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 thirty-nine week period ended September 28, 1996
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 September 28, 1996
--------------- -------------------------
Common Stock $0.01 par value 4,372,419
<PAGE>
THE GREAT TRAIN STORE COMPANY
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL QUARTER ENDED
September 28, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Unaudited Consolidated Balance Sheet as of September 28, 1996 3
Unaudited Consolidated Statements of Operations for the
thirteen weeks ended September 30, 1995 and September 28, 1996
and the thirty-nine weeks ended September 30, 1995 and September
28, 1996 4
Unaudited Consolidated Statements of Cash Flows for the thirty-nine
weeks ended September 30, 1995 and September 28, 1996 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 13
SIGNATURE PAGE 14
EXHIBIT INDEX 15
<PAGE>
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
------
September 28, 1996
------------------
CURRENT ASSETS:
Cash and cash equivalents $4,285,253
Merchandise inventories 5,333,582
Accounts receivable and other current assets 57,550
------
Total current assets 9,676,385
PROPERTY AND EQUIPMENT:
Store construction and leasehold improvements 3,206,739
Furniture, fixtures, and equipment 813,395
-------
4,020,134
Less - Accumulated depreciation and amortization (1,242,253)
----------
Property and equipment, net 2,777,881
OTHER ASSETS, net 214,131
-------
Total assets $12,668,397
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $2,925,567
Sales taxes payable 88,313
Current portion of capital lease obligations 115,282
-------
Total current liabilities 3,129,162
CAPITAL LEASE OBLIGATIONS, net of current portion 338,997
-------
Total liabilities 3,468,159
---------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock; $.01 par value; 2,000,000 shares
authorized; none issued and outstanding -
Common stock; $.01 par value; 18,000,000 shares
authorized; 4,372,419 shares issued and
outstanding 43,724
Paid-in capital 10,022,440
Unearned compensation - restricted stock (4,641)
Accumulated deficit (861,285)
--------
Total stockholders' equity 9,200,238
---------
Total liabilities and stockholders' equity $12,668,397
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended
Sept. 30, 1995 Sept 28, 1996 Sept. 30, 1995 Sept. 28, 1996
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES $2,565,309 $3,596,861 $6,406,521 $8,783,692
COST OF SALES 1,352,093 1,882,389 3,400,319 4,620,660
--------- --------- --------- ---------
Gross profit 1,213,216 1,714,472 3,006,202 4,163,032
--------- --------- --------- ---------
OPERATING EXPENSES:
Store operating expenses 552,275 904,333 1,605,583 2,312,727
Occupancy expenses 424,643 570,315 1,169,520 1,516,058
Selling, general, and
administrative expenses 386,661 450,688 1,042,866 1,265,103
Depreciation and amortization 64,848 88,403 168,613 251,016
------ ------ ------- -------
Total operating expenses 1,428,427 2,013,739 3,986,582 5,344,904
OPERATING LOSS (215,211) (299,267) (980,380) (1,181,872)
-------- -------- -------- ----------
OTHER INCOME (EXPENSE):
Interest expense (38,101) (38,942) (91,296) (102,279)
Interest income 19,538 27,149 92,071 56,794
Other income 2,268 7,099 8,083 7,391
----- ----- ----- -----
Total other income
(expense), net (16,295) (4,694) 8,858 (38,094)
------- ------ ----- -------
NET LOSS ($231,506) ($303,961) ($971,522) ($1,219,966)
========= ========= ========= ===========
NET LOSS PER SHARE $ (0.07) $ (0.08) $ (0.31) $ (0.36)
======== ======== ======== =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,145,000 3,952,634 3,145,000 3,430,024
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Thirty-Nine Weeks Ended
Sept. 30, 1995 Sept. 28, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($971,522) ($1,219,966)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 168,613 251,016
