WEST COAST ENTERTAINMENT CORP, 424B5, 1996-09-30

WEST COAST ENTERTAINMENT CORP
424B5, 1996-09-30
VIDEO TAPE RENTAL

Previous: SMARTSERV ONLINE INC, 10KSB, 1996-09-30

Next: MEDICUS SYSTEMS CORP /DE/, 10-K/A, 1996-09-30

<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
File No. 333-8683

WEST COAST ENTERTAINMENT CORPORATION

SUPPLEMENT DATED SEPTEMBER 24, 1996
TO PROSPECTUS DATED SEPTEMBER 23, 1996

INTRODUCTION

This Supplement to the Prospectus dated September 23, 1996 (the "Original
Prospectus") of West Coast Entertainment Corporation ("West Coast" or the
"Company") supplements and updates the Original Prospectus as set forth herein.
This Supplement makes the assumptions, and gives effect to the matters,
described in the Original Prospectus under "Prospectus Summary." Capitalized
terms which have defined meanings in the Original Prospectus have the same
respective meanings in this Supplement as they have in the Original Prospectus,
except as otherwise specifically indicated. This Supplement is being delivered
together with a copy of the Original Prospectus and should be read in
conjunction with the Original Prospectus.

This Supplement describes two Prospective Acquisitions which the Company
believes to be probable; provides related historical financial information;
replaces the pro forma financial data contained in the Original Prospectus with
data which reflects the larger of such two Prospective Acquisitions; replaces
the trading price range information contained in the Original Prospectus; and
updates and revises certain portions of the "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Recent Acquisitions" and "-- Franchisings", "Resales" and "Experts"
sections of the Original Prospectus.

Prospective Acquisitions. During September 1996, West Coast expects to
enter into definitive asset purchase agreements to acquire a total of 18 owned
and operated video specialty stores. The consideration to be paid in such
transactions (subject to certain post-closing adjustments and excluding costs
related to such Prospective Acquisitions) is $12,250,000, and is expected to
consist of $7,831,000 in cash and $4,419,000 in shares of Common Stock to be
valued in accordance with the formulas described under "Prospective
Acquisitions." The Company will record approximately $11.6 million of the
purchase price of such Prospective Acquisitions as goodwill. See "Prospective
Acquisitions" and "Unaudited Pro Forma Combined Condensed Financial Statements."

The Prospective Acquisitions are expected to be consummated on or about
September 30, 1996; however, each Prospective Acquisition will be subject to
numerous closing conditions and therefore there can be no assurance that either
Prospective Acquisition will, in fact, be consummated. See "Risk Factors."
Neither of the Prospective Acquisitions is conditioned upon consummation of the
other Prospective Acquisition.

------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THE ORIGINAL PROSPECTUS AND "UPDATES
TO RISK FACTORS" BEGINNING ON PAGE 4 OF THIS SUPPLEMENT FOR A DISCUSSION
OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL
INVESTORS.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.......................................................................... 1
Summary Historical and Pro Forma Financial Data....................................... 3
Updates to "Risk Factors"............................................................. 4
Unaudited Pro Forma Combined Condensed Financial Statements........................... 6
Updates to "Management's Discussion and Analysis of Financial Condition and Results of
Operations"......................................................................... 20
Prospective Acquisitions.............................................................. 27
Updates to "Business"................................................................. 29
Updates to "Resales".................................................................. 30
Updates to "Experts".................................................................. 30
Price Range of Common Stock: Dividends................................................ 30
Index to Financial Statements......................................................... F-1
</TABLE>

------------------------

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS
UNLAWFUL.

