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 twenty-six week period ended June 29, 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)
(214) 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 Securities 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 of Common Stock as of June 29, 1996
- - - ------------------------------ --------------------
Common Stock $0.01 par value 3,187,500
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THE GREAT TRAIN STORE COMPANY
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL QUARTER ENDED
June 29, 1996
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PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements Page
Unaudited Consolidated Balance Sheet as of June 29, 1996 3
Unaudited Consolidated Statements of Operations for the
thirteen weeks ended July 1, 1995 and June 29, 1996 and the
twenty-six weeks ended July 1, 1995 and June 29, 1996 4
Unaudited Consolidated Statements of Cash Flows for the twenty-six
weeks ended July 1, 1995 and June 29, 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 10
--------------------------------
SIGNATURE PAGE 11
EXHIBIT INDEX 12
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THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
-----------
ASSETS
------
June 29, 1996
----------------
CURRENT ASSETS:
Cash and cash equivalents $ 641,559
Merchandise inventories 3,745,471
Accounts receivable and other current assets 159,775
----------------
Total current assets 4,546,805
===============
PROPERTY AND EQUIPMENT:
Store construction and leasehold improvements 2,144,206
Furniture, fixtures, and equipment 1,075,507
-----------------
3,219,713
Less - Accumulated depreciation and amortization (1,156,210)
-----------------
Property and equipment, net 2,063,503
OTHER ASSETS, net 215,744
-----------------
Total assets $ 6,826,052
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,327,199
Sales taxes payable 62,746
Current portion of notes payable to management 366,211
Current portion of capital lease obligations 111,480
----------------
Total current liabilities 1,867,636
NOTES PAYABLE TO MANAGEMENT, net of current portion 455,887
CAPITAL LEASE OBLIGATIONS, net of current portion 368,954
----------------
Total liabilities 2,692,477
----------------
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; 3,187,500 shares issued and outstanding 31,875
Paid-in capital 4,659,024
Accumulated deficit (557,324)
----------------
Total stockholders' equity 4,133,575
----------------
Total liabilities and stockholders' equity $ 6,826,052
===============
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
-----------
<S> <C> <C> <C> <C>
For the Thirteen Weeks Ended For the Twenty-Six Weeks
Ended
July 1, 1995 June 29, 1996 July 1, 1995 June 29, 1996
--------------- ----------------- -------------- ---------------
NET SALES $ 2,041,896 $ 2,765,820 $ 3,841,212 $ 5,186,831
COST OF SALES 1,084,038 1,453,387 2,048,226 2,738,271
-------------- -------------- -------------- --------------
Gross profit 957,858 1,312,433 1,792,986 2,448,560
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Store operating expenses 550,154 683,168 1,053,308 1,408,394
Occupancy expenses 381,114 489,006 744,877 945,743
Selling, general, and
administrative expenses 319,377 437,086 656,205 814,415
Depreciation and amortization 53,800 89,321 103,765 162,613
------------ -------------- -------------- --------------
Total operating expenses 1,304,445 1,698,581 2,558,155 3,331,165
OPERATING LOSS (346,587) (386,148) (765,169) (882,605)
-------------- -------------- --------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (25,010) (32,428) (53,195) (63,337)
Interest income 29,533 12,203 72,533 29,645
Other income (expense) 2,256 (2,137) 5,815 292
-------------- -------------- -------------- --------------
Total other income
(expense), net 6,779 (22,362) 25,153 (33,400)
-------------- -------------- -------------- --------------
NET LOSS $ (339,808) $ (408,510) $ (740,016) $ (916,005)
============== ============== ============== ==============
NET LOSS PER SHARE $ (0.11) $ (0.13) $ (0.24) $ (0.29)
============== ============== ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,145,000 3,155,742 3,145,000 3,150,371
============== ============== ============== ==============
The accompanying notes are an intergral part of these consolidated financial statements.