Amortization of unearned compensation restricted stock 12,750 6,524
Loss on retirement of property and equipment 20,637 -
Changes in assets and liabilities:
Merchandise inventories (747,213) (2,450,623)
Accounts receivable and other current assets 69,784 165,089
Other assets (8,492) (78,135)
Accounts payable and accrued liabilities (5,040) 1,139,744
Sales taxes payable (122,567) (148,480)
-------- --------
Net cash used in operating activities (1,583,050) (2,334,831)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 6,000 -
Proceeds from sale of marketable securities 1,836,150 -
Purchase of property and equipment (243,207) (1,241,257)
-------- ----------
Net cash provided by (used in) investing activities 1,598,943 (1,241,257)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock issuance - 5,582,264
Proceeds from notes payable 19,231 -
Repayment of notes payable and capital leases (268,285) (958,621)
-------- --------
Net cash provided by (used in) financing activities (249,054) 4,623,643
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (233,161) 1,047,555
CASH AND CASH EQUIVALENTS, beginning of period 1,983,953 3,237,698
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $1,750,792 $4,285,253
========== ==========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets financed through capital lease obligations $ 249,348 $ 155,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of The Great Train
Store Company and subsidiaries (the "Company") as of and for the thirteen and
thirty-nine week periods ended September 28, 1996 and September 30, 1995 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 30, 1995 included in
the Company's 1995 Annual Report on Form 10-KSB as filed with the SEC.
Prior year balances include certain reclassifications to conform to the current
year presentation.
On May 9, 1996, the Company finalized a $3,000,000 revolving line of credit with
Bank One, Texas. The line of credit has an initial contract period of two years
and is secured by certain assets of the Company, including inventory.
Outstanding borrowings bear interest at the bank's base rate plus 1 1/2% per
annum and a commitment fee of 1/2% per annum is charged on the unused portion of
the line. As of September 28, 1996, there was no amount outstanding on the
revolving line of credit.
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recovered. The adoption of this statement had no effect on the consolidated
financial statements.
As of the date of this report, the Company has opened eight new stores, the most
recent of which opened on November 2 in Florida Mall, Orlando, Florida. Other
stores opened in 1996 include Holyoke Mall in Holyoke, Massachusetts; Woodbridge
Center in Woodbridge, New Jersey; Regency Square in Richmond, Virginia; Country
Club Plaza in Kansas City, Missouri; Somerset Collection North in Troy (near
Detroit), Michigan; Bellevue Square in Bellevue (near Seattle), Washington; and
Oxmoor Center in Louisville, Kentucky. In addition, the Company has signed
leases for additional new stores to open in 1996 in Old Orchard Shopping Center
in Chicago, Illinois, Columbiana Centre in Columbia, South Carolina and Carolina
Place in Charlotte, North Carolina.
Effective November 3, 1996, the Company acquired the assets of The Train Depot
in Winter Park (near Orlando), Florida for approximately $295,000. The Company
financed the acquisition through a cash payment of approximately $180,000 and
through a note in the principal amount of approximately $115,000 which is
payable over seven years at 8% interest.
<PAGE>
On August 4, 1996, the Company's warrants to purchase one share of common stock
at an exercise price of $5.00 expired. Of the 1,245,000 warrants outstanding,
1,226,169 (or 98.5%) were exercised and gross proceeds approximated $6,130,000.
Associated fees and expenses were approximately $549,000.