S-2
<PAGE> 3

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
--------------------------------------------------- -------------------------
SIX MONTHS ENDED SIX
YEAR ENDED MONTHS
JANUARY 31, JULY 31, YEAR ENDED ENDED
------------------------------ ----------------- JANUARY 31, JULY 31,
1994 1995 1996 1995 1996 1996 1996
------ ------ ------- ------ ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................. $2,520 $6,503 $14,719 $5,510 $22,399 $ 92,796 $48,797
Operating income (loss).................. (44) 385 1,216 397 2,727 10,162 6,844
Income (loss) before income taxes and
extraordinary item..................... (86) 267 576 260 2,287 10,065 6,253
Income (loss) before extraordinary
item................................... (72) 204 334 164 1,284 5,604 3,509
Pro forma income (loss) before
extraordinary item per share........... $(0.07)(2) $ 0.12(2) $ 0.06(2) $ 0.16(2) 0.03(2) $ 0.44(3) $ 0.27(3)
OTHER DATA:
Depreciation and amortization(4)......... $ 870 $1,628 $ 2,585 $1,187 $ 4,563 $ 22,134 $10,918
Purchases of videocassette rental
inventory.............................. 685 1,430 2,002 1,065 5,395 20,361 11,449
STORE DATA:
Increase (decrease) in same store
revenue(5)............................. (6.1)% 14.2% 4.8% 0.5% 0.6% 1.5% 0.6%
Company-owned stores at end of period.... 14 28 28 28 201 216 220
Franchised stores at end of period....... -- -- 304 307 295 310 295
------ ------ ------- ------ ------- ------- -------
Total stores at end of period...... 14 28 332 335 496 526 515
====== ====== ======= ====== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA(1)
---------- ---------
JULY 31, JULY 31,
1996 1996
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 2,335 $ 2,104
Videocassette rental inventory, net................................................... 15,265 16,089
Total assets.......................................................................... 107,492 120,387
Long-term debt, less current portion.................................................. 4,502 13,413
Total liabilities..................................................................... 20,350 29,326
Stockholders' equity.................................................................. 87,142 91,061
</TABLE>

- ---------------
(1) For a discussion of the assumptions and adjustments underlying the unaudited
pro forma combined financial data, see "Unaudited Pro Forma Combined
Condensed Financial Statements."

(2) Unaudited pro forma income (loss) before extraordinary item per share has
been calculated for each of the years in the three year period ended January
31, 1996 and for the six month periods ended July 31, 1995 and 1996 by
dividing the respective unaudited pro forma income (loss) before
extraordinary item amounts by the weighted average number of shares of
common stock outstanding (843,000, 1,693,000 and 4,756,000 at January 31,
1994, 1995 and 1996, respectively and 4,756,000 and 7,957,000 at July 31,
1995 and 1996, respectively). Unaudited pro forma income (loss) before
extraordinary item per share reflects an adjustment to the consolidated
statement of operations to give effect to the merger (the "Merger") and the
0.340-for-1 reverse stock split discussed in Notes 1 and 17 to the Company's
consolidated financial statements included in the Original Prospectus, as if
they had occurred as of February 1, 1992. Accordingly, the pro forma income
tax provision (benefit) and pro forma income (loss) have been calculated as
if each entity included in the consolidated statement of operations had been
included in the Company's consolidated income tax returns and subject to
corporate income taxation as a corporation subject to taxation under
Subchapter C of the Internal Revenue Code of 1986, as amended (a "C
Corporation") during all periods presented. In addition, shares to be issued
as contingent consideration in conjunction with the Recent Acquisitions have
been considered outstanding since May 17, 1996.

(3) Unaudited pro forma income per share for the year ended January 31, 1996 and
the six month period ended July 31, 1996 have been calculated by dividing
unaudited pro forma income by the pro forma weighted average number of
shares of Common Stock outstanding after giving effect to (i) the Merger,
(ii) the issuance of shares upon formation of the Company, (iii) the
0.340-for-1 reverse stock split and the shares issued in conjunction with
the Public Offering, (iv) the shares issued and to be issued in conjunction
with the Recent Acquisitions, (v) the repayment of all outstanding debt,
(vi) borrowings under the Credit Facility, (vii) the impact of the Warrant
and of the conversion of a portion of an outstanding convertible
subordinated secured note (the "Convertible Note") into 20,844 shares of
Common Stock, (viii) the assumed election by a Seller to convert the
"Indebtedness incurred in association with the August 1996 Acquisition" into
shares of Common Stock and (ix) issuance of shares in connection with the
Pro Forma Prospective Acquisition as defined under "Unaudited Pro Forma
Combined Condensed Financial Statements") as if all activity occurred as of
February 1, 1995. The pro forma weighted average number of common shares
used to calculate pro forma income per share at January 31, 1996 and July
31, 1996 was 12,779,080.

