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 27, 1997.
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 27, 1997
-------------- -------------------------
Common Stock $0.01 par value 4,405,269
1
<PAGE>
THE GREAT TRAIN STORE COMPANY
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL QUARTER ENDED
September 27, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Unaudited Consolidated Balance Sheet as of September 27, 1997 3
Unaudited Consolidated Statements of Operations for the thirteen
and thirty-nine weeks ended September 28, 1996 and September 27, 1997 4
Unaudited Consolidated Statements of Cash Flows for the thirty-nine
weeks ended September 28, 1996 and September 27, 1997 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 12
SIGNATURE PAGE 13
EXHIBIT INDEX 14
2
<PAGE>
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 27, 1997
------------------
CURRENT ASSETS:
Cash and cash equivalents $ 455,941
Merchandise inventories 7,669,111
Accounts receivable and other
current assets 1,112,035
---------------
Total current assets 9,237,087
PROPERTY AND EQUIPMENT:
Store construction and leasehold improvements 4,006,914
Furniture, fixtures, and equipment 2,412,977
---------------
6,419,891
Less - Accumulated depreciation and
amortization (1,914,829)
---------------
Property and equipment, net 4,505,062
DEFERRED TAXES 254,658
OTHER ASSETS, net 504,692
---------------
Total assets $14,501,499
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,558,148
Borrowings under line of credit 551,000
Sales taxes payable 136,441
Current portion of capital lease obligations 103,600
--------------
Total current liabilities 3,349,189
CAPITAL LEASE OBLIGATIONS, net of current portion 233,748
OTHER LIABILITIES 836,838
--------------
Total liabilities 4,419,775
--------------
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; 4,405,269 shares issued
and outstanding 44,053
Paid-in capital 10,267,361
Accumulated deficit (229,690)
--------------
Total stockholders' equity 10,081,724
--------------
Total liabilities and stockholders' equity $ 14,501,499
==============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<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 28, 1996 Sept 27, 1997 Sept 28, 1996 Sept 27, 1997
---------------- -------------- ---------------- -------------------
<S> <C> <C> <C> <C>
NET SALES $ 3,596,861 $ 5,010,210 $ 8,783,692 $ 12,915,336
COST OF SALES 1,882,389 2,622,657 4,620,660 6,793,173
---------------- -------------- ---------------- -------------------
Gross profit 1,714,472 2,387,553 4,163,032 6,122,163
---------------- -------------- ---------------- -------------------
OPERATING EXPENSES:
Store operating expenses 904,333 1,266,977 2,312,727 3,457,768
Occupancy expenses 570,315 902,857 1,516,058 2,532,378
Selling, general and
administrative expenses 450,688 631,957 1,265,103 1,928,204
Depreciation and amortization 88,403 179,330 251,016 540,806
---------------- -------------- ---------------- -------------------
Total operating expenses 2,013,739 2,981,121 5,344,904 8,459,156
OPERATING LOSS (299,267) (593,568) (1,181,872) (2,336,993)
---------------- -------------- ---------------- -------------------
OTHER INCOME (EXPENSE):
Interest expense (38,942) (62,674) (102,279) (134,174)
Interest income 27,149 8,569 56,794 52,915
Other income 7,099 252,168 7,391 258,572
---------------- -------------- ---------------- -------------------
Total other income
(expense), net (4,694) 198,063 (38,094) 177,313
---------------- -------------- ---------------- -------------------
LOSS BEFORE INCOME TAXES (303,961) (395,505) (1,219,966) (2,159,680)
INCOME TAX BENEFIT - (146,336) - (799,081)
NET LOSS $ (303,961) $ (249,169) $ (1,219,966) $ (1,360,599)
================ ============== ================ ===================
NET LOSS PER SHARE $ (0.08) $ (0.06) $ (0.36) $ (0.31)
