U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the thirteen week period ended March 29, 1997
Commission file number 1-13158
The Great Train Store Company
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 75-2539189
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
14180 Dallas Parkway, Suite 618, Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
(972) 392-1599
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date:
Number of Shares Outstanding
Title of Class as of March 29, 1997
-------------- ---------------------
Common Stock $0.01 par value 4,396,719
1
THE GREAT TRAIN STORE COMPANY
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL QUARTER ENDED
March 29, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Unaudited Consolidated Balance Sheet as of March 29, 1997 3
Unaudited Consolidated Statements of Operations for the thirteen
weeks ended March 30, 1996 and March 29, 1997 4
Unaudited Consolidated Statements of Cash Flows for the thirteen
weeks ended March 30, 1996 and March 29, 1997 5
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis 7
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURE PAGE 11
EXHIBIT INDEX 12
2
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 29, 1997
----------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,938,431
Merchandise inventories 6,154,837
Accounts receivable and other current assets 721,779
-----------------
Total current assets 8,815,047
PROPERTY AND EQUIPMENT:
Store construction and leasehold improvements 3,752,813
Furniture, fixtures, and equipment 1,857,677
-----------------
5,610,490
Less accumulated depreciation and amortization (1,541,905)
-----------------
Property and equipment, net 4,068,585
DEFERRED TAXES 217,280
OTHER ASSETS, net 291,103
-----------------
Total assets $ 13,392,015
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,845,337
Sales taxes payable 102,409
Income taxes payable 40,321
Current portion of capital lease obligations 119,353
-----------------
Total current liabilities 2,107,420
CAPITAL LEASE OBLIGATIONS, net of current portion 277,474
OTHER LIABILITIES 111,994
-----------------
Total liabilities 2,496,888
-----------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock; $.01 par value; 2,000,000 shares
authorized; none issued -
Common stock; $.01 par value; 18,000,000 shares
authorized; 4,396,719 shares issued and outstanding 43,967
Paid-in capital 10,235,882
Retained earnings 618,887
Unearned compensation - restricted stock (3,609)
-----------------
Total stockholders' equity
10,895,127
-----------------
Total liabilities and stockholders' equity $ 13,392,015
=================
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Thirteen Weeks Ended
March 30, 1996 March 29, 1997
------------------- ---------------
NET SALES $ 2,421,011 $ 3,890,121
COST OF SALES 1,284,884 2,063,709
-------------- ------------
Gross profit 1,136,127 1,826,412
-------------- ------------
OPERATING EXPENSES:
Store operating expenses 725,226 1,117,710
Occupancy expenses 456,737 799,144
Selling, general and administrative expenses 377,330 560,792
Depreciation and amortization 73,292 163,735
-------------- ------------
Total operating expenses 1,632,585 2,641,381
-------------- ------------
OPERATING LOSS (496,458) (814,969)
-------------- ------------
OTHER INCOME (EXPENSE):
Interest expense (30,909) (34,097)
Interest income 17,442 32,424
Other income 2,429 3,908
-------------- ------------
Total other income (expense), net (11,038) 2,235
-------------- ------------
LOSS BEFORE INCOME TAXES (507,496) (812,734)
INCOME TAX BENEFIT - (300,712)
-------------- ------------
NET LOSS $ (507,496) $ (512,022)
============== ============
NET LOSS PER SHARE $ (0.16) $ (0.12)
============== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,145,000 4,387,148
============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Thirteen Weeks Ended
March 30, 1996 March 29, 1997
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (507,496) $ (512,022)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 73,292 163,735
Deferred income taxes - (22,553)
Amortization of unearned compensation - restricted stock 4,249 516
Changes in assets and liabilities:
Merchandise inventories (926,529) (31,485)
Accounts receivable and other current assets 74,613 401,855
Other assets (28,511) (86,353)
Accounts payable and accrued liabilities (153,373) (1,734,017)
Sales taxes payable (174,365) (302,225)
Income taxes payable - (261,280)
----------- ------------
Net cash used in operating activities (1,638,120) (2,383,829)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (327,058) (556,548)
----------- -------------
Net cash used in investing activities (327,058) (556,548)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock options exercised - 37,833
Proceeds from notes payable 6,731 -
Repayment of notes payable and capital leases (64,715) (23,564)
----------- -------------
Net cash provided by (used in) financing activities (57,984) 14,269
----------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (2,023,162) (2,926,108)
CASH AND CASH EQUIVALENTS, beginning of period 3,237,696 4,864,539
----------- -------------
CASH AND CASH EQUIVALENTS, end of period $1,214,534 1,938,431
=========== =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 60,469 $ 35,687
Income taxes paid $ 31,447 261,280
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of The Great Train
Store Company and subsidiaries (the "Company") as of March 29, 1997 and for the
thirteen week periods ended March 29, 1997 and March 30, 1996 have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the results of the interim periods have been included. Operating
results for any interim period are not necessarily indicative of the results
that may be expected for the entire fiscal year. The Company's business is
heavily dependent on fourth quarter sales. Historically, the fourth quarter has
accounted for a significantly disproportionate share of the Company's sales and
earnings. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 28, 1996 included in
the Company's 1996 Annual Report on Form 10-KSB as filed with the SEC.
