Exhibit 99.1
Cautionary Statement Identifying Important Factors that Could Cause the
Company's Actual Results to Differ from those Projected in Forward Looking
Statements
The following factors could affect The Great Train Store Company's actual future
results, including its merchandise sales, expenses, cash flow and net income,
and could cause them to differ from any forward- looking statements made by or
on behalf of the Company:
Due to the importance of the Christmas selling season to many retailers,
including the Company, and the Company's efforts to open new stores late in the
year to capitalize on increased net sales during the Christmas season, net sales
in the fourth quarter of each year constitute a highly disproportionate amount
of net sales for the entire year and, historically, has represented all of the
Company's income from operations. As a result, the Company's annual earnings
have been and will continue to be heavily dependent on the results of operations
in the fourth quarter of each year.
Changes in consumer tastes, spending habits, national, regional or local
economic conditions, population and traffic patterns, all of which could
adversely affect Company sales, expenses and profitability. In particular, the
Company could be affected by an adverse change in the popularity of trains in
general or in the Shining Time Station television series in particular, products
related to which have represented a significant portion of the Company's annual
net sales in the past few years. There can be no assurance that the Company will
be able to successfully anticipate and respond to changing conditions affecting
consumer acceptance of its merchandise.
The results achieved to date by The Great Train Stores may not be indicative of
future operating results. Moreover, because of the relatively small number of
stores, poor operating results at any one store or any unsuccessful new store
opening could negatively impact the Company's results from operations to a
greater extent than would be the case in a larger chain.
The Company's continued success and expansion depends, in large part, on the
continued availability of its existing locations and on the Company's ability to
identify and secure suitable additional locations on acceptable terms in which
to construct new stores. The rate of new store openings is subject to various
contingencies, many which of are beyond the Company's control. These
contingencies include, among others, the availability of new retail space in
locations and on terms considered acceptable by the Company and the progress of
construction of the Company's new stores and of the shopping centers in which
they are to be located and the ability to find, successfully acquire, and
effectively operate existing stores. Moreover, store construction and opening
costs could be higher than expected, and the Company may reduce the rate at
which it opens new stores. While some of the Company's leases contain provisions
for renewal terms, there can be no assurance that such space will continue to be
available to the Company after the expiration of the renewal terms or, if
available, that such space could be obtained on terms considered acceptable by
the Company. Further, certain of the renewal terms provide for substantial
increases in occupancy costs. In addition, deterioration of shopping centers in
which The Great Train Stores are located or increased competition from newly
constructed centers could necessitate renovation of The Great Train Store or of
the center in which it is located or otherwise adversely impact the Company's
sales and/or expenses. The need for such renovations could involve unanticipated
capital expenditures or result in a decrease in customer traffic, either of
which could adversely affect the Company's operating results.
The Company faces substantial competition for consumer dollars, suitable retail
locations, management personnel and products from specialty retailers and mass
merchandisers, including toy stores and merchandisers of gifts alternative to
those offered by the Company. The Company also experiences significant
competition for customers from companies which market products primarily or
exclusively by mail order. Competition from such sources could increase in the
future. Certain of the Company's competitors have substantially greater
financial, marketing and other resources than the Company, and there can be no
assurance that the Company will be able to compete successfully with them in the
future.
The Company's business is dependent, in part, upon its ability to purchase and
take timely delivery of merchandise. Numerous factors, many of which are outside
the Company's control, could impair the Company's ability to purchase specialty
merchandise or delay the delivery of merchandise to the Company's stores.
Significant deviations in the amount of merchandise delivered or in the delivery
schedule could result in lost sales due to inadequate inventory, especially
during the Christmas selling season, and have a material adverse effect on the
Company's operating results. In order to successfully continue and manage its
expansion strategy, the Company will be dependent on its ability to retain
existing personnel and to hire, train and supervise additional personnel for the
new stores to be opened while maintaining satisfactory levels of customer
service at existing stores.
The Company's quarterly operating results can be expected to fluctuate as a
result of seasonal fluctuations in consumer demand for the Company's products,
which is highest during the fourth quarter. A significant portion of the
Company's operating expenses are relatively fixed and there can be no assurance
that the Company will report income from operations in any particular quarter.
Accordingly, the market price of the common stock and the warrants could be
subject to wide fluctuations in price and volume in response to actual or
anticipated variations in quarterly operating results and a variety of other
factors.
The trading of the Company's securities on the Nasdaq Small Cap Market and on
The Pacific Stock Exchange ("PSE") is conditioned on the Company meeting certain
asset, capital and surplus, earnings and stock price tests. If the Company fails
any of these tests, the common stock may be delisted from trading on the Nasdaq
Small Cap Market or on PSE. The effects of delisting include the limited release
of the market prices of the Company's securities and more limited news coverage
of the Company. Delisting may restrict investors' interest in the Company's
securities and materially adversely affect the trading market and prices for
such securities and the Company's ability to issue additional securities or to
secure additional financing. In addition to the risk of volatility of stock
prices, in general, and possible delisting, low price stocks are subject to the
additional risks of additional federal and state regulatory requirements and the
potential loss of effective trading markets. In particular, if the common stock
were delisted from trading on the Nasdaq Small Cap Market and the trading price
of the common stock was less than $5.00 per share, the common stock could be
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended,
which, among other things, requires that broker/dealers satisfy special sales
practice requirements, including making individualized written suitability
determinations and receiving a purchaser's written consent prior to any
transaction. If the Company's securities were delisted and the trading price was
less than $5.00 per share, the Company's securities could also be deemed penny
stocks under the Securities Enforcement and Penny Stock Reform Act of 1990,
which would require additional disclosure in connection with trades in the
Company's securities, including the delivery of a disclosure schedule explaining
the nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Company's securities and the ability of stockholders
to sell their securities in the secondary market.
The Company's Certificate of Incorporation and Bylaws include certain provisions
providing for staggered election of directors, broad authority for the Board of
Directors to issue up to 2,000,000 shares of preferred stock having such
attributes as it may determine without stockholder approval and restrictions on
the ability of stockholders to call special meetings of stockholders. Each of
these provisions could have the effect of discouraging, delaying or preventing a
change in control of the Company, diminishing opportunities for stockholder
participation in tender offers, reducing the influence of stockholders in
corporate governance and inhibiting fluctuations in the market price of the
common stock that could result from attempted takeovers of the Company.
The Company may require additional financing. There can be no assurance,
however, that any such external funding will be available to the Company, or, if
available, that such funding will be available on terms acceptable to the
Company.