================ ============== ================ ===================
WEIGHTED AVERAGE SHARES OUTSTANDING 3,952,634 4,404,953 3,430,024 4,397,234
================ ============== ================ ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THE GREAT TRAIN STORE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Thiry-Nine Weeks Ended
September 28, 1996 September 27, 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,219,966) $ (1,360,599)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 251,016 540,806
Amortization of unearned compensation restricted stock 6,524 4,125
Deferred taxes - (799,081)
Changes in assets and liabilities:
Merchandise inventories (2,450,623) (1,545,759)
Accounts receivable and other current assets 165,089 750,749
Other assets (78,135) (304,089)
Accounts payable and accrued liabilities 1,139,744 (581,369)
Sales taxes payable (148,480) (268,193)
-------------------- -------------------
Net cash used in operating activities (2,334,831) (3,563,410)
-------------------- -------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,241,257) (1,365,949)
-------------------- ------------------
Net cash used in investing activities (1,241,257) (1,365,949)
-------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock issuance 5,582,264 69,398
Borrowing under line of credit - 551,000
Repayment of notes payable and capital leases (958,621) (99,637)
-------------------- ------------------
Net cash provided by financing activities 4,623,643 520,761
-------------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,047,555 (4,408,598)
CASH AND CASH EQUIVALENTS, beginning of period 3,237,698 4,864,539
-------------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 4,285,253 $ 455,941
=================== =================
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets financed through capital lease obligations $ 155,000 $ -
Interest paid $ 147,158 $ 69,299
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<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 27, 1997 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 28, 1996 included in
the Company's 1996 Annual Report on Form 10-KSB as filed with the SEC.
Prior year balances include certain reclassifications to conform to the current
year presentation.
During October of 1997, the Company accepted letters of commitment to replace
the Company's existing revolving credit facility with a term loan and expanded
revolving credit facility. Funding of such new credit arrangements are subject
to, among other things, negotiation of definitive credit agreements. There can
be no assurance that credit agreements containing terms acceptable to the
Company will be negotiated and, accordingly, there can be no assurance that such
credit will be available to the Company.
During 1997, the Company has opened nine new stores, the most recent of which
opened on November 4, in San Diego, California. Other stores opened in 1997
include Paramus, New Jersey; Peabody, Massachusetts; Westbury, Long Island, New
York; Milwaukee, Wisconsin; Waterbury, Connecticut; Grapevine, Texas; Syracuse,
New York; and Cincinnati, Ohio; along with five The Great Train Store Express,
temporary holiday stores located in Dallas, Texas; Olathe, Kansas; Nashville,
Tennesse; Tulsa, Oklahoma; and Columbia, Maryland. Leases for new The Great
Train Stores to be opened in 1997 have been signed in Aventura (Miami), Florida;
Youngstown, Ohio; and Pittsburgh, Pennsylvania. In addition, the Company will
reopen a store in Indianapolis with the anticipated November 1997 opening in
Circle Center to replace its store in Indianapolis Union Station which closed on
July 20, 1997 after the City announced the Station's closing. A 1998 opening in
West Nyack (Rockland County), New York has also been announced as well as a 1999
opening in Providence, Rhode Island.