In March 1997, the Company increased its revolving line of credit with Bank One,
Texas to $8,000,000. The line of credit is secured by certain assets of the
Company, including inventory. Outstanding borrowings bear interest at Bank One's
base lending rate plus 1.0% and a commitment fee of 0.5% is charged on the
unused portion. The revolving credit facility provides a source of additional
liquidity to manage cash flow and provide capital for expansion. As of March 29,
1997, there was no amount outstanding on the revolving line of credit.
As of the date of this report, the Company has opened two new stores, one in
Garden State Plaza in Paramus, New Jersey, in 1997 and a second in North Shore
Mall in Peabody, Massachusetts. In addition, the Company has signed leases for
an additional new store to open in 1997 in The Source located in Westbury New
York on Long Island and with Providence Place in Providence, Rhode Island to
open a store in 1998.
6
ITEM 2. Management's Discussion and Analysis
Results of Operations
Operating results for any interim period are not necessarily indicative of the
results that may be expected for the entire fiscal year. The Company's business
is heavily dependent on fourth quarter sales which historically have accounted
for a significantly disproportionate share of the Company's annual sales and
earnings. The results of operations in any particular quarter also may be
significantly impacted by the opening of new stores. Prior year balances include
certain reclassifications to conform to the current year presentation. The
following table sets forth, for the periods indicated, selected statements of
operations data expressed as a percentage of net sales:
For the Thirteen Weeks Ended
March 30, 1996 March 29, 1997
-------------- --------------
Net Sales 100.0% 100.0%
Cost of Sales 53.1 53.0
----- -----
Gross Profit 46.9 47.0
Store operating expenses 29.9 28.7
Occupancy expenses 18.9 20.5
Selling, general, & administrative
expenses 15.6 14.5
Depreciation and amortization 3.0 4.2
----- -----
Operating loss (20.5) (20.9)
Interest expense ( 1.3) ( .9)
Interest income .7 .8
Other income .1 .1
----- -----
Loss before incomee taxes (21.0) (20.9)
Income tax benefit - 7.7
----- -----
Net loss (21.0)% (13.2)%
Comparison of the Thirteen Week Period Ended March 30, 1996 to the Thirteen Week
Period Ended March 29, 1997
Net sales increased approximately $1,469,000 or 60.7%, for the thirteen weeks
ended March 29, 1997, compared with the corresponding period last year. Of this
increase, approximately $1,432,000 was attributable to net sales generated by
thirteen stores which were not open in the comparable period in 1996, and
approximately $37,000 was attributable to a 1.6% increase in comparable store
sales. Comparable store sales are calculated based on the stores opened during
both of the entire months being compared.
7
Gross profit increased approximately $690,000 or 60.8%, for the thirteen weeks
ended March 29, 1997, compared with the corresponding period last year. As a
percentage of net sales, gross profit increased to 47.0% for the thirteen weeks
ended March 29, 1997, compared with 46.9% in the corresponding period last year.
The increase in gross profit margin resulted from several factors, none of which
individually had a material effect.
Store operating expenses increased approximately $392,000, or 54.1%, for the
thirteen weeks ended March 29, 1997, compared with the corresponding period last
year. Approximately $449,000 of the increase resulted from the operation of the
thirteen stores which were not open in the comparable period in 1996. This
increase was partially offset by a decrease in comparable store expenses of
approximately $57,000. As a percentage of net sales, store operating expenses
decreased to 28.7% for the thirteen weeks ended March 29, 1997, compared with
29.9% for the corresponding period last year.
Occupancy expenses increased approximately $342,000, or 75.0%, for the thirteen
weeks ended March 29, 1997, compared with the corresponding period last year.
Approximately $305,000 of the increase in occupancy expenses was attributable to
the thirteen stores which were not open in the comparable period in 1996.
Comparable store occupancy expenses increased approximately $7,000 and central
office and redistribution center occupancy expenses increased approximately
$30,000 as the Company leased additional central office space in order to
support future growth and established a redistribution center to distribute
certain product from vendors which cannot provide direct shipments to the
stores. As a percentage of net sales, overall occupancy expenses increased to
20.5% for the thirteen weeks ended March 29, 1997, compared with 18.9% for the
corresponding period last year. This percentage increase resulted from several
factors including the leasing of additional central office space and the
establishment of the redistribution center, both of which are expected to only
happen infrequently. These changes account for .5% of the 1.6% increase as a
percentage of net sales and the Company believes the current central office
space is adequate for the foreseeable future. In addition, real estate costs in
comparable stores increased at a slightly higher rate than sales for these
stores. The Company has also been opening stores at an increasing rate.
