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
<PAGE>
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
August 29 February 28,
1998 1998
(Unaudited)
---------- ------------
<S> <C> <C>
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
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 29 August 30 August 29 August 30
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDNSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended
August 29 August 30
1998 1997
-------- ----------
<S> <C> <C>
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
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
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
=========== ========== ========== ==========
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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,
<PAGE>
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.
<PAGE>
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
<PAGE>
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)
<PAGE>
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
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
<PAGE>
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.
<PAGE>
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
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. "
<PAGE>
(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. "
<PAGE>
(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."
<PAGE>
(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.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> FEB-27-1999 FEB-28-1998
<PERIOD-START> MAR-1-1998 MAR-1-1997
<PERIOD-END> AUG-29-1998 FEB-28-1998
<CASH> 984 669
<SECURITIES> 0 0
<RECEIVABLES> 19,754 18,764
<ALLOWANCES> 416 218
<INVENTORY> 105,533 102,172
<CURRENT-ASSETS> 132,069 128,293
<PP&E> 31,657 27,788
<DEPRECIATION> 10,347 8,401
<TOTAL-ASSETS> 160,896 155,452
<CURRENT-LIABILITIES> 120,538 106,519
<BONDS> 0 0
0 0
0 0
<COMMON> 111 111
<OTHER-SE> 39,478 47,640
<TOTAL-LIABILITY-AND-EQUITY> 160,896 155,452
<SALES> 124,536 231,143
<TOTAL-REVENUES> 124,536 231,143
<CGS> 86,984 157,129
<TOTAL-COSTS> 86,984 157,129
<OTHER-EXPENSES> 46,658 63,483
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,422 3,239
<INCOME-PRETAX> (11,492) 7,292
<INCOME-TAX> (3,230) 2,844
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,262) 4,448
<EPS-PRIMARY> (0.78) (0.42)
<EPS-DILUTED> (0.78) (0.40)
</TABLE>
