UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~SECURITIES~~FOR ~~EXCHANGE~~THE ~~ACT~~QUARTERLY OFPERIOD ~~1934~~ENDED AUGUST 30, 2003

For the quarterly period ended May 31, 2003

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~SECURITIES~~FOR ~~EXCHANGE~~THE ~~ACT~~TRANSITION OFPERIOD ~~1934~~FROM TO

For the transition period from to

Commission file number 0-24390

WOODWORKERS WAREHOUSE, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-3579658
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
(State or Other Jurisdiction ofIncorporation or Organization)		(I.R.S. EmployerIdentification No.)
126 Oxford Street, Lynn, Massachusetts		01901
(Address of Principal Executive Offices)		(Zip Code)

126 Oxford Street, Lynn, Massachusetts		01901
(Address of Principal Executive Offices)		(Zip Code)

(781) 853-0900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. 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: As of ~~July~~October 111, 2003, 5,633,006 shares of the registrant’s common stock, par value $0.01 per share, were issued and outstanding. The company has reserved 6,986 shares of common stock ~~for~~ for potential issuance to former creditors of Trend-Lines, Inc. (the predecessor of the registrant) whose bankruptcy claims have not yet been settled.

WOODWORKERS WAREHOUSE, INC.

INDEX

		Page
Part I —Financial Information		Page
	Part I – Financial Information
Item 1. Financial Statements
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (Unaudited) Thirteen and Twenty-six Weeks Ended August 30, 2003 and August 24, 2002	3
	Condensed Consolidated Statements of Operations (Unaudited) Thirteen Weeks Ended May 31, 2003 and May 25, 2002	3
	Condensed Consolidated Balance Sheets August 30, 2003 (Unaudited) and March 1, 2003	4
	Condensed Consolidated Balance Sheets May 31, 2003 (Unaudited) and March 1, 2003	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) Twenty-six Weeks Ended August 30, 2003 and August 24, 2002	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Thirteen Weeks Ended May 31, 2003 and May 25, 2002	5
	Notes to Condensed Consolidated Financial Statements	6-9
	Notes to Condensed Consolidated Financial Statements	6-8
Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	9-13
Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	8-12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	14
Item 4.	Controls and Procedures	12
Part II —Other Information
	Part II – Other Information
Item 1.	Legal Proceedings	15
Item 1.	Legal Proceedings	13
Item 2.	Changes in Securities and Use of Proceeds	15
Item 2.	Changes in Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	15
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	16
Item 5.	Other Information	13
Item 6.	Exhibits and Reports on Form 8-K	16
Item 6.	Exhibits and Reports on Form 8-K	13
Signatures		17
Signatures		14
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		15-16
Exhibits

WOODWORKERS WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

	Thirteen Weeks Ended May 31, 2003			Thirteen Weeks Ended May 25, 2002
	Thirteen Weeks Ended						Twenty-six Weeks Ended
Net sales	$	27,336		$	27,995
	August 30, 2003			August 24, 2002			August 30, 2003			August 24, 2002
Cost of sales		19,147			19,024
Net sales	$	23,774		$	24,963		$	51,111		$	52,958
Gross profit		8,189			8,971
Cost of sales		17,142			17,231			36,289			36,255
Selling, general and administrative expenses		8,238			9,438
Gross profit		6,632			7,732			14,822			16,703
Loss from operations		(49	)		(467	)
Selling, general and administrative expenses		8,015			9,666			16,253			19,104
Interest expense, net		413			328
Loss from operations		(1,383	)		(1,934	)		(1,431	)		(2,401	)
Loss before income taxes		(462	)		(795	)
Interest expense, net		392			315			806			643
Provision for income taxes		—			—
Loss before income taxes		(1,775	)		(2,249	)		(2,237	)		(3,044	)
Net loss	$	(462	)	$	(795	)
Provision for income taxes		—			—			—			—
Basic and diluted loss per share:
Net loss	$	(1,775	)	$	(2,249	)	$	(2,237	)	$	(3,044	)
Net loss per share	$	(0.08	)	$	(0.14	)
Basic and diluted loss per share:
Weighted average shares outstanding:
Net loss per share	$	(0.31	)	$	(0.40	)	$	(0.40	)	$	(0.54	)
Basic and diluted		5,640,000			5,640,000
Weighted average shares outstanding:
Basic and diluted		5,640,000			5,640,000			5,640,000			5,640,000

See notes to condensed consolidated financial statements.

WOODWORKERS WAREHOUSE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	(Unaudited) May 31,2003			March 1,2003
	(Unaudited)August 30,2003			March 1,2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	~~302~~232		$	207
Accounts receivable, net		1,~~601~~346			1,658
Inventories		3024,~~130~~536			31,153
Prepaid expenses and other current assets		1,~~731~~395			1,877
Total current assets		3327,~~764~~509			34,895
PROPERTY AND EQUIPMENT, NET		2,~~347~~131			2,574
LEASE INTERESTS, NET		~~1,029~~954			1,104
OTHER ASSETS		~~905~~899			946
TOTAL ASSETS	$	3831,~~045~~493		$	39,519
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Bank credit facility	$	1916,~~407~~000		$	18,952
Current portion of capital lease obligations		1,~~043~~057			1,033
Accounts payable		12,~~291~~214			11,603
Accounts payable due pre-petition creditors		2,000			2,000
Vendor notes payable		21,~~594~~474			3,713
Accrued expenses		1,~~703~~925			2,226
Deferred liabilities		~~939~~823			1,216
Other current liabilities		~~443~~408			428
Total current liabilities		4035,~~420~~901			41,171
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION		~~1,180~~922			1,441
STOCKHOLDERS’ DEFICIT:
Common stock		56			56
Additional paid-in capital		1,432			1,432
Accumulated deficit		(56,~~043~~818	)		(4,581	)
Total stockholders’ deficit		(35,~~555~~330	)		(3,093	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	3831,~~045~~493		$	39,519

See notes to condensed consolidated financial statements.

WOODWORKERS WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	Thirteen Weeks Ended May 31, 2003			Thirteen Weeks Ended May 25, 2002
	Twenty-six Weeks Ended
	August 30, 2003			August 24, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(~~462~~2,237	)	$	(~~795~~3,044	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		~~391~~758			~~439~~842
Changes in current assets and liabilities:
Accounts receivable		57312			1,~~501~~117
Inventories		16,~~023~~617			(21,~~766~~711	)
Prepaid expenses and other current assets		~~146~~482			~~121~~210
Accounts payable		~~688~~611			~~(918~~1,980	)
Accrued expenses		(~~523~~301	)		756
Deferred liabilities		(~~277~~393	)		(~~282~~293	)
Other current liabilities		15(20	)		(~~284~~93	)
Net cash provided by (used in) operating activities		15,~~058~~829			(~~2,977~~936	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(89165	)		(67114	)
Decrease in other assets		41			43
Decrease (increase) in other assets		47			(17	)
Net cash used in investing activities		(48118	)		(24131	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank credit facilities		455			3,040
Net (payments) borrowings under bank credit facility		(2,952	)		1,371
Principal payments on capital lease obligations		(~~251~~495	)		(~~336~~634	)
Repayments of vendor notes payable		(12,~~119~~239	)		—
Net cash provided by (used in) financing activities		(~~915~~5,686	)		~~2,704~~737
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9525			(~~297~~330	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		207			519
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	~~302~~232		$	~~222~~189

See notes to condensed consolidated financial statements.