6
<PAGE>
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. 28, 1996 Sept. 27, 1997 Sept. 28, 1996 Sept. 27, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 52.3 52.3 52.6 52.6
----- ----- ----- -----
Gross profit 47.7 47.7 47.4 47.4
Store operating expenses 25.1 25.3 26.3 26.8
Occupancy expenses 15.9 18.0 17.3 19.6
Selling, general and administrative 12.5 12.6 14.4 14.9
expenses
Depreciation and amortization 2.5 3.6 2.9 4.2
----- ----- ----- -----
Operating loss (8.3) (11.8) (13.5) (18.1)
Interest expense (1.1) (1.3) (1.2) (1.0)
Interest income .8 .2 .7 .4
Other income .2 5.0 .1 2.0
----- ----- ----- -----
Loss before income taxes (8.4)% (7.9)% (13.9)% (16.7)%
Income tax benefit - 2.9 - 6.2
----- ----- ----- -----
Net loss (8.4)% (5.0)% (13.9)% (10.5)%
----- ----- ----- -----
</TABLE>
Comparison of Thirteen Week Period Ended September 28, 1996 to the Thirteen Week
Period Ended September 27, 1997
Net sales increased approximately $1,413,000 or 39.3%, for the thirteen weeks
ended September 27, 1997, compared with the corresponding period last year. Of
this increase, approximately $205,000 was attributable to net sales generated by
stores opened subsequent to the third quarter of 1996 and approximately
$1,433,000 of the increase was attributable to net sales generated during the
first part of 1997 by the stores opened during the third quarter of 1996. These
increases were partially offset by a decrease of approximately $103,000
attributable to the Indianapolis location which was closed on July 20, 1997 and
approximately $122,000 was attributable to a 3.8 % decrease in comparable store
sales. Comparable store sales are calculated based on the stores opened during
both of the entire months being compared.
7
<PAGE>
Gross profit increased approximately $673,000 or 39.3%, for the thirteen weeks
ended September 27, 1997, compared with the corresponding period last year. As a
percentage of net sales, gross profit remained constant at 47.7% for the
thirteen weeks ended September 27, 1997, compared with the corresponding period
last year.
Store operating expenses increased approximately $363,000 or 40.1%, for the
thirteen weeks ended September 27, 1997, compared with the corresponding period
last year. Approximately $374,000 of the increase resulted from the operation of
the stores which were not open in the comparable period in 1996, $102,000 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 $11,000. As a percentage of net sales, store operating
expenses increased to 25.3% for the thirteen weeks ended September 27, 1997,
compared with 25.1% for the corresponding period last year. The increase as a
percentage of net sales is primarily related to new stores. This increase as a
percentage of net sales was primarily related to lower than anticipated sales.
Occupancy expenses increased approximately $333,000, or 58.3%, for the thirteen
weeks ended September 27, 1997, compared with the corresponding period last
year. Approximately $297,000 of the increase in occupancy expenses was
attributable to the stores which were not open in the comparable period in 1996
and approximately $16,000 was due to an increase in comparable store occupancy
expenses. In addition, approximately $20,000 of the increase was related to the
company leasing substantial additional central office space in order to support
future growth and leasing additional space, adjacent to an existing store, for
the purpose of redistributing a small portion of merchandise which could not
economically or otherwise be shipped directly to the stores. As a percentage of
net sales, overall occupancy expenses increased to 18.0% for the thirteen weeks
ended September 27, 1997, compared with 15.9% for the corresponding period last
year.
Selling, general and administrative expenses increased approximately $181,000,
or 40.2%, for the thirteen weeks ended September 27, 1997, compared with the
corresponding period last year. The increase in selling, general and
administrative expenses was primarily due to approximately $136,000 of
additional expenses related to salaries and related expenses for additional
central office personnel in anticipation of future growth of the Company. A
significant portion of such increase related to the Company's promotion of
certain of its Store Managers to Regional Sales Managers. These new positions
are a new level of management created to supervise the operation of the
Company's rapidly growing number of existing stores and assist in the opening of
new stores as part of the Company's increasing expansion program. In addition,
the Company expended more significant funds than in prior years in aggressive
marketing programs in several locations in an effort to enhance sales. This
program included the existing train hobby store location which the Company
acquired in November, 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 12.6% for the third quarter of 1997, from
12.5% for the same period in 1996. 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.
