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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission file number 0-24390

WOODWORKERS WAREHOUSE, INC.

(Exact name of registrant as specified in its charter)

(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 11, 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 potential issuance to former creditors of Trend-Lines, Inc. (the predecessor of the registrant) whose bankruptcy claims have not yet been settled.

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WOODWORKERS WAREHOUSE, INC.

INDEX

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WOODWORKERS WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

See notes to condensed consolidated financial statements.

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WOODWORKERS WAREHOUSE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

See notes to condensed consolidated financial statements.

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WOODWORKERS WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

See notes to condensed consolidated financial statements.

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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 nationally distributed mail-order catalogs and Web site (www.woodworkerswarehouse.com). The Company sells its products through its retail stores and through its catalogs and Web site. These businesses have been aggregated into their respective reportable segments based on the Company’s management reporting structure. 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.

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 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 $1.4 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 $43,000 and $0, respectively, for cooperative promotional income.

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.

Management believes, even if the holders of an unpaid $2 million settlement claim (related to the bankruptcy plan 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 extend current credit terms, the availability under the Credit Facility (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 or replacement of the Credit Facility, (ii) renegotiating certain store lease terms, and (iii) 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 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):

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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 29, 2003 (the “Credit Facility”). At May 31, 2003, the Company had $19,407,000 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 3.50% (4.82% at May 31, 2003) or the bank reference rate plus 1.25% (5.50% at May 31, 2003) at the Company’s option. We may select the rate each month.

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 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 contains a quarterly EBITDA covenant and certain non-financial covenants. The Company is required to have cumulative EBITDA for the four consecutive fiscal quarters ending on the last day of each fiscal quarter of not less than the amount set forth below:

The Company is seeking an extension of the Credit Facility. However, there can be no assurance that the extension will be obtained or, in the absence of an extension, a new credit facility can be obtained on terms acceptable to the Company or at all.

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 10, 2003, 5,633,006 shares of Common Stock were issued and outstanding (including the 1,180,480 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. These shares were 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-quarter net income and earnings 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.

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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):