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:
<TABLE>
<CAPTION>
For the Thirteen For the Thirty-nine
Weeks Ended Weeks Ended
Sept, 30, 1995 Sept, 28, 1996 Sept. 30, 1995 Sept. 28, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 52.7 52.3 53.1 52.6
------- ------- ------- -------
Gross profit 47.3 47.7 46.9 47.4
Store operating expenses 21.5 25.1 25.0 26.3
Occupancy expenses 16.6 15.9 18.3 17.3
Selling, general, & administrative 15.1 12.5 16.3 14.4
expenses
Depreciation and amortization 2.5 2.5 2.6 2.9
Operating loss (8.4) (8.3) (15.3) (13.5)
Interest expense (1.5) (1.1) ( 1.4) ( 1.2)
Interest income .8 .8 1.4 .7
Other income .1 .2 .1 .1
------- -------- -------- --------
Net Loss (9.0)% (8.4)% (15.2)% (13.9)%
</TABLE>
<PAGE>
COMPARISON OF THIRTEEN WEEK PERIOD ENDED SEPTEMBER 30, 1995 TO THE THIRTEEN WEEK
PERIOD ENDED SEPTEMBER 28, 1996
Net sales increased approximately $1,032,000 or 40.2%, for the thirteen weeks
ended September 28, 1996, compared with the corresponding period last year. Of
this increase, approximately $1,116,000 was attributable to net sales generated
by nine stores which were not open in the comparable period in 1995, and
approximately $36,000 was attributable to a 1.5% increase in comparable store
sales. Comparable store sales are calculated based on the stores opened during
both of the entire months being compared. These increases were partially offset
by a decrease in sales of approximately $120,000 attributable to the 1995
closing of the Columbus store.
Gross profit increased approximately $501,000 or 41.3%, for the thirteen weeks
ended September 28, 1996, compared with the corresponding period last year. As a
percentage of net sales, gross profit increased to 47.7% for the thirteen weeks
ended September 28, 1996, compared with 47.3% 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 $352,000, or 63.8%, for the
thirteen weeks ended September 28, 1996, compared with the corresponding period
last year. Approximately $397,000 of the increase resulted from the operation of
the nine stores which were not open in the comparable period in 1995, $124,000
of which related to pre-opening expenses incurred in the setup and opening of
these stores. This increase was partially offset by a decrease in comparable
store expenses of approximately $14,000 and the elimination of operating
expenses of approximately $31,000 related to the Columbus store location which
was closed on December 30, 1995. As a percentage of net sales, store operating
expenses increased to 25.1% for the thirteen weeks ended September 28, 1996,
compared with 21.5% for the corresponding period last year. This was primarily
due to pre-opening expenses incurred in connection with opening a larger number
of stores in 1996 as compared to 1995.
Occupancy expenses increased approximately $146,000, or 34.3%, for the thirteen
weeks ended September 28, 1996, compared with the corresponding period last
year. Approximately $192,000 of the increase in occupancy expenses was
attributable to the nine stores which were not open in the comparable period in
1995. This was partially offset by an approximate $14,000 decrease in comparable
store occupancy expenses and an approximate $39,000 decrease due to the closing
of the Columbus store. As a percentage of net sales, overall occupancy expenses
decreased to 15.9% for the thirteen weeks ended September 28, 1996, compared
with 16.6% for the corresponding period last year.
Selling, general and administrative expenses increased approximately $64,000, or
16.6%, for the thirteen weeks ended September 28, 1996, compared with the
corresponding period last year. The increase in selling, general, and
administrative expenses was primarily due to approximately $43,000 of additional
expenses related to salaries and related expenses for additional corporate
personnel in anticipation of future growth of the Company, and an approximate
$12,000 increase related to an investor public relations program which was
implemented in the second quarter of 1996. 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 12.5% for the third
quarter of 1996, from 15.1% for the same period in 1995. 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 increase at a slower rate than the
rate of sales growth.
<PAGE>
Depreciation and amortization expense increased approximately $24,000, or 36.3%,
for the thirteen weeks ended September 28, 1996, compared with the corresponding
period last year. Such increase was primarily the result of an increase in the
asset base due to the opening of new stores. This increase was partially offset
by an approximate $11,000 decrease due to the closing of the Columbus store. As
a percentage of net sales, depreciation and amortization expense remained
constant at 2.5% for both the thirteen weeks ended September 28, 1996 and
the corresponding period last year.
Interest income increased approximately $8,000, or 39.0% for the thirteen weeks
ended September 28, 1996, compared with the corresponding period last year, due
to the investment of proceeds from the warrant exercise.
As a result of the foregoing, the Company recorded a net loss of approximately
$304,000 for the thirteen weeks ended September 28, 1996, compared with a net
loss of approximately $232,000 for the corresponding period last year. As a
percentage of net sales, net loss decreased to 8.4% for the third quarter of
1996, from 9.0% for the third quarter of 1995.