8
<PAGE>
Depreciation and amortization expense increased approximately $91,000, or
102.9%, for the thirteen weeks ended September 27, 1997, compared with the
corresponding period last year. Approximately $56,000 of this increase was the
result of depreciation of assets in stores which were not open in the comparable
period of 1996. In addition, the comparable stores had an increase of
approximately $19,000 and the central office had an increase of approximately
$16,000, both related to the expanded asset base, primarily related to the
upgrading of and additions to the Company's management information systems and
to the central office expansion which occurred in January 1997. As a percentage
of net sales, depreciation and amortization expense increased to 3.6% for the
thirteen weeks ended September 27, 1997, compared with 2.5% for the
corresponding period last year. This increase was the result of several factors
including enhancements to the Company's management information systems,
primarily in the central office, as well as the Company having received a higher
proportion of tenant allowance in the form of abated rent rather than cash
received at the time of construction in 1997, which resulted in an increase in
the proportion of store construction costs paid by the Company, net of cash
tenant allowance.
Other income increased approximately $245,000 for the thirteen weeks ended
September 27, 1997 compared with the corresponding period last year. This
increase was primarily due to a $250,000 settlement the Company received from
the City of Indianapolis in connection with the closing of Union Station during
the term of the lease.
The Company's pretax loss decreased to 7.9% of sales for the thirteen weeks
ended September 27, 1997 from 8.4% of sales for the corresponding period last
year. The Company recorded an income tax benefit of approximately $146,000 based
on the Company's effective tax rate of 37%.
As a result of the foregoing, the Company recorded a net loss of approximately
$249,000 for the thirteen weeks ended September 27, 1997, compared with a net
loss of approximately $304,000 for the corresponding period last year. As a
percentage of net sales, net loss decreased to 5.0% for the third quarter of
1997, from 8.4% for the third quarter of 1996.
Comparison of Thirty-Nine Week Period Ended September 28, 1996 to the
Thirty-Nine Week Period Ended September 27, 1997
Net sales increased approximately $4,131,000, or 47.0%, for the thirty-nine
weeks ended September 27, 1997 compared with the corresponding period last year.
Of this increase, approximately $3,328,000 was attributable to net sales
generated by stores opened subsequent to the third quarter of 1996 and
approximately $1,260,000 of this increase was attributable to net sales
generated during the first part of 1997 by stores opened during the first nine
months of 1996. These increases were partially offset by a decrease of
approximately $199,000 attributable to the Indianapolis location which closed on
July 20, 1997 and approximately $258,000 attributable to a 3.2% decrease 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 $1,959,000 or 47.1%, for the thirty-nine
weeks ended September 27, 1997, compared with the corresponding period last
year. As a percentage of net sales, gross profit remained constant at 47.4% for
the thirty-nine weeks ended September 27, 1997, compared with the corresponding
period last year.
9
<PAGE>
Store operating expenses increased approximately $1,145,000 or 49.5%, for the
thirty-nine weeks ended September 27, 1997, compared with the corresponding
period last year. Approximately $1,280,000 of the increase resulted from the
stores not opened in the comparable period in 1996, $136,000 of which related to
expenses incurred in the setup and opening of these stores. This increase was
partially offset by an approximate decrease of $135,000 in comparable store
operating expenses. As a percentage of net sales, store operating expenses
increased to 26.8% for the thirty-nine weeks ended September 27, 1997, compared
with 26.3% for the corresponding period last year. The increase as a percentage
of net sales is primarily related to new stores. This increase as a percentage
of net sales was primarily related to lower than anticipated sales.
Occupancy expenses increased approximately $1,016,000, or 67.0%, for the
thirty-nine weeks ended September 27, 1997, compared with the corresponding
period last year. Approximately $911,000 of the increase in occupancy expenses
was attributable to the stores not open in the comparable period of 1996 and
approximately $39,000 related to comparable stores. In addition, approximately
$66,000 related to substantial additional central office space which was leased
during January 1997 in order to support future growth and the leasing of
additional space, adjacent to an existing store, for the purpose of
redistributing a small portion of merchandise which could not economically or
otherwise be shipped directly to the stores. As a percentage of net sales,
overall occupancy expenses increased to 19.6% for the thirty-nine weeks ended
September 27, 1997, from 17.3% for the corresponding period last year. As
discussed above, this percentage increase resulted from the leasing of
substantial additional central office space, as well as space established for
the distribution of certain product, both of which are expected to happen only
infrequently. These charges account for .5% of the 2.3% increase as a percentage
of net sales and the Company believes the current central office space is
adequate for the foreseeable future.