WOODWORKERS WAREHOUSE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

Woodworkers Warehouse, Inc. (~~“we” or~~ the “Company”) is a specialty retailer of woodworking tools and accessories sold through its 94 ~~retail~~ stores located in the New England and Mid-Atlantic regions, as well as through its prior nationally distributed mail-order catalogs and current Web site (www.woodworkerswarehouse.com). ~~The~~In addition, the Company ~~sells~~recognizes ~~its~~sales ~~products~~(classified ~~through~~as ~~its~~catalog ~~retail~~sales) ~~stores~~for ~~and~~shipments ~~through~~based ~~its~~on ~~catalogs~~customer ~~and~~telephone ~~Web~~orders ~~site~~from monthly store flyers. ~~These~~The above businesses have been aggregated into their respective reportable segments based on the Company’s management reporting structure. In June 2003, the Company ~~decided~~discontinued ~~to discontinue~~ the mailing of ~~catalogs~~new ~~beginning immediately~~catalogs. ~~The Company is analyzing the expenses that may be incurred in connection with the discontinuance but does not expect to incur any material charges.~~

With respect to the unaudited consolidated financial statements, it is the Company’s opinion that all necessary adjustments (consisting of normal and recurring adjustments) have been included to present a fair statement of results for the interim periods.

These statements should be read in conjunction with the Company’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 1, 2003 (“Fiscal 2002”). Due to the seasonal nature of the Company’s business, operating results for the interim periods are not necessarily indicative of results that may be expected for the Company’s full fiscal year ending February 28, 2004 (“Fiscal 2003”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to the general rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”).

In November 2002, the Emerging Issues Task Force (EITF) released Issue No. 02-16 “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor”, applicable to fiscal years beginning after December 15, 2002. The Company has recognized and will continue to recognize vendor allowances as a reduction to cost of goods sold in the period in which it is estimated that the related merchandise is sold. The Company recognized $1.43 and $12.56 million of such reductions in cost of sales during the ~~first~~thirteen ~~quarter~~and oftwenty-six ~~Fiscal~~weeks ended August 30, 2003, respectively, and ~~Fiscal~~$1.7 and $3.2 million during the thirteen and twenty-six weeks ended August 24, 2002, respectively. The vendor allowances received but not yet recognized are recorded as an offset to inventory and such offsets totaled $2.31 million at ~~May~~August 3130, 2003 and $2.50 million at ~~May~~August 2524, 2002. The Company records vendor cooperative promotional income as a reduction of selling, general and administrative expenses in the period in which it completes its promotional obligations under the vendor agreements. During the ~~thirteen~~twenty-six weeks ended ~~May~~August 3130, 2003 and ~~May~~August 2524, 2002, the Company recorded approximately $4382,000 and $0, ~~respectively,~~ for cooperative promotional income, respectively.

The Company’s ability to meet its financial obligations will depend on the items discussed below as well as the Company’s future operating performance, which will be subject to financial, economic and other factors affecting the business and operations of the Company, including factors beyond its control. In order to achieve profitability, the Company will need to enhance revenues and margins through improved merchandising and marketing, selective new store openings, closing or relocating underperforming locations and continued focus on cost controls. There can be no assurance that the Company will be able to achieve these objectives.

Management believes, even if the holders of an unpaid $2.0 million settlement claim (related to the ~~bankruptcy~~ plan of reorganization of Trend-Lines, Inc., our predecessor and former parent entity) continue to permit the deferral of payment and certain vendors of the Company agree to continue to extend current credit terms, the availability under the Credit Facility (See Note 3), together with available cash and expected cash flows during Fiscal 2003 will not be sufficient to timely meet the Company’s working capital needs, debt service requirements and planned capital expenditures during portions of Fiscal 2003.

In order to mitigate the expected Fiscal 2003 cash shortfall and to maintain adequate liquidity, management is (i) seeking an ~~extension~~investor orwho could provide financing for the above needs, (ii) seeking a replacement of the Credit Facility, (iiiii) renegotiating certain ~~store~~ lease terms, and (~~iii~~iv) seeking additional extended vendor payment terms. In order to achieve profitability, the Company will need to enhance revenues and margins through improved merchandising and marketing, selective new store openings, closing or relocating underperforming locations and continued focus on cost controls. There can be no assurance that the Company will be able to achieve these objectives.

The Company has had preliminary discussions with a replacement lender and a strategic investor regarding a proposed transaction (“Proposed Transaction”) whereby (i) the strategic investor would (a) acquire the Company’s outstanding stock and the Company’s $2.0 million bankruptcy payment obligation and (b) provide the Company with subordinated debt financing; and (ii) the Company (or its successor) would enter into a new credit facility with the replacement lender and satisfy the outstanding amounts under the existing Credit Facility. The preliminary discussions regarding the Proposed Transaction are ongoing and the Company can make no assurance that the Proposed Transaction will occur on the terms described above or at all.

In addition, the Company is not in compliance with the second-quarter EBITDA covenant under the existing Credit Facility (see Note 3) and is currently seeking to enter into an agreement with its lenders whereby the lenders will agree to refrain from exercising their default remedies under the Credit Facility until December 20, 2003, but will accelerate portions of the advance rate reductions currently scheduled for November 30 and December 31, 2003 (the “Forbearance Agreement”). The Company can make no assurance that the Forbearance Agreement will be executed and delivered by its current lenders on the terms described above or at all.

If the Forbearance Agreement is not entered into, the Company’s current lenders could exercise default remedies under the Credit Facility, including, but not limited to, acceleration of repayment of all outstanding amounts. If repayment is accelerated under the Credit Facility, the Company may need to commence a liquidation of its assets.

Even if the Forbearance Agreement is entered into, in the event that the Proposed Transaction does not occur on or before December 20, 2003, the Company would be in default under the Credit Facility and, unless alternative financing sources are readily available, may need to commence a liquidation of its assets.