(4) Depreciation and amortization includes depreciation expense of fixed assets,
goodwill amortization expense and amortization expense of videocassette
rental inventory. The Company's policy is that videocassette rental
inventory, which includes video games, is stated at cost and is amortized
over its estimated economic life with no provision for salvage value.
Videocassettes that are considered base stock are amortized over 36 months
on a straight-line basis. New releases are amortized as follows: the first
through third copies of each title per store are amortized as base stock and
succeeding copies of each title per store are amortized over nine months on
a straight-line basis.

(5) Same store revenue is defined as the aggregate revenues from Company-owned
stores open for the entirety of the periods being compared. Increase
(decrease) reflects change from prior fiscal year.

S-3
<PAGE> 4

UPDATES TO "RISK FACTORS"

The following portions of the "Risk Factors" section of the Original
Prospectus are hereby updated and revised as follows:

Financing Growth Strategy. The Company currently intends to finance future
Acquisitions, as well as new store openings, primarily from borrowings under
credit facilities, including the Credit Facility, from the net proceeds from the
sale of debt or equity securities, and from cash from operations. Acquisitions
may also be made by issuing Company securities (including the shares offered
hereby) to the sellers. There can be no assurance that the Company will be able
to sell debt or equity securities on reasonable terms. The inability to raise
sufficient cash could inhibit implementation of the Company's growth strategy.
The Credit Facility contains various restrictive covenants which may also
inhibit the Company's ability to finance its growth strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- The Company."

Certain Formulaic Purchase Prices; Purchase Obligations. The purchase
prices for certain Recent Acquisitions contained components that are to be
determined over 12 or 18-month periods after the respective opening dates of 19
stores on the basis of certain financial measurements for such stores over the
final 12 months of such periods. See "Recent Acquisitions." The purchase price
for certain stores which the Company may acquire under an option agreement
described below will have as one of its components an adjustment based upon the
future net operating cash flow of four stores which the Company is acquiring in
one of the Prospective Acquisitions. The purchase prices for other future
Acquisitions may contain similar components. If such components of such purchase
prices are materially more than is initially expected, the Company will have to
deploy more cash or issue more shares of Common Stock than it budgeted for such
purpose.

Subject to the satisfaction of certain conditions, the Company may be
required under the terms of certain cross-purchase and area development and
option agreements to purchase all of the assets of up to 35 stores during a
period commencing in 1997 and ending in 2001 at the election of the owners at
formulaic purchase prices based upon future net operating cash flow of such
stores, which cannot be estimated at present. The purchase prices of four such
stores will be payable, at the sellers' election, in cash or shares of Common
Stock and the other purchase prices will be payable partly in cash and partly,
at the Company's election, in cash or in shares of Common Stock. See "Business
- -- Franchising" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources -- The Company."

RISKS ASSOCIATED WITH FRANCHISE OPERATIONS

Upon consummation of the Recent Acquisitions, the Company had 203
franchisees operating 303 franchised stores. It obtains franchise-related
revenues from an initial fee and the sale of initial supplies and from ongoing
fees and royalties based on a percentage of franchisees' gross revenues, as
reported monthly by franchisees to the Company. No assurance can be given that
the Company will continue to market and sell new franchises or operate its
franchise operations at profitable levels. In addition, no assurance can be
given that desirable locations and acceptable leases can be obtained for new
franchisees. The Company monitors franchisees' compliance with ongoing
obligations on the basis of monthly revenue and ordered inventory reports. The
Company's standard franchise agreement generally also grants the Company the
right to audit the books and records of franchisees at any time. No assurance
can be given, however, that all franchisees will operate their stores in
accordance with the Company's operating guidelines and in compliance with all
material provisions of the franchise agreement, and the failure of franchisees
to so operate their stores could have a material adverse effect on the Company's
business. The standard franchise agreement gives the Company the choice of
seeking legal remedies, which could be time-consuming and expensive, and
terminating the franchisee, which would diminish the Company's revenue until
such time, if ever, as a new franchisee replaces the terminated franchisee.
Franchisees are not required to purchase supplies or inventory from the Company.

