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, products related to
the Shining Time Station television series 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
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 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.
To date, the Company has met its liquidity requirements through cash flows from
operating activities, the public sale of its equity securities and, to a lesser
extent, borrowings under existing credit facilities. In January 1998, the
Company entered into a $15,000,00 revolving line of credit with BankAmerica
Business Credit, Inc. In June 1998 the Company sold $3,000,000 aggregate
principal amount of 12% subordinated debentures due 2003 and warrants to
purchase 175,000 shares of the Company's common stock at an exercise price of
$3.75 per share.
The trading of the Company's common stock on the Nasdaq National Market is
conditioned upon the Company meeting certain asset, capital and surplus,
earnings and stock price tests. If the Company fails to satisfy any of these
tests, the common stock may be delisted from trading on Nasdaq National Market.
The effects of delisting include more limited news coverage of the Company.
Delisting may restrict investors interest in the Common Stock and materially
adversely affect the trading market and prices for the common stock and the
Company's ability to issue additional securities or to secure additional
financing.