The items described above raise substantial doubt about the Company’s ability to continue as a going concern and therefore the Company may not be able to realize its assets and discharge its liabilities in the normal course of operations. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Thirteen WeeksEnded May 31, 2003		Thirteen WeeksEnded May 25, 2002
	Twenty-six WeeksEnded August 30, 2003		Twenty-six WeeksEnded August 24, 2002
Cash paid during the period for interest	$	~~283~~549	$	~~358~~729
Cash paid during the period for income taxes		—		3649

3. Bank Credit Facility

The Company has a $30 million Senior Secured Revolving Credit Facility, with ~~the~~ Bank of America as agent that matures on ~~October~~April 2930, ~~2003~~2004 (the “Credit Facility”). At ~~May~~August 3130, 2003, the Company had $1916,~~407~~000,000 of borrowings outstanding and $15,200 of letters of credit outstanding. The Credit Facility is secured by all of the Company’s assets and bears interest equal to LIBOR plus 34.5000% (45.8211% at ~~May~~August 3130, 2003) or the bank reference rate plus 12.2500% (56.5000% at ~~May~~August 3130, 2003) at the Company’s option. We may select the rate each month.

The ~~borrowing~~Company ~~base~~was ~~under~~required ~~the~~to ~~Credit~~have ~~Facility~~cumulative isEBITDA ~~based~~(earnings onbefore ~~the~~interest, ~~following~~income ~~formula:~~taxes and ~~the~~depreciation ~~lesser~~and ofamortization) ~~65%~~for of the ~~cost~~four ofconsecutive ~~eligible~~fiscal ~~store~~quarters ~~and~~ending ~~warehouse~~on ~~inventory or 85% of~~ the ~~orderly~~ ~~liquidation~~last ~~value~~day of the ~~inventory~~second ~~from~~quarter ~~an appraiser acceptable to Bank~~ of ~~America,~~Fiscal ~~plus~~2003 ~~50%~~ of ~~the~~not ~~value~~less ofthan ~~inventory~~$1.4 ~~covered by merchandise letters of credit, plus 85% of the value of eligible credit card and trade accounts receivable~~million. ~~The amount~~As ~~available~~described atin ~~May~~Note 311, ~~2003, based on~~ the ~~borrowing~~Company ~~base~~is ~~under~~not ~~the Credit Facility, was $21.5 million, of which $19.4 million was drawn, resulting~~ in ~~net~~compliance ~~availability~~with ofthis $2covenant.~~1 million.~~

~~The~~On August 11, 2003, the Credit Facility ~~contains~~was aamended ~~quarterly~~(the “Amendment”) ~~EBITDA~~to, ~~covenant~~among ~~and~~other ~~certain~~things, ~~non~~(1) extend the term of the Credit Facility until April 30, 2004, (2) raise the applicable interest rates under the terms of the Credit Facility (i) for bank reference rate loans, by three-~~financial~~quarters ~~covenants.~~of a ~~The~~percentage ~~Company~~point isand ~~required~~(ii) tofor ~~have~~LIBOR ~~cumulative~~rate ~~EBITDA~~loans, ~~for~~by one-half of a percentage point, (3) adjust the ~~four~~calculation ~~consecutive~~of ~~fiscal~~the ~~quarters~~borrowing ~~ending~~base onin the ~~last~~manner ~~day~~described ofbelow ~~each~~beginning ~~fiscal~~at ~~quarter~~the end of ~~not~~November ~~less~~2003, ~~than~~(4) adjust the ~~amount~~calculation ~~set~~of ~~forth~~availability under certain conditions as described below:, and (5) add and revise certain financial covenants as further described below.

May 2003		$	600,000
August 2003		$	1,400,000

The Borrowing Base under the Credit Facility is currently calculated as follows: (a) the lesser of (i) 65% of the cost of eligible store and warehouse inventory or (ii) 85% of the orderly liquidation value of the inventory, plus (b) 50% of the value of inventory covered by merchandise letters of credit, plus (c) 85% of the value of eligible credit card and trade accounts receivable. Pursuant to the Amendment, the definition of the borrowing base has been revised so that (1) effective as of November 30, 2003, each of the percentages in clauses (a) and (b) above will be reduced by two percentage points, (2) effective as of December 31, 2003, such percentages will be reduced by an additional two percentage points and (3) effective as of January 31, 2004, such percentages will be reduced by an additional one percentage point. The amount available at August 30, 2003, based on the borrowing base under the Credit Facility, was $16.8 million, of which $16.0 million was drawn, resulting in net availability of $0.8 million.

~~The~~Pursuant to the Amendment, the Company’s isavailability ~~seeking~~under the Credit Facility will be further reduced by an ~~extension~~amount equal to 50% of any “Year-to-Date EBITDA Shortfall” (the ~~Credit~~amount, ~~Facility.~~if ~~However~~any, ~~there~~by ~~can~~which bethe noCompany’s ~~assurance~~year-to-date ~~that~~EBITDA ~~the~~is ~~extension~~less ~~will~~than bethe ~~obtained~~Company’s ~~or,~~year-to-date inEBITDA for the ~~absence~~corresponding ofperiod anin ~~extension,~~the aprevious ~~new~~fiscal ~~credit~~year). ~~facility~~There ~~can~~was beno ~~obtained~~Year-to-Date onEBITDA ~~terms~~Shortfall ~~acceptable~~as toof the end ~~Company~~of orAugust ~~at all~~2003.

Pursuant to the Amendment, the Company is required to maintain the following “Accounts Payable to Inventory Ratio” (trade payables divided by inventory as reflected in the Company’s financial statements) in the percentages listed below for the following fiscal months:

Fiscal Month	Ratio
October 2003	37.5	%
November 2003	39.7	%
December 2003	32.3	%
January 2004	36.9	%
February 2004	32.7	%
March 2004 and each fiscal
month thereafter	35.0	%

Pursuant to the Amendment, the Company is required to have a rolling 12-month Fixed Charges Ratio (EBITDA divided by the sum of capital expenditures, interest expense, income tax expense, principal debt payments and any cash payment made to creditors in accordance with the $2 million settlement under the bankruptcy plan of the Company’s predecessor), determined as of the end of each fiscal month set forth below, of not less than the following:

Fiscal Month		Ratio
November 2003		.49:1.00
December 2003		.51:1.00
January 2004		.68:1.00
February 2004 and each fiscal
month thereafter		.65:1.00

In addition, under the terms of the Amendment, the Company is required to have aggregate sales revenues of at least $22,950,000 during the fiscal months of November and December 2003.

Although certain representations and warranties relating to the Company’s solvency were modified from the initial Credit Facility, under the terms of the Amendment the lenders have reserved their respective rights and remedies as they existed under the initial Credit Facility.

The Company paid a $30,000 fee to the lenders in connection with the Amendment.

