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 of which
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
borrowings under existing credit facilities. 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 a $10
million credit facility with Paragon Capital, LLC. The trading of the Company's
common stock on the Nasdaq Small Cap 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 Small Cap 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's
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 may not carry
sufficient business interruption insurance to compensate the Company for losses
that could occur.