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THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
<S> <C> <C>
For the Twenty-Six Weeks Ended
July 1, 1995 June 29, 1996
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (740,016) (916,005)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 103,765 162,613
Amortization of unearned compensation restricted stock 8,499 5,665
Changes in assets and liabilities: ---------------- ----------------
Merchandise inventories (762,677) (862,512)
Accounts receivable and other current assets 39,483 62,864
Other assets 14,633 (77,385)
Accounts payable and accrued liabilities (150,234) (415,355)
Sales taxes payable (128,631) (174,047)
---------------- ----------------
Net cash used in operating activities (1,615,178) (2,214,162)
---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from of marketable securities 544,354 -
Purchase of property and equipment (125,143) (595,836)
---------------- ----------------
Net cash provided by (used in) investing activities 419,211 (595,836)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrant exercise - 212,500
Proceeds from notes payable 12,511 167,500
Repayment of notes payable and capital leases (177,678) (166,141)
---------------- ----------------
Net cash provided by (used in) financing activities (165,167) 213,859
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,361,134) (2,596,139)
CASH AND CASH EQUIVALENTS, beginning of period 1,983,953 3,237,698
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period 622,819 641,559
================ ================
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets financed through capital lease obligations 227,354 155,000
================ ================
The accompanying notes are an integral part of these consolidated statements.
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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 twenty-six week periods ended June 29, 1996 and July 1, 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 a 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.
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.
On March 15, 1996, the Company opened a new store in Holyoke, Massachusetts
and on August 9, 1996, opened another new store in Woodbridge, New Jersey. In
addition, the Company has completed negotiations and signed leases to open
additional new stores in Richmond, Virginia; Kansas City, Missouri; Troy (near
Detroit), Michigan; Bellevue (near Seattle), Washington; Orlando, Florida;
Louisville, Kentucky; and has agreed in principle to two other locations for
1996. The Company continues to actively negotiate with respect to other possible
new store locations for 1996 and 1997 openings.
On August 4, 1996, the Company's warrants to purchase one share of common
stock at an exercise price of $5.00 expired. Preliminary estimates indicate that
1,226,045 warrants were exercised and gross proceeds approximated $6,130,000.
Associated fees and expenses are estimated at approximately $575,000.
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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:
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For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
July 1, 1995 June 29, 1996 July 1, 1995 June 29, 1996
------------ ------------- ------------ -------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 53.1 52.6 53.3 52.8
------- -------- ------ -----
Gross profit 46.9 47.4 46.7 47.2
Store operating expenses 26.9 24.7 27.4 27.2
Occupancy expenses 18.7 17.7 19.4 18.2
Selling, general, & administrative
expenses 15.6 15.8 17.1 15.7
Depreciation and amortization 2.6 3.2 2.7 3.1
----- ------- ---- ----
Operating loss (16.9) (14.0) (19.9) (17.0)
Interest expense ( 1.2) ( 1.2) ( 1.4) ( 1.2)
Interest income 1.5 .4 1.9 .5
Other income .1 0.0 .2 0.0
-------- -------- ------ ----
Net Loss (16.5)% (14.8)% (19.2)% (17.7)%
Comparison of Thirteen Week Period Ended July 1, 1995 to the Thirteen Week
Period Ended June 29, 1996
Net sales increased approximately $724,000, or 35.4%, for the thirteen
weeks ended June 29, 1996, compared with the corresponding period last year. Of
this increase, approximately $627,000 was attributable to net sales generated by
six stores which were not open in the comparable period in 1995, and
approximately $97,000 or 5.2 % was attributable to an increase in comparable
store sales. Comparable store sales are calculated based on the stores opened
during both of the entire months being compared.
Gross profit increased approximately $355,000, or 37.0%, for the thirteen
weeks ended June 29, 1996,
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compared with the corresponding period last year.This increase was primarily due
to a change in product mix. As a percentage of net sales, gross profit increased
to 47.4% for the thirteen weeks ended June 29, 1996, compared with 46.9% in the
corresponding period last year.