As described in Note 1, the Company has had preliminary discussions regarding the Proposed Transaction which would include, among other things, replacement of the Credit Facility. In addition, as also described in Note 1, the Company is seeking to enter into the Forbearance Agreement with its current lenders whereby such lenders will agree to refrain from exercising their default remedies under the Credit Facility until December 20, 2003, but will accelerate portions of the advance rate reductions. The Company can make no assurance that the Proposed Transaction will occur or that the Forbearance Agreement will be entered into on terms described herein. If the Forbearance Agreement is not entered into or if the Forbearance Agreement is entered into but the Proposed Transaction is not completed on or before December 20, 2003, the Company may need to commence a liquidation of its assets.

4. Stockholders’ Equity

A total of 7,500,000 shares, par value $0.01 per share, of the Company’s common stock (“Common Stock”) are authorized. As of ~~July~~October 101, 2003, 5,633,006 shares of Common Stock were issued and outstanding (including the 1,~~180~~192,~~480~~224 shares of Common Stock being held by the Company’s transfer agent discussed below) and 6,986 shares of Common Stock have been reserved for potential issuance to former creditors of Trend-Lines, Inc., whose bankruptcy claims have not yet been settled. On December 16, 2002, Porter-Cable Corporation rejected delivery of the 1,180,480 shares of Common Stock that it was entitled to receive and has disclaimed beneficial ownership of such shares. In addition, 11,744 shares of Common Stock have been returned to the Company’s transfer agent as undeliverable. These shares ~~were~~(an aggregate of 1,192,224) have been deemed “undeliverable distributions” pursuant to the Joint Reorganization Plan of Trend-Lines, Inc. (the Company’s predecessor and former parent entity) and the Official Committee of Unsecured Creditors and are being held by the Company’s transfer agent and voted at the direction of the Company’s board of directors until such shares are retired in November 2003.

5. Stock Compensation Plans

The Company follows the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” and applies APB Opinion No. 25 and related interpretations for its stock-based compensation plans. The following table illustrates the effect on ~~first-~~the second quarter and year-to-date net ~~income~~loss and ~~earnings~~ loss per share for this year and last year if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

	Thirteen Weeks Ended May 31, 2003			Thirteen Weeks Ended May 25, 2002
Net loss as reported	$	(462	)	$	(795	)
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		1			2
Pro forma net loss	$	(463	)	$	(797	)
Earnings per share:
Basic – as reported	$	(0.08	)	$	(0.14	)
Basic – pro forma	$	(0.08	)	$	(0.14	)
Diluted – as reported	$	(0.08	)	$	(0.14	)
Diluted – pro forma	$	(0.08	)	$	(0.14	)

	Thirteen Weeks Ended August 30, 2003			Thirteen Weeks Ended August 24, 2002			Thirteen Weeks Ended August 30, 2003			Thirteen Weeks Ended August 24, 2002
Net loss as reported	$	(1,775	)	$	(2,249	)	$	(2,237	)	$	(3,044	)
Deduct: Total stock-based employee compensation
expense determined under the fair value based method
for all awards, net of related tax effects		2			(1	)		3			1

Pro forma net loss	$	(1,777	)	$	(2,248	)	$	(2,240	)	$	(3,045	)

Earnings per share:
Basic and diluted – as reported	$	(0.31	)	$	(0.40	)	$	(0.40	)	$	(0.54	)
Basic and diluted – pro forma	$	(0.32	)	$	(0.40	)	$	(0.40	)	$	(0.54	)

6. Selected Information By Business Segment

Information as to the operations of the Company’s business segments with respect to sales and operating income (loss) is set forth below for the periods indicated (in thousands):

	Thirteen WeeksEndedMay 31, 2003			Thirteen WeeksEndedMay 25, 2002
	Thirteen Weeks Ended						Twenty-six Weeks Ended
Net sales:
	August 30, 2003			August 24, 2002			August 30, 2003			August 24, 2002
Stores	$	26,640		$	26,658
Net sales:
Catalogs/Internet		696			1,337
Stores	$	23,376		$	24,358		$	50,017		$	51,016
Total	$	27,336		$	27,995
Catalogs/Internet		398			605			1,094			1,942
Income (loss) from continuing operations:
Total	$	23,774		$	24,963		$	51,111		$	52,958
Stores	$	1,413		$	951
Income (loss) from continuing operations:
Catalogs/Internet		(79	)		211
Stores	$	140		$	270		$	1,651		$	1,221
General corporate expenses		(1,796	)		(1,957	)
Catalogs/Internet		(48	)		202			(127	)		413
Total	$	(462	)	$	(795	)
General corporate expenses		(1,867	)		(2,721	)		(3,761	)		(4,678	)
Total	$	(1,775	)	$	(2,249	)	$	(2,237	)	$	(3,044	)

The Company sells its products through its ~~retail~~ stores and through its catalogs (including store flyer orders) and Web site. These businesses have been aggregated into their respective reportable segments based on the Company’s management reporting structure. The Company decided in June 2003 to discontinue the mailing of ~~catalogs~~new ~~beginning immediately~~catalogs.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~

OPERATIONS

The list below is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

CRITICAL ACCOUNTING POLICIES

We believe the most critical accounting policies are related to Revenue Recognition, Vendor Allowances and Cooperative Promotional Income, Inventories, Prepaid Catalog Expenses, Lease Interests, and Income Taxes. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The application of US GAAP relative to our critical accounting policies requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and financial statement disclosures concerning contingent assets and liabilities and revenue and expenses during the reporting periods. We review estimates and assumptions used in the application of US GAAP on a regular basis. However, it is possible that these estimates and assumptions may change and such a change could be material to our financial position. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities that are not readily apparent from other sources.

Revenue Recognition

Revenue from our retail store operations is recognized at the time of sale. Revenue from catalog and ~~internet~~Internet sales is recognized upon shipment to the customer. Allowance for sales returns, a component of net sales, is booked in the period in which the related sales are recorded. An allowance of $65,000 was recorded as of ~~May~~August 3130, 2003. Income received from memberships sold to our catalog customers is deferred over the period of the related memberships. We discontinued the membership program as of March 1, 2003.

Vendor Allowances and Cooperative Promotional Income

In November 2002, the Emerging Issues Task Force (EITF) released Issue No. 02-16 “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor”, applicable to fiscal years beginning after December 15, 2002. The Company has recognized and will continue to recognize vendor allowances as a reduction to cost of goods sold in the period in which it is estimated that the related merchandise is sold. The Company recognized $1.3 and $2.6 million of such reductions in cost of sales during the thirteen and twenty-six weeks ended August 30, 2003, respectively, and $1.7 and $3.2 million during the thirteen and twenty-six weeks ended August 24, 2002, respectively. The vendor allowances received but not yet recognized are recorded as an offset to inventory and such offsets totaled $2.1 million at August 30, 2003 and $2.0 million at August 24, 2002. The Company records vendor cooperative promotional income as a reduction of selling, general and administrative expenses in the period in which it completes its promotional obligations under the vendor agreements. During the twenty-six weeks ended August 30, 2003 and August 24, 2002, the Company recorded approximately $82,000 and $0 for cooperative promotional income, respectively.

