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. In April 1999, the company replaced its previous revolving line
of credit with Bank America Business Credit, with an $8 million credit
facility with Paragon Capital, LLC.
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.
Because internet retailing is still in a relatively early stage of
development, there is no guarantee the use of the internet for retail
purposes will become widespread. Consumer concerns about privacy and
security may hinder the growth of internet retailing. Technology in the
online commerce industry changes rapidly. These changes and the
emergence of new industry standards and practices could render our
existing Website and technology obsolete.
The Company has a limited amount of experience marketing products
electronically. The Company may be unable to develop the methods and
means necessary to produce sufficient consumer interest in the
Company's Website, thus hindering its ability to increase revenues via
internet sales. In addition, the Company may not be able to establish
links with other web sites as planned which could adversely impact the
success of the site. The Company must also be able to effectively and
efficiently fulfill customer orders which is subject to various
internal and external factors
The Company' success and ability to facilitate product sales over the
internet depends on the efficient and uninterrupted operation of its
computer and communications hardware systems. In the case of frequent
or persistent system failures the Company's reputation and name brand
could be materially adversely affected. The Company's internet systems
and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunications failures,
break-ins, sabotage, intentional acts of vandalism, and similar acts.
In addition, the Company's servers are vulnerable to computer viruses,
physical or electronic break-ins, and similar disruptions which could
lead to interruptions, delays, loss of data or the inability to
complete customer transactions. The Company does not presently have
fully redundant systems, a formal disaster recovery plan or alternative
service providers and does not carry sufficient business interruption
insurance to compensate the Company for losses that may occur.