COMPARISON OF THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 30, 1995 TO THE
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1996
Net sales increased approximately $2,377,000, or 37.1%, for the thirty-nine
weeks ended September 28, 1996 compared with the corresponding period last year.
Of this increase, approximately $2,603,000 was attributable to net sales
generated by eleven stores which were not open in the comparable period in 1995,
and approximately $111,000 was attributable to a 1.9% increase in comparable
store sales. Comparable store sales are calculated based on the stores opened
during both of the entire months being compared. These increases were partially
offset by a decrease in sales of approximately $337,000 attributable to the 1995
closing of the Columbus store.
Gross profit increased approximately $1,157,000 or 38.5%, for the thirty-nine
weeks ended September 28, 1996, compared with the corresponding period last
year. As a percentage of net sales, gross profit increased to 47.4% for the
thirty-nine weeks ended September 28, 1996, compared with 46.9% for the
corresponding period last year. The increase in gross margin resulted from
several factors, none of which individually had a material effect.
Store operating expenses increased approximately $707,000 or 44.0%, for the
thirty-nine weeks ended September 28, 1996, compared with the corresponding
period last year. Approximately $818,000 of the increase resulted from the
operation of the eleven stores which were not open in the comparable period in
1995, $135,000 of which related to expenses incurred in the setup and opening of
these stores. This increase was partially offset by an approximate $9,000
decrease in comparable store operating expenses and an approximate $102,000
decrease due to closing of the Columbus store location on December 30, 1995. As
a percentage of net sales, store operating expenses increased to 26.3% for the
thirty-nine weeks ended September 28, 1996, compared with 25.0% for the
corresponding period last year. This was primarily due to pre-opening expenses
incurred in connection with opening a larger number of stores in 1996 as
compared to 1995.
<PAGE>
Occupancy expenses increased approximately $347,000, or 29.6%, for the
thirty-nine weeks ended September 28, 1996, compared with the corresponding
period last year. Approximately $461,000 of the increase in occupancy expenses
was attributable to the eleven stores which were not open in the comparable
period in 1995. This was partially offset by a decrease in comparable store
occupancy expenses of approximately $7,000 and an approximate $115,000 decrease
due to the closing of the Columbus store. As a percentage of net sales, overall
occupancy expenses decreased to 17.3% for the thirty-nine weeks ended September
28, 1996, from 18.3% for the corresponding period last year.
Selling, general and administrative expenses increased approximately $222,000 or
21.3%, for the thirty-nine weeks ended September 28, 1996, compared with the
corresponding period last year. The increase in selling, general, and
administrative expenses was primarily due to approximately $91,000 of additional
expenses related to salaries and related expenses for additional corporate
personnel in anticipation of future growth of the Company, approximately $30,000
related to the annual managers meeting which included a larger group in 1996 due
to the increased number of stores and the addition of a mid-year managers
meeting for new store managers, and approximately $26,000 related to an investor
public relations program which was implemented in the second quarter of 1996.
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 14.4% for the thirty-nine weeks ended September 28, 1996,
from 16.3% for the corresponding period last year. 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 net
sales.
Depreciation and amortization expense increased approximately $82,000, or 48.9%,
for the thirty-nine weeks ended September 28, 1996, compared with the
corresponding period last year. As a percentage of net sales, depreciation and
amortization expense increased to 2.9% for the thirty-nine weeks ended September
28, 1996, from 2.6% for the corresponding period last year. Such increases were
primarily the result of an increase in the asset base due to the opening of new
stores and the addition of a Company wide management information system. The
increase was partially offset by an approximate $31,000 decrease due to the
closing of the Columbus store.
Interest expense increased approximately $11,000, or 12.3%, for the thirty-nine
weeks ended September 28, 1996, compared with the corresponding period last
year. The increase was primarily due to interest expense in 1996 related to the
financing of new management information systems which was not in place until the
third quarter of 1995. This increase was partially offset by a decrease in the
average outstanding principal balance of other notes.
