasonably believe that the "Year 2000 problem" (that is, the inability of computers, as well as embedded microchips 'in non-computing devices, to perform properly date-sensitive functions with respect to certain dates prior to and after December 31, 1999), including costs of remediation, will not result in a material adverse change in the operations, business, properties, condition or Prospects (financial or otherwise) of Borrowers. Borrowers will be fully "Year 2000" compliant by September 30, 1999. " (e) Section 10.20 of the Agreement is hereby amended by adding the following sentence to the end thereof: "Notwithstanding the foregoing, Capital Expenditures for the six month period ending February 27, 1999 shall not exceed $6,000,000." (f) Section 10.22 of the Agreement is hereby amended to read in its entirety as follows: "10.22 Interest Coverage Ratio. For the fiscal quarters indicated below, Trend-Lines on a consolidated basis shall maintain an Interest Coverage Ratio, determined as of the last day of such fiscal quarter, of not less than the amount set forth below: Ratio Third Quarter 1998 1.80:1.00 Third and Fourth Quarter 1998 2.50:1.00 Three Quarters ending May 31,1999 2.50:1.00 Thereafter, Trend-Lines on a consolidated basis shall Maintain an Interest Coverage Ratio, determined as of the last day of each fiscal quarter set forth below for the preceding four fiscal quarters ending on such last day, of not less than the amount set forth below: Second Quarter 1999 2.50:1.00" and each fiscal quarter thereafter (g) The following representation is added to the Agreement as Section 10.26: "10.26 New Store Openings. Effective October 1, 1998, the Borrowers may only enter into new commitments to open, or in connection with opening, more than 10 new stores if daily average unused Availability for the 30 consecutive day period immediately prior to entering into any such commitment exceeds $5,000,000; provided, however, that (i) a store relocated to a new location shall not be treated as a new store for purposes hereof and (ii) amounts not yet spent under commitments relating to new stores subject to this Section 10.26, shall be deducted in determining compliance with this Section 10.26." (h) Section 10.27 of the Agreement is hereby amended in its entirety to read as follows, "10.27 Adjusted Tangible Net Worth. Trend-Lines on a consolidated basis shall maintain Adjusted Net Worth, determined as of the last day of each fiscal quarter indicated below, of not less than the following amounts: 3rd Fiscal Quarter 1998 $39,500,000 4th Fiscal Quarter 1998 $41,000,000 1st Fiscal Quarter 1999 $11,000,000 2nd Fiscal Quarter 1999 $41,000,000 3rd Fiscal Quarter 1999 and $42,000,000" each fiscal quarter thereafter 4. Additional Agreements and Undertakings of Borrowers. The Borrowers shall cooperate with Lender in the obtaining of participants in, or the syndication (at Lender's option), the Total Facility, including the execution and delivery of such additional documentation (or re-documentation) as may be required by Lender (or Agent, in the case of a syndication). 5. Representations and Warranties. To induce Lender to enter into this Amendment, Borrowers hereby represent and warrant as follows, with the same effect as if such representations and Warranties were set forth in the Agreement: (a) Each Borrower has the power and authority to enter into this Amendment and has taken all corporate action required to authorize its execution, delivery and performance of this Amendment. This Amendment has been duly executed and delivered by each Borrower and the Agreement, as amended hereby, constitutes the valid and binding obligation of Borrowers, enforceable against each Borrower in accordance with its terms. The execution, delivery, and performance of this Amendment and the Agreement, as amended hereby, by each Borrower, will not violate its respective certificate of incorporation or by-laws or any agreement or legal requirement binding on such Borrower. (b) On the date hereof and after giving effect to the terms of this Amendment, (i) the Agreement and the Other Loan Documents are in full force and effect and, to the extent that a Borrower is a party thereto, constitute its binding obligation, enforceable against it in accordance with their respective terms; (ii) no Default or Event of Default has occurred and is continuing (iii) no Borrower has any defense to or setoff, counterclaim or claim against payment of the Obligations and enforcement of the Loan Documents based upon a fact or circumstance existing or occurring on or prior to the date hereof. 6. Limited Effect. Except as expressly waived or amended hereby, all of the covenants and provisions of the Agreement are and shall continue to be in full force and effect. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", 'herein" or words of like import and each reference in the other Loan Documents to the Agreement shall mean and be a reference to the Agreement as amended hereby. 7. Conditions of Effectiveness. This Amendment shall become effective when and only when (i) this Amendment shall be executed by the Borrowers; (ii) the Lender shall have received such opinion of counsel, such other documents (including, without limitation, certified resolutions), and such evidence of filings, as the Lender shall request and (iii) the Borrowers shall have paid the Lender a fee of $100,000. 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUEDAND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK. 9. Counterparts. This Amendment may be executed by the parties hereto in any number of separate counterparts, each of which shall be an original, and all of which taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. TREND-LINES, INC. By: /s/ Stanley D. Black Name: Stanley D. Black Title: Chief Executive Officer POST TOOL, INC. By: /s/ Stanley D. Black Name: Stanley D. Black Title: Chief Executive Officer BANKAMERICA BUSINESS CREDIT, INC. By: /s/ William J. Wilson Name: William J. Wilson Title: Senior Account Executive EX-27 4 ART.5 FDS 2ND QUARTER 10-Q
5 1,000 6-MOS YEAR FEB-27-1999 FEB-28-1998 MAR-1-1998 MAR-1-1997 AUG-29-1998 FEB-28-1998 984 669 0 0 19,754 18,764 416 218 105,533 102,172 132,069 128,293 31,657 27,788 10,347 8,401 160,896 155,452 120,538 106,519 0 0 0 0 0 0 111 111 39,478 47,640 160,896 155,452 124,536 231,143 124,536 231,143 86,984 157,129 86,984 157,129 46,658 63,483 0 0 2,422 3,239 (11,492) 7,292 (3,230) 2,844 0 0 0 0 0 0 0 0 (8,262) 4,448 (0.78) (0.42) (0.78) (0.40)
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