Selling, general and administrative expenses increased approximately $663,000 or
52.4%, for the thirty-nine weeks ended September 27, 1997, compared with the
corresponding period last year. The increase in selling, general and
administrative expenses was primarily due to approximately $366,000 of
additional expenses related to salaries and related expenses for additional
central office personnel in anticipation of future growth of the Company. A
significant portion of such increase related to the Company's promotion of
certain of its Store Managers to Regional Sales Managers. These new positions
are a new level of management created to supervise the operation of the
Company's rapidly growing number of existing stores and assist in the opening of
new stores as part of the Company's increasing expansion program. In addition,
the Company expended more significant funds than in prior years in aggressive
marketing programs in several locations in an effort to enhance sales. This
program included the existing train hobby store location which the Company
acquired in November 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 14.9% for the thirty-nine weeks ended
September 27, 1997, from 14.4% for the corresponding period last year. The
Company anticipates that as additional stores are opened, selling, general and
administrative expenses will decrease as a percentage of net sales.
10
<PAGE>
Depreciation and amortization expense increased approximately $290,000, or
115.4%, for the thirty-nine weeks ended September 27, 1997, compared with the
corresponding period last year. Approximately $216,000 of this increase was the
result of depreciation of assets in stores not open in the comparable period of
1996. In addition, the comparable stores had an increase of approximately
$34,000 and the central office had an increase of approximately $40,000 both
related to the expanded asset base, primarily related to the upgrading of and
additions to the Company's management information systems and to the central
office expansion which occurred in January 1997. As a percentage of net sales,
depreciation and amortization expense increased to 4.2% for the thirty-nine
weeks ended September 27, 1997, from 2.9% for the corresponding period last
year. This increase was the result of several factors including enhancements to
the Company's management information systems, primarily in the central office,
as well as the Company having received a higher proportion of tenant allowance
in the form of abated rent rather than cash received at the time of construction
in 1997, which resulted in an increase in the proportion of store construction
costs paid by the Company, net of cash tenant allowance.
Interest expense increased approximately $32,000 or 31.2%, for the thirty-nine
weeks ended September 27, 1997, compared with the corresponding period last
year. The increase was primarily the result of expense related to the line of
credit which was established in May of 1996. This increase was partially offset
by a decrease in the average outstanding principal balance on other notes.
Other income increased approximately $251,000 for the thirteen weeks ended
September 27, 1997 compared with the corresponding period last year. This
increase was primarily due to a $250,000 settlement the Company received from
the City of Indianapolis in connection with the closing of Union Station during
the term of the lease.
The Company's pretax loss increased to 16.7% of sales for the thirty-nine weeks
ended September 27, 1997 from 13.9% of sales for the corresponding period last
year. The Company recorded an income tax benefit of approximately $799,000 based
on the Company's effective tax rate of 37%.
As a result of the foregoing, the Company recorded a net loss of approximately
$1,361,000 for the thirty-nine weeks ended September 27, 1997, compared with a
net loss of approximately $1,220,000 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 10.5% for the first three quarters of 1997, from 13.9% for the
first three quarters of 1996.
11
<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, purchase upgrades and additions to the Company's management information
system, and to fund seasonal net losses.
For the thirty-nine weeks ended September 27, 1997, net cash used in operating
activities was approximately $3,563,000 compared to approximately $2,335,000 for
the corresponding period last year. The increase in net cash used in operating
activities primarily results from the opening of new stores in the period and
funding of seasonal operating losses.
