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:
o Due to the importance of the Christmas selling season to many retailers,
including the Company, and in past years, 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.
o Changes in consumer tastes, spending habits, national, regional or local
economic conditions, population and traffic patterns, could all 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 Thomas & Friends television series. Products related
to the Thomas & Friends 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 the 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 BankAmerica Business
Credit, with a $10 million credit facility with Paragon Capital, LLC. The
Company's future success is dependent upon the availability of adequate
liquidity to meet its operating needs.
o 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.
o Because the Company's 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 the
Company's existing website and technology obsolete.
o 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.
o 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.
o The Company may be adversely impacted by interruptions to its computer and
communication systems, including its Internet systems. The Company's
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. In particular, so-called "Year
2000 problems" with the Company's systems or systems of third parties with
which the Company does business, could adversely impact the Company.