Company has recognized and will continue to recognize vendor allowances as a reduction to cost of goods sold in the period in which it is estimated that the related merchandise is sold. The Company recognized $1.4 and $1.5 million of such reductions in cost of sales during the first quarter of Fiscal 2003 and Fiscal 2002, respectively. The vendor allowances received but not yet recognized are recorded as an offset to inventory and such offsets totaled $2.3 million at May 31, 2003 and $2.5 million at May 25, 2002. The Company records vendor cooperative promotional income as a reduction of selling, general and administrative expenses in the period in which it completes its promotional obligations under the vendor agreements. During the thirteen weeks ended May 31, 2003 and May 25, 2002, the Company recorded approximately $42,739 and $0, respectively, for cooperative promotional income.

Inventories

Merchandise inventories are carried at the lower of cost or market with cost determined on a weighted average cost method. If actual market conditions are less favorable than those projected by management, or if liquidation of the inventory is more difficult than anticipated, inventory write-downs may be required.

Prepaid Catalog Expenses

We capitalize direct costs relating to the production and distribution of our mail-order catalogs. These costs are charged to operations over the period during which revenues are derived from the mailings, which are primarily one year or less from the date of mailing. The prepaid catalog balance at May 31, 2003 was $128,551, which is expected to be fully recoverable despite the Company’s decision to discontinue the mailing of catalogs (Note 1).

Lease Interests

Lease interests represent the fair values assigned to our lease rights under fresh start accounting and are being amortized as a charge to rent expense over the remaining lease terms. Accumulated amortization was $~~652~~726,~~183~~958 at ~~May~~August 3130, 2003. The recoverability of the carrying ~~value~~values of our lease interests is dependent on our ability to generate sufficient future cash flows from operations at each leased site, or in the case of a sale or disposition of a lease or leases, the continuation of similar favorable market rents. Accordingly, recoverability of this asset could be significantly affected by future economic market and competitive factors and is subject to the inherent uncertainty associated with estimates.

Income Taxes

We account for income taxes under Statement of Financial Standards No. 109 “Accounting for Income Taxes.” A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax assets will not be realized. Accordingly, because of the Company’s limited and unprofitable operating history, management has provided a valuation allowance for the full amount of the deferred tax asset due to the uncertainty of realization.

The above list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Results of Operations

Net sales for the thirteen weeks ended ~~May~~August 3130, 2003 (~~first~~second quarter of Fiscal 2003) ~~decreased~~ decreased by $01.72 million or 2.4.8% from the ~~first~~second quarter of Fiscal 2002 due primarily to the impact of ~~three~~lower comparable store sales, four fewer stores and less catalog sales,. ~~partially~~The ~~offset~~Company byexperienced ana ~~increase in comparable store sales of 6~~2.47%. ~~The~~decline ~~increase~~ in comparable store sales ~~was due primarily~~during to the ~~positive~~second ~~impact~~quarter ~~from~~due ~~more~~primarily ~~frequent and item-intensive direct-mail flyers sent~~ to ~~our~~fewer ~~highest-spending~~customer ~~customers,~~sales ~~more frequent store events~~transactions, ~~aggressive promotional pricing and increased sales of discontinued products. These factors were partially offset by the negative impact on our comparable store sales from~~ fewer private-label credit card promotional discounts, and ~~poor~~generally ~~economic~~lower ~~conditions.~~retail ~~Catalog/Internet~~prices ~~sales for the first quarter of Fiscal 2003 decreased $0.6 million or 47.9% from the first quarter of Fiscal 2002 due primarily to a continued deterioration~~ in the ~~Company’s~~tool ~~catalog mailing list~~industry. In June 2003, the Company decided to discontinue the mailing of catalogs beginning immediately. The Company is analyzing the expenses that may be incurred in connection with the discontinuance but does not expect to incur any material charges.

~~Gross~~Catalog/Internet ~~profit~~sales for the ~~first~~second quarter of Fiscal 2003 decreased $0.82 million or 834.72% from the ~~first~~second quarter of Fiscal 2002. ~~As a percentage of net sales, gross profit~~due ~~decreased~~primarily ~~2.0%~~ to ~~30.0%~~a incontinued ~~the~~deterioration ~~first quarter of Fiscal 2003 from 32.0%~~ in the ~~first~~Company’s ~~quarter~~catalog ofmailing ~~Fiscal 2002~~list. ~~This~~In ~~decline~~June ~~was~~2003, ~~due primarily to~~ the ~~negative~~Company ~~impact~~decided ~~from~~to ~~less~~discontinue ~~catalog~~the ~~sales~~mailing ~~(which traditionally have higher gross margins), more aggressive promotional pricing and a higher level~~ of ~~discontinued~~new ~~product sales at discounted prices~~catalogs. ~~These shortfalls were partially offset by the positive impact from lower distribution costs.~~

Net sales for the twenty-six weeks ended August 30, 2003 (year-to-date) decreased $1.8 million or 3.5% from the twenty-six weeks ended August 24, 2002 due to fewer stores and less catalog/Internet sales, partially offset by improved comparable store sales. Year-to-date comparable store sales increased 1.9% due primarily to improved flyer productivity, more frequent flyers sent to our best customers and more frequent store events, partially offset by generally lower tool prices.

~~Selling,~~Gross ~~general~~profit ~~and administrative (SG&A) expenses~~ for the ~~first~~second quarter of Fiscal 2003 decreased $1.21 million or 12 14.72% from the ~~first~~second quarter of Fiscal 2002. As a percentage of net sales, ~~SG&A~~gross ~~expenses~~profit ~~fell~~decreased 3.1% to 3027.19% in the ~~first~~second quarter of Fiscal 2003 from 3331.70% in the ~~first~~second quarter of Fiscal 2002. ~~The~~This ~~decrease~~decline ~~in SG&A expenses~~ was ~~primarily~~ due primarily to the negative impact from less catalog sales (which ~~successful~~traditionally ~~implementation~~have higher gross margins), more aggressive pricing and a lower level of ~~many~~vendor ~~expense~~allowances recorded under full-~~reduction~~absorption ~~initiatives~~accounting. ~~since~~These shortfalls were partially offset by the ~~first~~positive ~~quarter~~impact offrom ~~Fiscal~~lower ~~2002.~~distribution costs.

