SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 13, 1999
The Great Train Store Company
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-13158 75-2539189
(Commission File Number) (IRS Employer Identification No.)
14180 Dallas Parkway, Suite 618, Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
(972) 392-1599
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
On January 13, 1999, The Great Train Store Company (the "Company")
issued a press release announcing preliminary 1998 sales results and a letter to
its stockholders.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit Description
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20.1 Text of Letter to Stockholders dated January 13, 1999.
99.2 Text of press release, dated January 13, 1999, issued by The
Great Train Store Company.
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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 hereunto duly authorized.
Dated: January 13, 1999
THE GREAT TRAIN STORE COMPANY
By:
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Cheryl A. Taylor
Vice President - Finance and Administration,
Principal Financial Officer
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
20.1 Text of Letter to Stockholders dated January 13, 1999.
99.2 Text of press release, dated January 13, 1999, issued by
The Great Train Store Company
EXHIBIT 20.1
January 13, 1999
To the Stockholders of
The Great Train Store Company
Dear Friends:
Today, we publicly announced the Company's sales results for the last fiscal
year. For your convenience, we have attached a copy of the press release. As you
will note, 1998 sales were disappointing. Earnings for 1998 have not yet been
calculated, but it is reasonable to expect that the Company's earnings will also
be disappointing. There are a variety of reasons for these results, some of
which were within management's control and some which were not, but the simple
fact is the Company did not achieve its objectives.
The market price of the Company's common stock has also declined dramatically
over the last year. Of course, the decline results in large part from the
Company's deteriorated operating performance. The general disfavor in which
micro-cap stocks are presently held has magnified the impact of the Company's
operating performance on stockholder value. Your Board of Directors believes the
presently prevailing market price does not fully reflect the Company's fair
value. Indeed, the prevailing market price is less than the Company's net
tangible book value per share.
Accordingly, the Company's Board of Directors has instructed management to
evaluate several alternatives to improve stockholder value. These alternatives
include both strategic and operational initiatives. To assist in the
identification and evaluation of strategic alternatives, the Company has engaged
Financo, Inc., a highly regarded investment-banking firm headquartered in New
York, which specializes in providing financial advisory services to retailers
and other merchandise companies. As a result, management is engaged in
preliminary discussions with a number of parties which have expressed a possible
interest in acquiring or merging with the Company. Although these discussions
continue, the Company does not presently have any agreements to engage in any of
these transactions.
Concurrently, the Board of Directors has instructed management to continue to
implement certain previously approved operational initiatives designed to
address identified operating deficiencies. In addition, management is evaluating
several operational alternatives that may present an opportunity to enhance the
Company's operating performance. These alternatives include: (a) evaluating the
individual performance of each store and possibly closing those which are
chronically underperforming, (b) renegotiating selected store leases, (c)
curtailing new store openings and (d) enhancing the Company's existing Internet
presence by opening a cyberstore to directly merchandise the Company's products.
In particular, the Company presently is committed only to open one new store in
1999 and does not anticipate making additional new store commitments until it is
satisfied that its operational issues are well-resolved.
The Company's operating results and the related decline in the prevailing market
price of the Company's common stock also have resulted in the Company's failure
to satisfy certain criteria for the continued trading of the Company's stock on
the Nasdaq National Market and certain financial covenants with its senior
lender. The Company is presently engaged in discussions with the Nasdaq Stock
Market concerning the Company's listing status. Although not conclusively
determined, the Company anticipates that it will transfer trading of its common
stock to the Nasdaq Small-Cap Market in the near future, probably in
mid-February.
The Company is also engaged in discussions with its senior lender concerning the
Company's compliance with its loan covenants. Based on such discussions, such
lender has indicated that it will agree to amend its documents and eliminate the
financial covenants threatened by expected operating results. This amendment is
also expected to modify certain other provisions of the credit agreement,
including the maximum availability under the loan and the interest rate.
In addition, the Company does not expect to meet the operating income threshold
required for it to exercise its option to sell $2 million of additional
securities to Tandem Capital. Such funding had been primarily intended to help
fund the opening of new stores. In light of the Company's curtailment of new
store openings, the need for additional funding for this purpose is less urgent.
The past year has been a very difficult one for management and the Company.
However, we continue to feel strongly that our stores are special places and
that The Great Train Store concept is on the leading edge of entertainment
merchandising. The Great Train Stores are visited by happy and excited
customers. Now, we need to be sure that we always provide those customers with
exceptional merchandise and service. If we do so, the Company will once again
prosper. We will then look back at this time as a valuable "wake up call,"
signaling the start of a time of opportunity.