Accordingly, in the first quarter of 1997, there were more stores not yet open
for a full year which may not have reached their full sales potential.
Selling, general and administrative expenses increased approximately $183,000,
or 48.6%, for the thirteen weeks ended March 29, 1997, compared with the
corresponding period last year. The increase is due to the overall growth of the
Company including an approximate $47,000 in additional expenses related to
salaries and related expenses for additional central office personnel in
anticipation of future growth of the Company. The remainder of the increase is
primarily due to administrative expenses which relate to the increased number of
stores. The Company anticipates that selling, general and administrative
expenses will increase further as a result of increased staffing and other costs
in anticipation of opening additional stores pursuant to the Company's expansion
strategy. As a percentage of net sales, selling, general, and administrative
expenses decreased to 14.5% for the first quarter of 1997, from 15.6% for the
same period in 1996. This percentage change resulted from the relatively fixed
nature of selling, general and administrative expenses and the increase in net
sales experienced by the Company in the period. The Company anticipates that, as
additional stores are opened, selling, general and administrative expenses will
continue to decrease as a percentage of sales.
8
Depreciation and amortization expense increased approximately $90,000, or
123.4%, for the thirteen weeks ended March 29, 1997, compared with the
corresponding period last year. Approximately $71,000 of this increase was the
result of depreciation of assets in new stores opened subsequent to the first
fiscal quarter of 1996. The remaining increase is a result of an increased asset
base in both existing stores and the central office, primarily related to
management information system enhancements. As a percentage of net sales,
depreciation and amortization increased as a percentage of net sales to 4.2% for
the thirteen weeks ended March 29, 1997 from 3.0% for the same period in 1996.
This increase was the result of several factors including the enhancements to
the Company's management information system, primarily in the central office, as
well as an increase in the amount of store construction costs paid by the
Company net of tenant allowance.
Interest income increased approximately $15,000, or 85.9% for the thirteen weeks
ended March 29, 1997, compared with the corresponding period last year, due to
the investment of remaining proceeds from the warrant exercise.
The Company's pretax loss decreased from 21.0% of sales in the first fiscal
quarter of 1996 to 20.9% for the first fiscal quarter of 1997. The Company
recorded an income tax benefit of approximately $301,000 based on the Company's
effective tax rate of 37%.
As a result of the foregoing, the Company recorded a net loss of approximately
$512,000 for the thirteen weeks ended March 29, 1997, compared with a net loss
of approximately $507,000 for the corresponding period last year. As a
percentage of net sales, net loss decreased to 13.2% for the first quarter of
1997, from 21.0% for the first quarter of 1996.
Liquidity and Capital Resources
For the thirteen weeks ended March 29, 1997, net cash used in operating
activities was approximately $2,384,000 compared with approximately $1,638,000
for the corresponding period last year. The increase in net cash used in
operating activities primarily resulted from the timing of payments and the
increased activity due to the larger number of stores, a payment of
approximately $261,000 in income taxes and seasonal net losses as adjusted for
non-cash items.
In May 1996, the Company entered into a $3,000,000 revolving line of credit with
Bank One, Texas, which was subsequently increased to $8,000,000 in March 1997.
The line of credit will be used to provide a source of additional liquidity to
manage cash flow and provide capital for expansion. As of March 29, 1997, there
was no amount outstanding on the revolving line of credit.
As of the date of this report, the Company has opened two new stores, one in
Garden State Plaza in Paramus, New Jersey, in 1997 and a second in North Shore
Mall in Peabody, Massachusetts. In addition, the Company has signed leases for
an additional new store to open in 1997 in The Source located in Westbury New
York on Long Island and with Providence Place in Providence, Rhode Island to
open a store in 1998.
9
The Company intends to finance anticipated capital expenditures, working capital
needs and debt obligations for the foreseeable future, from the cash from the
Company's operating activities, landlord allowances, the available increased
line of credit, possible fixtures and equipment and inventory financing, trade
credit and/or the public or private sale of debt or equity securities.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) See Exhibit Index.
(B) No current reports on Form 8-K have been filed during
the thirteen week period ended March 29, 1997.
10
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.
THE GREAT TRAIN STORE COMPANY
5/13/97 /s/ Cheryl A. Taylor
- ------------ -------------------------------
Date Cheryl A. Taylor
Vice President - Finance and Administration,
Principal Financial Officer
11
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
11 Statement Re: Computation of Per Share Earnings 13
27.1 Financial Disclosure Schedule 14
99.1 Cautionary Statement Identifying Important Factors that
Could Cause the Company's Actual Results to Differ from
those Projected in Forward Looking Statements 15
12