Interest income decreased approximately $35,000, or 38.3% for the thirty-nine
weeks ended September 28, 1996, compared with the corresponding period last
year, due to the lower cash balance for the majority of the thirty-nine week
period. The decrease was partially offset as interest earned on the Company's
cash balance increased subsequent to the investment of warrant exercise
proceeds.
As a result of the foregoing, the Company recorded a net loss of approximately
$1,220,000 for the thirty-nine weeks ended September 28, 1996, compared with a
net loss of approximately $972,000 for the corresponding period last year.
Similar to many retail companies, the Company typically incurs seasonal net
losses in the first part of the year. As the number of the Company's stores
continues to grow, the Company anticipates that the total amount of such
seasonal losses may become larger. As a percentage of net sales, net loss
decreased to 13.9% for the first three quarters of 1996, from 15.2% for the
first three quarters of 1995.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been to fund construction expenses and
purchase initial merchandise inventories in connection with the opening of new
stores and to fund seasonal net losses.
For the thirty-nine weeks ended September 28, 1996, net cash used in operating
activities was approximately $2,335,000 compared to approximately $1,583,000 for
the corresponding period last year. The increase in net cash used in operating
activities results from the opening of new stores in the period and seasonal net
losses.
As of September 28, 1996, the Company's total debt and lease obligations
(exclusive of trade credit) consisted of approximately $454,000 payable under
capital lease obligations related to the management information systems,
fixtures and equipment. Of such debt obligations, approximately $21,000 under
the fixtures and equipment financing arrangements are payable during 1996.
The Company has opened eight new stores thus far in 1996, the most recent of
which opened on November 2 in Florida Mall, Orlando, Florida. Other stores
opened in 1996 include Holyoke Mall in Holyoke, Massachusetts; Woodbridge Center
in Woodbridge, New Jersey; Regency Square in Richmond, Virginia; Country Club
Plaza in Kansas City, Missouri; Somerset Collection North in Troy (near
Detroit), Michigan; Bellevue Square in Bellevue (near Seattle), Washington; and
Oxmoor Center in Louisville, Kentucky. In addition, the Company has signed
leases for additional new stores to open in 1996 in Old Orchard Shopping Center
in Chicago, Illinois, Columbiana Centre in Columbia, South Carolina and Carolina
Place in Charlotte, North Carolina. Effective November 3, 1996, the Company
acquired the assets of The Train Depot in Winter Park (near Orlando), Florida
for approximately $295,000. The Company financed the acquisition through a cash
payment of approximately $180,000 and through a note in the principal amount of
approximately $115,000 which is payable over seven years at 8% interest.
The Company intends to finance anticipated capital expenditures, working capital
needs and debt obligations for the foreseeable future from net proceeds from the
warrant exercise, cash from the Company's operating activities, landlord
allowances, the available line of credit, possible fixtures and equipment or
inventory financing and trade credit. On August 4, 1996, 1,226,169 (or 98.5%) of
the Company's 1,245,000 outstanding warrants to purchase the Company's common
stock at $5.00 per share were exercised. Gross proceeds were approximately
$6,130,000 and related expenses were approximately $549,000. In addition, in May
1996 the Company entered into a $3,000,000 revolving line of credit with Bank
One, Texas. As of September 28, 1996, there was no amount outstanding on the
revolving line of credit.
<PAGE>
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 thirty-nine week period ended September 28, 1996.
