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Wiki Wiki Summary
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Risk Factors
TRANS WORLD ENTERTAINMENT CORP Item 1A RISK FACTORS The following is a discussion of certain factors, which could affect the financial results of the Company
The Company’s results of operations are affected by the availability of new products
The Company’s business is affected by the release of “hit” music, video and video game titles, which can create fluctuations in sales
It is not possible to determine the timing of these fluctuations or the future availability of hit titles
The Company does not control the content of new products and is dependent upon the major music and movie producers to continue to produce hit products
To the extent that new hits are not available, or not available at prices attractive to consumers, or, if manufacturers fail to introduce or delay the introduction of new products, the Company’s results of operations may be adversely affected
The Company’s results of operations may suffer if the Company does not accurately predict consumer acceptance of new product or distribution technologies
The entertainment industry is characterized by changing technology, evolving standards, frequent new and enhanced product introductions and rapid product obsolescence
These characteristics require that the Company respond quickly to technological changes and understand the impact of these changes on customers’ preferences
If the Company is unable to participate in new product or distribution technologies that consumers accept, its results of operations may suffer
Increased competition from existing retailers and alternative distribution channels may adversely affect the Company’s results of operations
The retail entertainment business is highly competitive
The Company competes with a wide variety of entertainment retailers, including regional and national mall-based music chains, deep-discount retailers, mass merchandisers, consumer electronics outlets, record clubs and independent operators, some of which have greater financial and other resources than the Company
The Company also expects continued growth in competing home entertainment options, including the Internet and larger numbers of television and music channels offered by cable companies
In particular, Internet and cable technologies coupled with high-quality digital recording technologies allows direct downloading of recorded music by consumers via the Internet
Some of these technological enhancements, including the ability to download music, video and video games onto PCs or other devices, or play games over the Internet through consoles, could reduce retail sales of CDs, DVDs and video games
A wide selection of music and video services can now be offered to consumers through: • the Internet, • cable companies, • direct broadcast satellite companies, • telephone companies, and • other telecommunications companies
If technological advances were to result in significant changes in existing distribution channels for pre-recorded music, video and video games, the Company’s results of operations could be affected
A decline in current levels of consumer spending could adversely affect results of operations
The Company’s results of operations is affected by the level of consumer spending, which reflects the general state of local economies in which the Company operates
The Company’s operating results fluctuate from period to period
As is the case with many retailers, a significant portion of the Company’s sales, and an even greater portion of the Company’s earnings is generated in the fourth fiscal quarter, which includes the holiday selling season
Less than satisfactory sales for such period could have an adverse effect on the Company’s results of operations
Growth Strategy – the failure to grow the Company’s business may limit its earnings
Historically, the Company’s growth has come from the opening of new stores and the acquisition of stores
The Company opens new stores if it finds desirable locations and is able to negotiate suitable lease terms
Any lack of availability of new stores or acquisition opportunities may impact the Company’s ability to increase sales and earnings
6 ______________________________________________________________________ A change in one or more of the Company’s vendors’ policies or the Company’s relationship with those vendors could adversely affect the Company’s results of operations
The majority of the Company’s purchases come from ten major suppliers
As is standard in the music industry, the Company does not maintain long-term contracts with its suppliers but instead makes purchases on an order-by-order basis
If the Company fails to maintain customary trade terms or enjoy positive vendor relations, it could have an adverse effect on the Company’s results of operations
If the Company’s vendors fail to provide marketing and merchandising support at historical levels, the Company’s results of operations could be negatively impacted
The manufacturers of entertainment products have typically provided retailers with significant marketing and merchandising support for their products
As part of this support, the Company receives cooperative advertising and market development payments from these vendors
These cooperative advertising and market development payments enable the Company to actively promote and merchandise the products that it sells and drive sales at the Company’s stores and on its websites
If the Company’s vendors fail to provide this support at historical levels, the Company’s results of operations could be negatively impacted
If the Company fails to successfully complete and integrate future acquisitions, the Company’s results of operationscould be negatively impacted
As part of the Company’s efforts to grow and compete, the Company may engage in acquisitions
The Company’s pursuit of future acquisitions is subject to its ability to negotiate favorable terms for these acquisitions
Accordingly, the Company cannot be assured that future acquisitions will be completed
In addition, to facilitate future acquisitions, the Company may take actions that could dilute the equity interests of its stockholders, increase its debt or assume contingent liabilities, all of which may have a negative effect on the price of the Company’s common stock
Finally, if any acquisitions are not successfully integrated with its business, the Company’s ongoing operations and results of operations could be adversely affected
Loss of Key Personnel could harm the Company’s results of operations
The Company believes that its future prospects depend to a significant extent on the services of its executive officers, as well as its ability to attract and retain qualified key personnel
The loss of the services of certain of the Company’s executive officers and other key management personnel could harm the Company’s results of operations
Control by and Dependence on Key Personnel - Robert J Higgins has a strong influence on the outcome of any vote of the Company’s Shareholders and if the Company were to lose his services, it may not be able to replace his skills and experience
Robert J Higgins serves as Chairman of the Board of Trans World and its Chief Executive Officer and owns approximately 40dtta6prca of the outstanding common stock of Trans World, as of March 15, 2006
Further, if the Company were to lose Mr
Higgins’ services, it may not be able to replace his skills and experience, and this could have an adverse effect on the Company’s financial results
If, in the future, the Company concludes that its internal controls over financial reporting are not adequate, or if the Company’s auditors conclude that the Company’s evaluation of internal controls over financial reporting is not adequate, investors could lose confidence in the reliability of the Company’s financial statements, which could result in a decrease in the value of the Company’s common stock
The effectiveness of the Company’s disclosure and internal controls may be limited
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K There is a risk that in the future the Company may identify internal control deficiencies that suggest that the Company’s controls are no longer effective
This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Company’s financial statements, which could cause a decline in the market price of the Company’s common stock
Disclosure controls and procedures and internal controls over financial reporting may not prevent all errors and intentional misrepresentations
In the event that there are errors or misrepresentations in the Company’s historical financial statements or the SEC disagrees with the Company’s accounting, the Company may need to restate its financial statements
There is no guarantee that existing controls will prevent or detect all material issues or be effective in future conditions, which could materially and adversely impact the Company’s financial results in the future
Anti-takeover provisions – New York anti-takeover law provisions and the classified Board Amendment, may discourage unsolicited takeovers
In August 2000, the Company’s Board of Directors adopted a Classified Board Amendment which together with anti-takeover provisions eschewed by New York State Law may discourage open market purchases or a non-negotiated tender or exchange offer for the stock of the Company
This may be adverse to the interests of a shareholder who might receive a premium in a transaction of this type