Store operating expenses increased approximately $133,000, or 24.2%, for
the thirteen weeks ended June 29, 1996, compared with the corresponding period
last year. Approximately $211,000 of the increase resulted from the operation of
the six stores which were not open in the comparable period in 1995. This
increase was partially offset by a decrease in comparable store expenses of
approximately $45,000 and the elimination of operating expenses (approximately
$33,000), related to the Columbus store location which was closed on December
30, 1995. As a percentage of net sales, store operating expenses decreased to
24.7% for the thirteen weeks ended June 29, 1996, compared with 26.9% for the
corresponding period last year.
Occupancy expenses increased approximately $108,000, or 28.3%, for the
thirteen weeks ended June 29, 1996, compared with the corresponding period last
year. Approximately $145,000 of the increase in occupancy expenses was
attributable to the six stores which were not open in the comparable period in
1995, and approximately $3,000 was due to an increase in comparable store
occupancy expenses. This was partially offset by an approximate $40,000 decrease
due to the closing of the Columbus store. As a percentage of net sales, overall
occupancy expenses decreased to 17.7% for the thirteen weeks ended June 29,
1996, compared with 18.7% for the corresponding period last year.
Selling, general and administrative expenses increased approximately
$118,000, or 36.9%, for the thirteen weeks ended June 29, 1996, compared with
the corresponding period last year. The increase in selling, general, and
administrative expenses was primarily due to approximately $44,000 of additional
expenses related to salaries and related expenses for additional corporate
personnel in anticipation of future growth of the Company, approximately $15,000
related to the timing of the annual managers meeting which was held earlier in
1996 than 1995 and included a larger group due to the increased number of stores
and approximately $22,000 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 increased to 15.8% for the
second quarter of 1996, from 15.6% for the same period in 1995. The Company
anticipates that, as additional stores are opened, selling, general and
administrative expenses will increase at a slower rate than the rate of sales
growth.
Depreciation and amortization expense increased approximately $36,000, or
66.0%, for the thirteen weeks ended June 29, 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 and the addition in
all stores of new management information systems. As a percentage of net sales,
depreciation and amortization expense increased to 3.2% for the thirteen weeds
ended June 29, 1996, from 2.6% for the corresponding period last year, primarily
due to the addition of management information systems.
Interest expense increased approximately $7,000, or 29.7%, for the thirteen
weeks ended June 29, 1996, compared with the corresponding period last year. The
increase was primarily due to interest
8
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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 $17,000, or 58.7% for the thirteen
weeks ended June 29, 1996, compared with the corresponding period last year, due
to the lower balance of remaining net proceeds from the Company's initial public
offering.
As a result of the foregoing, the Company recorded a net loss of
approximately $409,000 for the thirteen weeks ended June 29, 1996, compared with
a net loss of approximately $340,000 for the corresponding period last year. The
Company anticipates that it will continue to incur seasonal net losses
throughout the first part of the year. As the Company's stores typically lose
money in the first part of the year, the losses in the first half of the year
most likely will increase as more stores are opened. As a percentage of net
sales, net loss decreased to 14.8% for the second quarter of 1996, from 16.6%
for the second quarter of 1995.
Comparison of Twenty-Six Week Period Ended July 1, 1995 to the Twenty-Six
Week Period Ended June 29, 1996
Net sales increased approximately $1,346,000, or 35.0%, for the twenty-six
weeks ended June 29, 1996 compared with the corresponding period last year. Of
this increase, approximately $1,269,000 was attributable to net sales generated
by seven stores which were not open in the comparable period in 1995, and
approximately $77,000 or 2.2% was attributable to an increase in comparable
store sales. Comparable store sales are calculated based on the stores opened
during both of the entire months being compared.
Gross profit increased approximately $656,000, or 36.6%, for the twenty-six
weeks ended June 29, 1996, compared with the corresponding period last year.