<PAGE>
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
/s/ Cheryl A. Taylor
Date 11/12/96 Cheryl A. Taylor
Vice President - Finance and Administration,
Principal Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
10.10 Third Amendment to The Great Train Store Company 15
1994 Incentive Compensation Plan
11 Statement Re: Computation of Per Share Earnings 17
27.1 Financial Disclosure Schedule 18
99.1 Cautionary Statement Identifying Important Factors 19
that Could Cause the Company's Actual Results to
Differ from those Projected in Forward Looking
Statements
EXHIBIT 10.10
THIRD AMENDMENT TO
THE GREAT TRAIN STORE COMPANY
1994 INCENTIVE COMPENSATION PLAN
WHEREAS, The Great Train Store Company (the "Company") has heretofore
adopted, and subsequently amended, The Great Train Store Company 1994 Incentive
Compensation Plan (the "Plan"), under which Plan an aggregate of 460,000 shares
of the Company's common stock, $.01 par value per share (the "Common Stock") may
be awarded subject to forfeiture or may be issued upon the exercise of incentive
and nonqualified stock options granted pursuant to and in accordance with the
terms of the Plan;
WHEREAS, in order to provide additional incentive to certain persons
engaged by the Company to promote the long-term interests of the Company, the
Board of Directors of the Company has authorized the amendment of the Plan to
extend the description of those persons eligible to receive awards under the
Plan to include consultants, advisors and other persons who render similar
services to the Company on a regular basis;
NOW, THEREFORE, the Plan be and hereby is amended as follows:
A. Article I of the Plan is hereby deleted in its entirety, and the
following substituted in lieu thereof to constitute said Article I from and
after the effectiveness of this Amendment:
I. Purpose of the Plan
The Great Train Store Company 1994 Incentive Compensation Plan (the "Plan")
is intended to provide a means whereby certain key employees, consultants,
advisors and other persons who render similar services to The Great Train Store
Company, a Delaware corporation (the "Company") on a regular basis, may develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company and its subsidiaries, and to encourage them to
remain with and devote their best efforts to the business of the Company and its
subsidiaries, thereby advancing the interests of the Company and its
stockholders. Accordingly, the Company may grant to eligible participants awards
("Awards") in the form of stock options ("Options") with respect to shares of
the Company's common stock, par value $0.01 per share (the "Stock") and in the
form of shares of Stock which are subject to certain restrictions and possible
forfeiture ("Restricted Stock"). Options may either be nonqualified stock
options ("Nonqualified Options") or options ("Incentive Stock Options") which
are intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
Notwithstanding the foregoing, participants who are not also key employees of
the Company shall not be entitled to receive awards in the form of Incentive
Stock Options or Restricted Stock.
B. The reference in the first sentence of the first paragraph of Article II
of the Plan to "disinterested persons" is hereby deleted in its entirety, and
the term "non-employee director" as defined in paragraph (b)(3)(i) of Rule 16b-3
is substituted in lieu thereof from and after the effectiveness of this
Amendment.
C. The fourth paragraph of Article II of the Plan is hereby deleted in its
entirety, and the following substituted in lieu thereof to constitute said
paragraph from and after the effectiveness of this Amendment:
Only key employees, consultants, advisors and other persons who render
similar services to the Company and its subsidiaries shall be eligible to
receive Awards under the Plan. In granting Awards to a participant, the
Committee shall take into consideration the contribution the participant has
made or may make to the success of the Company or its subsidiaries and such
other considerations as the Committee shall determine. The Committee shall also
have the authority to consult with and receive recommendations from officers and
other employees of the Company and its subsidiaries with regard to these
matters. In no event shall any participant or his or her legal representatives,
heirs, legatees, distributees, or successors have any right to participate in
the Plan, except to such extent, if any, as the Committee shall determine.
D. Paragraph G. of Article IV of the Plan is hereby modified to include the
following phrase immediately before the first sentence of said paragraph:
"If the participant is an employee of the Company and...."
E. All references to "employee" in Articles VII, XI and XIII, shall be and
hereby are deleted and the term "participant" substituted in lieu thereof.
IN WITNESS WHEREOF, this Amendment is dated as of the 16th day of July,
1996.