~~The~~Year-to-date ~~loss~~gross ~~from~~profit ~~operations~~decreased ~~for~~$1.9 million or 11.3% from the ~~first~~prior year-to-date ~~quarter~~period. ofAs ~~Fiscal~~a ~~2003~~percentage ~~was~~of ~~$48~~net sales,~~000~~ ~~compared~~gross profit decreased 2.5% to 29.0% of net sales from 31.5% of net sales. The primary reasons for the ~~Fiscal~~decrease ~~2002~~in ~~first~~the gross profit rate are the same as mentioned above for the second quarter ~~loss~~along with ~~from~~a ~~operations~~higher level of ~~$467,000~~discontinued product sales at discounted prices in the first-quarter of Fiscal 2003.

~~Interest~~Selling, ~~expense~~general and administrative (SG&A) expenses for the ~~first~~second quarter of Fiscal 2003, ~~net~~decreased $1.7 million or 17.1% from the second quarter of ~~interest~~Fiscal ~~income,~~2002. ~~increased~~As bya ~~$84~~percentage of net sales,~~000~~ SG&A expenses fell to 33.7% in the second quarter of Fiscal 2003 from 38.7% in the ~~first~~second quarter of Fiscal 2002. Year-to-date SG&A expenses deceased $2.9 million or 14.9% from the prior year-to-date period. As a percentage of net sales, year-to-date SG&A expenses declined to 31.8% from 36.1% in the prior year-to-date period despite the lower year-to-date sales. These decreases in SG&A expenses were primarily ~~attributable~~due to ~~fees~~the ~~and~~successful ~~service~~implementation ~~charges~~of ~~under~~many expense-reduction initiatives since the second ~~Credit~~quarter ~~Facility~~of ~~(see~~Fiscal ~~below)~~2002.

The loss from operations for the second quarter of Fiscal 2003 was $1.4 million compared to the Fiscal 2002 second quarter loss from operations of $1.9 million. The year-to-date loss from operations for Fiscal 2003 was $1.4 million compared to the year-to-date loss from operations for Fiscal 2002 of $2.4 million.

Interest expense, net of interest income, for the second quarter of Fiscal 2003 increased by $77,000 from the second quarter of Fiscal 2002. For the year-to-date period, net interest expense increased $163,000 from the prior year-to-date period. These increases were primarily attributable to higher fees and service charges under the Credit Facility (see below) and interest expense under the Vendor Notes (see below).

We do not expect to record a provision or benefit for income taxes this year.

The net loss for the ~~first~~second quarter of Fiscal 2003 was $01.58 million compared to the Fiscal 2002 ~~first~~second quarter net loss of $02.82 million. The year-to-date net loss was $2.2 million compared to $3.0 million for the prior year.

Liquidity and Capital Resources

Our working capital deficiency as of ~~May~~August 3130, 2003 was $68.74 million, which increased by $02.41 million from March 1, 2003. The increased deficiency resulted primarily from a $16.06 million decline in inventories, and a $0.76 million increase in accounts payable, ~~and~~partially offset by a $03.50 million ~~increase~~ decrease in bank borrowings, ~~partially~~and ~~offset by~~ a $12.12 million reduction in the Vendor Notes (see below). The significant decrease in inventories was due primarily to seasonality and ~~$0.5~~tighter ~~million~~controls ~~reduction~~implemented inthis ~~accrued~~year ~~expenses~~over merchandise purchases and allocations.

During the ~~first~~twenty-six ~~quarter~~weeks ofended ~~Fiscal~~August 30, 2003, cash provided by operating ~~activities~~ activities was $15.18 million due mostly to the $16.06 million decrease in ~~inventory~~inventories.

Net cash used in investing activities during the first ~~quarter~~twenty-six weeks of Fiscal 2003 was $48117,000 due primarily to purchases of property and equipment.

Net cash used in financing activities during the first ~~quarter~~twenty-six weeks of Fiscal 2003 was $05.97 million due primarily to repayments of the Vendor Notes of $12.12 million and payments under the Credit Facility (see below) of $3. 0 million.

In January 2003, in connection with the extension of certain payments owed to key vendors, we issued unsecured promissory notes to such vendors in an aggregate principal amount of approximately $4.5 million (together, the “Vendor Notes”). The Vendor Notes (comprised of former accounts payable balances) are payable in up to 12 monthly installments and have an interest rate of up to 5% per annum. Payments on the Vendor Notes began in February 2003 and are scheduled to be paid in full in January 2004. Although we have been making all scheduled payments on the Vendor Notes on a timely basis, based upon our anticipated cash shortfall (see below), there can be no assurance that we will be able to continue to make the required payments.

We11 maintain a $30 million senior secured revolving Credit Facility with Bank of America as Agent (the “Credit Facility”). The borrowing base under the Credit Facility is based on the following formula: the lesser of 65% of the cost of eligible store and warehouse inventory or 85% of the orderly liquidation value of the inventory from an appraiser acceptable to Bank of America, plus 50% of the value of inventory covered by merchandise letters of credit plus 85% of the value of eligible credit card and trade accounts receivable. The Credit Facility is secured by substantially all of our assets. Amounts borrowed under the Credit Facility bear interest at an annual rate equal to LIBOR plus 3.50% (4.56% at June 25, 2003) or the bank reference rate plus 1.25% (5.50% at June 25, 2003) at our option. We may select the rate every month. The amount available at May 31, 2003, based on the borrowing base under the Credit Facility, was $21.5 million, of which $19.4 million was drawn, resulting in net availability of $2.1 million.

The Credit Facility requires us to (i) maintain minimum quarterly amounts of cumulative rolling 12-month EBITDA (our income before interest, depreciation, amortization and taxes) and (ii) satisfy certain other non-financial covenants. We are also required to have a minimum of $3.0 million of availability under the Credit Facility after we make the required $2.0 million payment to the former unsecured creditors of Trend-Lines, Inc. The Credit Facility matures on October 29, 2003 and we are seeking an extension or a replacement facility. However, there can be no assurance that an extension will be obtained or, in the absence of an extension, a new facility can be obtained on terms acceptable to us or at all.

The terms of the Credit Facility currently prohibit us from making a required $2 million payment to the former unsecured creditors of Trend-Lines, Inc. and we can make no assurance as to when or if we will be able to make this payment.