This increase was primarily due to a change in product mix. As a percentage of
net sales, gross profit increased to 47.2% for the twenty-six weeks ended June
29, 1996, compared with 46.7% for the corresponding period last year.
Store operating expenses increased approximately $355,000, or 33.7%, for
the twenty-six weeks ended June 29, 1996, compared with the corresponding period
last year. Approximately $424,000 of the increase resulted from the operation of
the seven stores which were not open in the comparable period in 1995 and
approximately $3,000 was due to an increase in comparable store operating
expenses. This increase was partially offset by the elimination of operating
expenses (approximately $72,000), related to the Columbus store location which
was closed on December 30, 1995. As a percentage of net sales, store operating
expenses decreased to 27.2% for the twenty-six weeks ended June 29, 1996,
compared with 27.4% for the corresponding period last year.
Occupancy expenses increased approximately $201,000, or 27.0%, for the
twenty-six weeks ended June 29, 1996, compared with the corresponding period
last year. Approximately $282,000 of the increase in occupancy expenses was
attributable to the seven 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 $5,000 and an approximate $76,000 decrease due to the
9
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closing of the Columbus store. As a percentage of net sales, overall occupancy
expenses decreased to 18.2% for the twenty-six weeks ended June 29, 1996, from
19.4% for the corresponding period last year.
Selling, general and administrative expenses increased approximately
$158,000, for 24.1%, for the twenty-six weeks ended June 29, 1996, compared with
the corresponding period last year. The increase in selling, general, and
administrative expenses was primarily due to approximately $64,000 of additional
expenses related to salaries and related expenses for additional corporate
personnel in anticipation of future growth of the Company, approximately $33,000
related to the timing of the annual managers meeting which was held earlier in
1996 than 1995 and included a larger group due to the increased number of
stores, approximately $11,000 of additional consulting fees in the first half of
1996 which were primarily related to the Company's management information
systems and approximately $22,000 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 15.7% for the twenty-six weeks ended June 29, 1996, from 17.1% for the
corresponding period last year. 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 $59,000, or
56.7%, for the twenty-six weeks ended June 29, 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 and the addition in
all stores of new management information systems. As a percentage of net sales,
depreciation and amortization expense increased to 3.1% for the twenty-six weeks
ended June 29, 1996, from 2.7% for the corresponding period last year, primarily
due to the addition of management information systems.
Interest expense increased approximately $10,000, or 19.1%, for the
twenty-six weeks ended June 29, 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 $43,000, or 59.1% for the
twenty-six weeks ended June 29, 1996, compared with the corresponding period
last year, due to the lower balance of remaining net proceeds from the Company's
initial public offering.
As a result of the foregoing, the Company recorded a net loss of
approximately $916,000 for the twenty-six weeks ended June 29, 1996, compared
with a net loss of approximately $740,000 for the corresponding period last
year. The Company anticipates that it will continue to incur seasonal net losses
throughout the first part of the year. As the Company's stores typically lose
money in the first part of the year, the losses in the first half of the year
most likely will increase as more stores are opened. As a percentage of net
sales, net loss decreased to 17.7% for the first half of 1996, from 19.2% for
the first half of 1995.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been for the purchase of
merchandise inventories, new store openings, capital expenditures and funding
operating losses.
For the twenty-six weeks ended June 29, 1996, net cash used in operating
activities was approximately $2,214,000 compared to approximately $1,615,000 for
the corresponding period last year. The increase in net cash used in operating
activities was primarily related to inventory for new stores and the increased
net loss.
As of June 29, 1996, the Company's total debt and lease obligations
(exclusive of trade credit) consisted of approximately $822,000 payable to the
holders of notes payable to management and approximately $480,000 payable under
capital lease obligations related to the management information systems,
fixtures and equipment. Of such debt obligations, approximately $152,000
principal amount of the notes payable to management and approximately $54,000
under the fixtures and equipment financing arrangements are payable during 1996.