As of September 27, 1997, the Company's total debt and lease obligations
(exclusive of trade credit) consisted of approximately $337,000 payable under
capital lease obligations related to the management information systems,
fixtures and equipment. Of such debt obligations, approximately $40,000 under
the fixtures and equipment financing arrangements are payable during 1997. As of
September 27, 1997, the Company had $551,000 outstanding on the Company's
$8,000,000 revolving line of credit.
During 1997, the Company has opened nine new stores, the most recent of which
opened on November 4, in San Diego, California. Other stores opened in 1997
include Paramus, New Jersey; Peabody, Massachusetts; Westbury, Long Island, New
York; Milwaukee, Wisconsin; Waterbury, Connecticut; Grapevine, Texas; Syracuse,
New York; and Cincinnati, Ohio; along with five The Great Train Store Express,
temporary holiday stores located in Dallas, Texas; Olathe, Kansas; Nashville,
Tennessee; Tulsa, Oklahoma; and Columbia, Maryland. Leases for new The Great
Train Stores to be opened in 1997 have been signed in Aventura (Miami), Florida;
Youngstown, Ohio; and Pittsburgh, Pennsylvania. In addition, the Company will
reopen a store in Indianapolis with the anticipated November 1997 opening in
Circle Center to replace its store in Indianapolis Union Station which closed on
July 20, 1997 after the City announced the Station's closing. A 1998 opening in
West Nyack (Rockland County), New York has also been announced as well as a 1999
opening in Providence, Rhode Island.
The Company intends to finance a portion of its anticipated capital
expenditures, working capital needs and debt obligations for the foreseeable
future from cash from the Company's operating activities, landlord allowances,
the available line of credit, possible fixtures and equipment or inventory
financing, trade credit and/or public or private sale of debt or equity
securities. During October 1997, the Company accepted letters of commitment to
replace its existing revolving credit facility with a term loan and expanded
revolving credit facility. There can be no assurance that definitive loan
agreements will be executed or that funds thereunder will be received and
sufficient to support the Company's growth strategies. As of September 27, 1997
there was $551,000 outstanding on the $8,000,000 Bank One 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 thirty-nine week period ended September 27, 1997.
12
<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
Date: 11/12/97 /s/ Cheryl A. Taylor
Cheryl A. Taylor
Vice President - Finance and Administration,
Principal Financial Officer
13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
11 Statement Re: Computation of Per Share Earnings 15
27.1 Financial Disclosure Schedule 16
99.1 Cautionary Statement Identifying Important
Factors that Could Cause the Company's Actual
Results to Differ from those Projected in
Forward Looking Statements 17
14
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. 28, 1996 Sept. 27, 1997 Sept. 28, 1996 Sept. 27, 1997
----------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Weighted Average of:
Common Stock Outstanding 3,952,634 4,404,953 3,430,024 4,397,234
Stock Options Outstanding - - - -
Bridge Warrants Outstanding - - - -
------------ ------------- ---------- ----------
Shares Outstanding 3,952,634 4,404,953 3,430,024 4,397,234
================ ============= ========== ==========
Net Loss $ (303,961) $ (249,169) $(1,219,966) $(1,360,599)
Shares Outstanding 3,952,634 4,404,953 3,430,024 4,397,234
----------------- ------------- ----------- ----------
Net Loss Per Share $ (0.08) $ (0.06) $ (0.36) $ (0.31)
================ ============= =========== ===========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 455,941
<SECURITIES> 0
<RECEIVABLES> 1,112,035
<ALLOWANCES> 0
<INVENTORY> 7,669,111
<CURRENT-ASSETS> 9,237,087
<PP&E> 6,419,891
<DEPRECIATION> (1,914,829)
<TOTAL-ASSETS> 14,501,499
<CURRENT-LIABILITIES> 3,349,188
<BONDS> 1,070,586
0
0
<COMMON> 44,053
<OTHER-SE> 10,037,672
<TOTAL-LIABILITY-AND-EQUITY> 14,501,499
<SALES> 12,915,336
<TOTAL-REVENUES> 0
<CGS> 6,793,173
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,636,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (134,174)
<INCOME-PRETAX> (2,159,680)
<INCOME-TAX> (799,081)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,360,599)
<EPS-PRIMARY> (.31)
<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,
products related to the Shining Time Station television series have
represented a significant portion of the Company's annual net sales in the
past few years. There can be no assurance that the Company will be able to
successfully anticipate and respond to changing conditions affecting
consumer acceptance of its merchandise.