By:/s/ James H. Levi
James H. Levi
Chairman of the Board, President
and Chief Executive Officer
EXHIBIT 11
The Great Train Store Company
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended
Sept. 30, 1995 Sept. 28, 1996 Sept. 30, 1995 Sept. 28, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted Average of:
Common Stock Outstanding 3,145,000 3,952,634 3,145,000 3,430,024
Stock Options Outstanding - - - -
Warrants Outstanding - - - -
----------- ---------- ---------- -----------
Shares Outstanding 3,145,000 3,952,634 3,145,000 3,430,024
========= ========= ========= =========
Net Loss $ (231,506) $ (303,961) $ (971,522) $(1,219,966)
Shares Outstanding 3,145,000 3,952,634 3,145,000 3,430,024
--------- --------- --------- ---------
Net Loss Per Share $ ($0.07) $ (0.08) $ (0.31) $ (0.36)
========== ========== ========== ===========
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<NAME> The Great Train Store
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-28-1996
<PERIOD-START> Dec-31-1995
<PERIOD-END> Sep-28-1996
<CASH> 4,285,253
<SECURITIES> 0
<RECEIVABLES> 57,550
<ALLOWANCES> 0
<INVENTORY> 5,333,582
<CURRENT-ASSETS> 9,676,385
<PP&E> 4,020,134
<DEPRECIATION> 1,242,253
<TOTAL-ASSETS> 12,668,397
<CURRENT-LIABILITIES> 3,129,162
<BONDS> 0
0
0
<COMMON> 43,724
<OTHER-SE> 9,156,514
<TOTAL-LIABILITY-AND-EQUITY> 12,668,397
<SALES> 8,783,692
<TOTAL-REVENUES> 8,783,692
<CGS> 4,620,660
<TOTAL-COSTS> 4,620,660
<OTHER-EXPENSES> 38,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,279
<INCOME-PRETAX> (1,219,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,219,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,219,966)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> 0
</TABLE>
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 in particular, products
related to which 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.
<PAGE>
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 specialty
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 and the warrants 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.
The trading of the Company's securities on the Nasdaq Small Cap Market and on
The Pacific Stock Exchange ("PSE") is conditioned on the Company meeting certain
asset, capital and surplus, earnings and stock price tests. If the Company fails
any of these tests, the common stock may be delisted from trading on the Nasdaq
Small Cap Market or on PSE. The effects of delisting include the limited release
of the market prices of the Company's securities and more limited news coverage
of the Company. Delisting may restrict investors' interest in the Company's
securities and materially adversely affect the trading market and prices for
such securities and the Company's ability to issue additional securities or to
secure additional financing. In addition to the risk of volatility of stock
prices, in general, and possible delisting, low price stocks are subject to the
additional risks of additional federal and state regulatory requirements and the
potential loss of effective trading markets. In particular, if the common stock
were delisted from trading on the Nasdaq Small Cap Market and the trading price
of the common stock was less than $5.00 per share, the common stock could be
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended,
which, among other things, requires that broker/dealers satisfy special sales
practice requirements, including making individualized written suitability
determinations and receiving a purchaser's written consent prior to any
transaction. If the Company's securities were delisted and the trading price was
less than $5.00 per share, the Company's securities could also be deemed penny
stocks under the Securities Enforcement and Penny Stock Reform Act of 1990,
which would require additional disclosure in connection with trades in the
Company's securities, including the delivery of a disclosure schedule explaining
the nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Company's securities and the ability of stockholders
to sell their securities in the secondary market.
<PAGE>
The Company's Certificate of Incorporation and Bylaws include certain provisions
providing for staggered election of directors, broad authority for the Board of
Directors to issue up to 2,000,000 shares of preferred stock having such
attributes as it may determine without stockholder approval and restrictions on
the ability of stockholders to call special meetings of stockholders. Each of
these provisions could have the effect of discouraging, delaying or preventing a
change in control of the Company, diminishing opportunities for stockholder
participation in tender offers, reducing the influence of stockholders in
corporate governance and inhibiting fluctuations in the market price of the
common stock that could result from attempted takeovers of the Company.
The Company may require additional financing. There can be no assurance,
however, that any such external funding will be available to the Company, or, if
available, that such funding will be available on terms acceptable to the
Company.