Thank you for your continuing support.
Very truly yours,
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James H. Levi
President
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Cheryl A. Taylor
Vice President - Finance & Administration
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Michael D. Glazer
Vice President - Real Estate
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James L. Llewellyn
Vice President - Sales
EXHIBIT 99.2
{LOGO OMITTED} PRESS RELEASE
The Great Train Store Company, 14180 Dallas Parkway, Suite 618, Dallas, Texas
75240, 972-392-1599, Fax: 972-392-1698
FOR IMMEDIATE RELEASE CONTACT: Cheryl A. Taylor
972-392-1599
THE GREAT TRAIN STORE COMPANY RELEASES
PRELIMINARY 1998 SALES RESULTS
(January 13, 1999 - DALLAS) The Great Train Store Company (Nasdaq: GTRN),
a Dallas-based national chain of train-themed toy, hobby and gift stores, has
announced preliminary 1998 sales results and issued a letter to its
stockholders.
Total sales for the fiscal year 1998 increased 20.8% to approximately
$33,926,000 from approximately $28,091,000 in fiscal year 1997. Comparable store
sales decreased 7.3% in 1998 as compared to 1997. Since the 1997 fiscal year
contained 53 weeks, the comparable store calculation is based on the applicable
52 week period for 1997.
Total sales for the fourth quarter of 1998 increased 14.8% to
approximately $17,417,000 from approximately $15,175,000 in the fourth quarter
of 1997. Comparable stores sales decreased 8.3% in the fourth quarter of 1998 as
compared to the fourth quarter of 1997. Since the fourth quarter of 1997
contained 14 weeks, the comparable store calculation is based on the applicable
13 week period for 1997.
Comparable store sales are calculated based on the stores open during both
full years being compared.
In its letter to stockholders, management noted the disappointing sales
results and stated that, although not yet determined, earnings reasonably could
also be expected to be disappointing. The letter outlined several effects of its
operating results, including a lower stock price resulting in its noncompliance
with certain listing requirements for the Nasdaq National Market and with
certain financial covenants imposed by its senior lender. To address these
matters, the letter also stated that the Company is implementing several
-MORE-
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ADD ONE - THE GREAT TRAIN STORE CO./PRELIMINARY 1998 SALES
strategic and operational initiatives, including (a) the engagement of Financo,
Inc. to assist with, among other things, negotiations regarding a possible sale
or merger of the Company, (b) the probable transfer of the trading market for
the Company's common stock to the Nasdaq Small-Cap Market, (c) the possible
closing of certain underperforming stores, (d) a moratorium on new commitments
for additional store openings, and (e) enhancing the Company's existing Internet
presence by opening a cyberstore to directly merchandise the Company's products.
The Great Train Store Company opened 14 stores in 1998, including:
Palisades Center in West Nyack, New York; Hamilton Place in Chattanooga,
Tennessee; Woodland Hills Mall in Tulsa, Oklahoma; Lynnhaven Mall in Virginia
Beach, Virginia; Smith Haven Mall in Lake Grove (Long Island), New York;
Scottsdale Fashion Square in Scottsdale, Arizona; Newport Fashion Island in
Newport Beach, California: The Mall at Fairfield Commons near Dayton, Ohio;
Willow Grove Park near Philadelphia, Pennsylvania; The Westchester in White
Plains, New York; Barton Creek Square in Austin, Texas; Glendale Galleria in
Glendale, California; Haywood Mall in Greenville, South Carolina; and Walden
Galleria near Buffalo, New York.
The Great Train Stores are a national chain of unique, upscale specialty
retail stores with "more trains than you ever imagined," selling a wide range of
merchandise all relating to trains and railroading. There are currently 56
stores operating in 26 states and the District of Columbia, primarily located in
highly trafficked regional malls and festival marketplaces.
As previously announced, the Company plans to open a new store at
Providence Place in Providence, Rhode Island, in mid-1999.
The Great Train Stores are owned and operated by The Great Train Store
Partners, L.P., a wholly-owned subsidiary of The Great Train Store Company. The
Great Train Store Company is a public company with its shares traded on the
Nasdaq National Market (GTRN).
Actual results may differ materially from "forward-looking" statements due
to a number of important factors. Those factors, including possible difficulties
in opening new stores when expected or at all and successfully operating such
stores, are more fully discussed in the Company's most recent Form 10-QSB and
Exhibit 99.1 attached to the Company's Form 10-QSB for the third quarter of
1998, a copy of which is available without charge from the Company.
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