The results achieved to date by The Great Train Stores may not be
indicative of future operating results. Moreover, because of the
relatively small number of stores, poor operating results at any one store
or any unsuccessful new store opening could negatively impact the
Company's results from operations to a greater extent than would be the
case in a larger chain.
The Company's continued success and expansion depends, in large part, on
the continued availability of its existing locations and on the Company's
ability to identify and secure suitable additional locations on acceptable
terms in which to construct new stores. The rate of new store openings is
subject to various contingencies, many which of are beyond the Company's
control. These contingencies include, among others, the availability of
new retail space in locations and on terms considered acceptable by the
Company and the progress of construction of the Company's new stores and
of the shopping centers in which they are to be located and the ability to
find, successfully acquire, and effectively operate existing stores.
Moreover, store construction and opening costs could be higher than
expected, and the Company may reduce the rate at which it opens new
stores. While some of the Company's leases contain provisions for renewal
terms, there can be no assurance that such space will continue to be
available to the Company after the expiration of the renewal terms or, if
available, that such space could be obtained on terms considered
acceptable by the Company. Further, certain of the renewal terms provide
for substantial increases in occupancy costs. In addition, deterioration
of shopping centers in which The Great Train Stores are located or
increased competition from newly constructed centers could necessitate
renovation of The Great Train Store or of the center in which it is
located or otherwise adversely impact the Company's sales and/or expenses.
The need for such renovations could involve unanticipated capital
expenditures or result in a decrease in customer traffic, either of which
could adversely affect the Company's operating results.
17
<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 merchandise or delay the delivery of merchandise to the Company's
stores. Significant deviations in the amount of merchandise delivered or
in the delivery schedule could result in lost sales due to inadequate
inventory, especially during the Christmas selling season, and have a
material adverse effect on the Company's operating results.
In order to successfully continue and manage its expansion strategy, the
Company will be dependent on its ability to retain existing personnel and
to hire, train and supervise additional personnel for the new stores to be
opened while maintaining satisfactory levels of customer service at
existing stores.
The Company's quarterly operating results can be expected to fluctuate as
a result of seasonal fluctuations in consumer demand for the Company's
products, which is highest during the fourth quarter. A significant
portion of the Company's operating expenses are relatively fixed and there
can be no assurance that the Company will report income from operations in
any particular quarter. Accordingly, the market price of the common stock
could be subject to wide fluctuations in price and volume in response to
actual or anticipated variations in quarterly operating results and a
variety of other factors.
To date, the Company has met its liquidity requirements through cash flows
from operating activities, the public sale of its equity securities and,
to a lesser extent, borrowings under existing credit facilities. In May,
1998, the Company's existing credit facility is scheduled to expire.
During 1997, management has explored various means of satisfying the
Company's capital needs, including the public or private sale of equity or
securities. In October, 1997, the Company accepted letters of commitment
to replace its existing credit facility with a term loan and expanded
revolving credit facility. Funding of such new credit arrangements are
subject to, among other things, negotiation and execution of definitive
credit agreements. Without additional financing, the Company will likely
not be able to expand its network of The Great Train Stores in accordance
with the Company's current plans. If the proposed new credit arrangements
are not funded, or if the Company's existing credit facility cannot be
extended, the Company may seek additional funding through the public or
private sale of debt or equity securities. There can be no assurance that
additional funds will be available on a timely basis, on acceptable terms
or at all, or that such funds, if raised, would be sufficient to permit
the Company to continue its expansion as planned. If available funds are
inadequate, the Company may be required to delay planned new store
openings.
18