The Company’s ability to meet its financial obligations will depend on the Company’s future operating performance, which will be subject to financial, economic and other factors affecting the business and operations of the Company, including factors beyond its

~~control.~~The ~~Management~~Company ~~believes,~~has ~~even~~a if$30 ~~the~~million ~~holders~~Senior ofSecured ~~the~~Revolving ~~unpaid~~Credit $2Facility ~~million~~with ~~pre-petition~~Bank ~~settlement~~of ~~claim~~America ~~continue~~as toagent that matures on ~~permit~~April 30, 2004 (the ~~deferral~~“Credit ofFacility”). ~~payment~~At ~~and~~August ~~certain~~30, ~~vendors~~2003, ~~agree~~the toCompany ~~extend~~had ~~current~~$16,000,000 ~~credit~~of ~~terms~~borrowings outstanding and $15,200 ~~the~~of ~~availability~~letters ~~under~~of ~~the~~credit outstanding. The Credit Facility, ~~together~~is ~~with~~secured ~~available~~by ~~cash~~all of the Company’s assets and ~~expected~~bears interest ~~cash~~equal ~~flows~~to ~~during~~LIBOR ~~Fiscal~~plus 4.00% (5.11% at August 30, 2003) ~~will~~or ~~not~~the bebank ~~sufficient~~reference torate ~~timely~~plus ~~meet~~2.00% ~~our working~~(6.00% ~~capital~~at ~~needs~~August 30, ~~debt~~2003) ~~service~~at ~~requirements~~the ~~and~~Company’s ~~planned~~option. ~~capital~~We ~~expenditures~~may ~~during~~select ~~portions~~the ofrate ~~Fiscal~~each ~~2003~~month.

InThe ~~order~~Company towas ~~mitigate~~required ~~the expected Fiscal 2003 cash shortfall and~~ to ~~maintain~~have ~~adequate~~cumulative ~~liquidity,~~EBITDA ~~management is~~ (i)earnings ~~seeking~~before aninterest, ~~extension~~income ~~or replacement of the Credit~~taxes ~~Facility,~~and ~~(ii)~~depreciation ~~renegotiating certain store lease terms,~~ and ~~(iii~~amortization) ~~seeking~~for ~~additional~~the ~~extended~~four ~~vendor~~consecutive ~~payment~~fiscal ~~terms.~~quarters Inending ~~order~~on ~~to achieve profitability,~~ the ~~Company~~last ~~will~~day ~~need~~of tothe ~~enhance~~second ~~revenues~~quarter ~~and~~of ~~margins~~Fiscal ~~through~~2003 ~~improved~~of ~~merchandising~~not ~~and marketing,~~less ~~selective~~than ~~new~~$1.4 ~~store openings, closing or relocating underperforming locations and continued focus on cost controls~~million. ~~There~~As ~~can~~described bein noNote ~~assurance~~1, ~~that~~ the Company ~~will~~is ~~achieve~~not ~~these~~in ~~objectives.~~compliance with this covenant.

On August 11, 2003, the Credit Facility was amended (the “Amendment”) to, among other things, (1) extend the term of the Credit Facility until April 30, 2004, (2) raise the applicable interest rates under the terms of the Credit Facility (i) for bank reference rate loans, by three-quarters of a percentage point and (ii) for LIBOR rate loans, by one-half of a percentage point, (3) adjust the calculation of the borrowing base in the manner described below beginning at the end of November 2003, (4) adjust the calculation of availability under certain conditions as described below, and (5) add and revise certain financial covenants as further described below.

Pursuant to the Amendment, the Company’s availability under the Credit Facility will be further reduced by an amount equal to 50% of any “Year-to-Date EBITDA Shortfall” (the amount, if any, by which the Company’s year-to-date EBITDA is less than the Company’s year-to-date EBITDA for the corresponding period in the previous fiscal year). There was no Year-to-Date EBITDA Shortfall as of the end of August 2003.

Fiscal Month	Ratio
October 2003	37.5	%
November 2003	39.7	%
December 2003	32.3	%
January 2004	36.9	%
February 2004	32.7	%
March 2004 and each fiscal
month thereafter	35.0	%

Pursuant to the Amendment, the Company is required to have a rolling 12-month Fixed Charges Ratio (EBITDA divided by the sum of capital expenditures, interest expense, income tax expense, principal debt payments and any cash payment made to creditors in accordance with the $2.0 million settlement under the bankruptcy plan of the Company’s predecessor), determined as of the end of each fiscal month set forth below, of not less than the following:

Fiscal Month		Ratio
November 2003		.49:1.00
December 2003		.51:1.00
January 2004		.68:1.00
February 2004 and each fiscal
month thereafter		.65:1.00

In addition, under the terms of the Amendment, the Company is required to have aggregate sales revenues of at least $22,950,000 during the fiscal months of November and December 2003.

The Company paid a $30,000 fee to the lenders in connection with the Amendment.

The Company’s ability to meet its financial obligations will depend on the items described below as well as the Company’s future operating performance, which will be subject to financial, economic and other factors affecting the business and operations of the Company, including factors beyond its control. In order to achieve profitability, the Company will need to enhance revenues and margins through improved merchandising and marketing, selective new store openings, closing or relocating underperforming locations and continued focus on cost controls. There can be no assurance that the Company will be able to achieve these objectives.

Management believes, even if the holders of the unpaid $2.0 million pre-petition settlement claim continue to permit the deferral of payment and certain vendors continue to agree to extend current credit terms, the availability under the Credit Facility, together with available cash and expected cash flows during Fiscal 2003 will not be sufficient to timely meet our working capital needs, debt service requirements and planned capital expenditures during portions of Fiscal 2003.

In order to mitigate the expected Fiscal 2003 cash shortfall and to maintain adequate liquidity, management is (i) seeking an investor who could provide financing for the above needs, (ii) seeking a replacement of the Credit Facility, (iii) renegotiating certain lease terms, and (iv) seeking additional extended vendor payment terms.

In addition, the Company is not in compliance with the second-quarter EBITDA covenant under the existing Credit Facility (see description above) and is currently seeking to enter into an agreement with its lenders whereby the lenders will agree to refrain from exercising their default remedies under the Credit Facility until December 20, 2003, but will accelerate portions of the advance rate reductions currently scheduled for November 30 and December 31, 2003 (the “Forbearance Agreement”). The Company can make no assurance that the Forbearance Agreement will be executed and delivered by its current lenders on the terms described above or at all.

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 us 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 our 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:

• Our ~~ability~~entering tointo ~~obtain,~~the asForbearance ~~discussed~~Agreement ~~above,~~with anour ~~extended~~current ~~credit~~lenders ~~facility beyond October 2003 or a new credit facility~~ and ~~additional~~the ~~extensions~~completion of ~~vendor~~the ~~payment~~Proposed ~~terms during portions of Fiscal 2003~~Transaction.

•	Our ability to obtain additional extensions of vendor payment terms during portions of Fiscal 2003.

•	Our compliance with the other financial covenants under the Credit Facility as such covenants may be amended from time to time or the receipt of waivers of violations of such covenants, as applicable.

•	Continued cooperation by the holders of $2 million of unsecured bankruptcy claims as to which we have deferred payment.