The Company intends to repay all notes payable to management with the proceeds
of the warrant exercise during the third quarter of 1996.
On March 15, 1996, the Company opened a new store in Holyoke, Massachusetts
and on August 9, 1996, opened another new store in Woodbridge, New Jersey. In
addition, the Company has completed negotiations and signed leases to open
additional new stores in Richmond, Virginia; Kansas City, Missouri; Troy (near
Detroit), Michigan; Bellevue (near Seattle), Washington; Orlando, Florida;
Louisville, Kentucky; and has agreed in principle to two other locations for
1996. The Company continues to actively negotiate with respect to other possible
new store locations for 1996 and 1997 openings.
The Company intends to finance anticipated capital expenditures, working
capital needs and debt obligations for the foreseeable future from proceeds from
the warrant exercise, the remaining net proceeds of its public offering, cash
from the Company's operating activities, landlord allowances, the available line
of credit, possible fixtures and equipment or inventory financing and trade
credit. Preliminary estimates indicate that on August 4, 1996, approximately
1,226,045 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 are estimated to be approximately
$575,000. In addition, the Company has recently closed a $3,000,000 revolving
line of credit with Bank One, Texas. As of June 29, 1996, there was no amount
outstanding on the revolving line of credit.
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 twenty-six week period ended June 29, 1996.
11
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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
August 13, 1996 /s/Cheryl A. Taylor
- - - -------------------------- --------------------------------------------
Date Cheryl A. Taylor
Vice President - Finance and Administration,
Principal Financial Officer
12
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EXHIBIT INDEX
Exhibit No. Description Page
- - - ----------- ----------- ----
11 Statement Re: Computation of Per Share Earnings 14
99.1 Cautionary Statement Identifying Important Factors
that Could Cause the Company's Actual Results to Differ
from those Projected in Forward Looking Statements...... 15
13
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EXHIBIT 11
The Great Train Store Company
Computation of Per Share Earnings
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For the Thirteen Weeks Ended For the Twenty-Six Weeks
Ended
July 1, 1995 June 29, 1996 July 1, 1995 June 29, 1996
--------------------------------------------------------------------
Weighted Average of:
Common Stock Outstanding 3,145,000 3,155,742 3,145,000 3,150,371
Stock Options Outstanding - - - -
Bridge Warrants Outstanding - - - -
------------- -------------- -------------- -------------
Shares Outstanding 3,145,000 3,155,742 3,145,000 3,150,371
============= ============== ============== =============
Net Loss $ (339,808) $ (408,510) $ (740,016) $ (916,005)
Shares Outstanding 3,145,000 3,155,742 3,145,000 3,150,371
------------- -------------- -------------- -------------
Net Loss Per Share $ (0.11) $ (0.13) $ (0.24) $ (0.29)
============= ============== ============== =============
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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 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. 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
15
<PAGE>
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.
* 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.
16
<PAGE>
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-28-1996
[PERIOD-START] DEC-31-1995
[PERIOD-END] JUN-29-1996
[CASH] 641,559
[SECURITIES] 0
[RECEIVABLES] 159,775
[ALLOWANCES] 0
[INVENTORY] 3,745,471
[CURRENT-ASSETS] 4,546,805
[PP&E] 3,219,713
[DEPRECIATION] 1,156,210
[TOTAL-ASSETS] 6,826,052
[CURRENT-LIABILITIES] 1,327,199
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 31,875
[OTHER-SE] 4,101,700
[TOTAL-LIABILITY-AND-EQUITY] 6,826,052
[SALES] 5,186,831
[TOTAL-REVENUES] 5,186,831
[CGS] 2,738,271
[TOTAL-COSTS] 2,738,271
[OTHER-EXPENSES] 292
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 63,337
[INCOME-PRETAX] (916,005)
[INCOME-TAX] 0
[INCOME-CONTINUING] (916,005)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (916,005)
[EPS-PRIMARY] (.29)
[EPS-DILUTED] 0
</TABLE>