• Our ~~compliance~~ability ~~with~~to ~~the~~achieve ~~financial~~our ~~covenants~~plans ~~under~~and ~~the~~strategies ~~Credit~~of ~~Facility~~growth aswhich ~~such~~is ~~covenants~~currently ~~may~~dependent beon ~~amended~~completion ~~from~~of ~~time to time or~~ the ~~receipt~~Proposed ~~of waivers of violations of such covenants, as applicable~~Transaction.

• Our ability to achieve our plans and strategies of growth will be dependent on maintaining adequate bank and other financing.

•	Our ability to attract, train and retain highly-qualified associates to staff both existing and new stores, as well as middle and senior management.

•	General economic conditions, which affect consumer confidence and home improvement and home-building spending, including interest rates, the overall level of economic activity, the availability of consumer credit and mortgage financing and unemployment rates.

• The impact of competition, including competition for customers, locations and products and in other important aspects of our business. Our primary competitors include home improvement stores, electrical, plumbing and building materials supply houses, lumber yards, ~~home improvement stores~~ and other local, regional or national hardware stores, as well as discount department stores and any other channel of distribution that offer products that we sell. Our business is highly competitive and we may also face new types of competitors if we enter new markets or lines of business.

•	Changes in laws and regulations, including changes in accounting standards, tax statutes or regulations and environmental and land use regulations, and uncertainties of litigation.

•	Closure and/or relocation of underperforming stores.

•	Other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risk primarily through our borrowing activities. Our short-term borrowings bear interest at variable rates primarily based on either the prime rate or LIBOR. The effect of a 10% change in the prime or LIBOR would not have a material impact on our financial results. We do not use financial instruments for trading or other speculative purposes and are not party to any leveraged financial instruments.

ITEM 4.

CONTROLS AND PROCEDURES

With the supervision and participation of our management including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures ~~within~~as ~~90 days~~ of ~~the~~August ~~filing of this report~~30, 2003 and, based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. As part of the overall evaluation of our controls and procedures, we identified certain aspects of our store control procedures and processes that resulted in inefficiencies in the processing of certain inventory transactions for the thirteen weeks ended August 30, 2003, particularly for store merchandise transfers associated with store events and closings. We have implemented improvements to these procedures, including enhanced monitoring of all store inventory transfer requests, a significant reduction in store merchandise transfers associated with store events, and a new requirement that closing stores cease operations immediately after the closing announcement. There ~~were~~have been no ~~significant~~other changes in ~~our~~the Company’s internal controls over orfinancial inreporting ~~other~~during ~~factors~~ the most recent fiscal quarter that ~~significantly~~have ~~affect~~materially ~~these~~affected, ~~controls~~or ~~subsequent~~are reasonably likely to ~~their~~materially ~~date~~affect, ofthe ~~evaluation~~Company’s financial reporting.

1214

PART II – —OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 2.

CHANGES IN SECURITIES AND USE OF PROCEEDS

~~On March 10, 2003, pursuant to our Stock Option Plan, we granted to one of our executive officers options to purchase 100,000 shares of Common Stock at an exercise price of $0~~None.26 ~~per share. Such grant was made to an accredited investor (as defined in Regulation D of the Securities Act), and thus exempt from registration pursuant to Section 4(2) of the Securities Act.~~

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

~~None~~As discussed above, the Company is not in compliance with the second-quarter EBITDA covenant under the Credit Facility and is currently seeking to enter into the Forbearance Agreement whereby the Company’s lenders will, among other things, refrain from exercising their default remedies until December 20, 2003. The Company can make no assurance that the Forbearance Agreement will be entered into on the terms described herein or at all.

If the Forbearance Agreement is not entered into, the Company will be in default under the Credit Facility and the Company’s lenders could exercise default remedies that include, but are not limited to, acceleration of repayment of all amounts outstanding thereunder. If repayment is accelerated under the Credit Facility, the Company may need to commence a liquidation of its assets.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

~~None~~Our Annual Meeting of Stockholders was held on September 9, 2003. Holders of an aggregate of 5,633,006 shares of our common stock at the close of business on July 21, 2003 were entitled to vote at the meeting, of which 3,162,375 were present in person or represented by proxy. At such meeting, the Company’s stockholders voted as follows:

Proposal 1

To elect seven directors to serve until the 2004 Annual Meeting of Stockholders or until their respective successors shall have been duly elected and qualified.

Name of Nominee	Total Votes For Each Nominee	Total Votes Withheld from Each Nominee
Walter S. Spokowski	3,160,549	1,826
Bruce W. Berg	3,160,549	1,826
Ronald A. Kaplan	3,160,549	1,826
Richard A. Mandell	3,160,549	1,826
Gary A. Nacht*	3,160,549	1,826
Joseph Nusim	3,160,549	1,826
Edward D. Solomon	3,160,549	1,826

*	Mr. Nacht resigned as a director of the Company effective as of September 25, 2003.

No other persons were nominated, or received votes, for election as directors of the Company at the 2003 Annual Meeting of Stockholders. There were no abstentions or broker non-votes with respect to this proposal.

Proposal 2

To ratify the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending February 28, 2004.

Total Vote For Proposal 2		Total Vote Against Proposal 2		Abstentions from Proposal 2
3,152,839		9,422		114

There were no broker non-votes with respect to Proposal 2.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

(a) 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(a)	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b)	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(c)	32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(d)	32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Reports on Form 8-K

(a) The registrant filed a current report on Form 8-K on ~~March~~August 2012, 2003, reporting ~~certain~~an ~~amendments~~amendment to the Credit Facility.

1316

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.

	WOODWORKERS WAREHOUSE, INC. (Registrant)	~~WOODWORKERS WAREHOUSE, INC. (Registrant)~~
Date: July 11, 2003		By:	/s/ WALTER S. SPOKOWSKI
Date: October 14, 2003	By:	/s/ WALTER S. SPOKOWSKI
			Walter S. Spokowski, President and Chief Executive Officer
		Walter S. Spokowski President and Chief Executive Officer
Date: October 14, 2003	By:	/s/ RICK C. WELKER
		Rick C. Welker Vice President and Chief Financial Officer

Date: July 11, 2003						By:		/s/ RICK C. WELKER
								Rick C. Welker, Vice President and Chief Financial Officer

WOODWORKERS WAREHOUSE, INC.

CERTIFICATIONS PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Walter S. Spokowski, President and Chief Executive Officer of Woodworkers Warehouse, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Woodworkers Warehouse, Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a) and 15(d)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 11, 2003

/s/ WALTER S. SPOKOWSKI Walter S. Spokowski, President and Chief Executive Officer

WOODWORKERS WAREHOUSE, INC.

CERTIFICATIONS PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Rick C. Welker, Vice President and Chief Financial Officer of Woodworkers Warehouse, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Woodworkers Warehouse, Inc;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: July 11, 2003

/s/ RICK C WELKER Rick C. Welker, Vice President and Chief Financial Officer

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