S-4
<PAGE> 5

Recent Acquisitions, which are located within such franchisees' exclusive
territories, are to be integrated into the Company's system; possibilities
include, but are not limited to, relocating such an acquired store or selling it
to a third party, assisting the franchisee to relocate, granting the franchisee
additional franchises or territorial or other rights, terminating the franchise,
or including the franchisee's stores in the intended program of Company
acquisitions of franchisees' stores described under "Business - Growth Strategy
- -Continue to Acquire West Coast Franchisee Stores." Through the date of this
Supplement, the Company has agreed to close two newly acquired stores, to extend
the term of one franchise agreement by one year, to grant one franchisee a 50%
rebate on one year's franchise fee, and to terminate four franchises.
Discussions with the remaining four franchisees are continuing in regard to the
possible relocation of one owned and operated store and the possible acquisition
of three franchised stores. Although the Company does not expect that any such
method of integration of such stores will have a material adverse effect, there
can be no assurance in this regard.

In addition, the Company is subject to the Federal Trade Commission's Trade
Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures" (the "FTC Franchise Rule") and
state laws and regulations that govern the offer and sale of franchises. In
order to offer and sell franchises, the Company is required by the FTC Franchise
Rule to furnish each prospective franchisee a current franchise offering
circular prior to the sale of a franchise. In addition, 13 states at present
require a franchisor to comply with registration or filing requirements prior to
offering a franchise in the state and to provide a prospective franchisee with a
current franchise offering circular complying with the state's laws, prior to
the sale of the franchise, and five other states require written notice prior to
the offer of a franchise (collectively, the "Registration States"). The Company
is currently registered in all of the Registration States, other than New York
where an application is pending, and is currently entitled to sell franchises in
all other states in compliance with the FTC Franchise Rule. The Company has
submitted post-effective amendments in all Registration States, other than New
York, to reflect its latest franchise offering. Violations of the FTC Franchise
Rule and the franchise offering requirements of the Registration States could
result in civil penalties against the Company and civil and criminal penalties
against the executive officers of the Company. No assurance can be given that
the Company will not be required to cease offering and selling franchises in
certain states because of future changes in franchise laws or the Company's
inability to comply with existing or future franchise laws or until its
franchise offering circular is updated.

This Prospectus does not constitute, and shall not be construed as, an
offer to sell a West Coast Video(R) franchise. Such offers may be made only by
an offering circular in compliance with state laws and the FTC Franchise Rule.
The description of the franchises set forth in this Prospectus is not intended
to be a complete description of the business of a franchisee of West Coast
Franchising Company.

LIMITED TRADING HISTORY; POTENTIAL VOLATILITY OF STOCK PRICE

The Company's Common Stock has traded on the Nasdaq National Market only
since May 14, 1996. Prior to the Public Offering, there was no public market for
the Common Stock. The initial public offering price was determined through
negotiations between the Company and the representatives of the underwriters in
the Public Offering. There can be no assurance that an active trading market
will be sustained and no prediction can be made as to future trading prices.

Under the pricing formula described in "Business-Prospective Acquisitions,"
the number of shares of Common Stock to be issued to seller in each of the
Prospective Acquisitions will be a function of trading prices prior to
consummation of the Prospective Acquisition, subject to subsequent adjustment as
therein described. Accordingly, no prediction can be made as to the number of
shares of Common Stock to be issued or as to the dilutive effects of such
issuance.

SPECIAL RISKS FOR PROSPECTIVE SELLERS

The Company reserves the right to negotiate the final terms of the asset
purchase agreements for the Prospective Acquisitions, which may vary from the
summaries contained herein. The owners of the businesses to be acquired by the
Company in the Prospective Acquisitions will not know the exact numbers of
shares of Common Stock to be issued to them at the time that they enter into the
definitive asset purchase agreement, unless the closing occurs shortly after
signing the asset purchase agreement.

S-5
<PAGE> 6

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 1996 AND SIX MONTHS ENDED JULY 31, 1996

Recent Acquisitions. Substantially concurrently with the completion of the
Public Offering of stock on May 17, 1996, the Company acquired in the Recent
Acquisitions 172 owned and operated video specialty stores, plus the rights of
one acquired company as franchisor of an additional 20 franchised stores, for
aggregate consideration of approximately $84.3 million, consisting of the
following: $52.5 million in cash, approximately $24.5 million in shares of
Common Stock (1.9 million shares valued for this purpose at the initial public
offering price of $13.00 per share), approximately $4.7 million in acquisition
costs and approximately $2.6 million in minimum contingent consideration (of
which approximately $1.4 million and $1.2 million is to be paid in cash and
stock, respectively). The Recent Acquisitions are accounted for using the
purchase method of accounting.

On August 26, 1996, the Company acquired in another Acquisition (the
"August 1996 Acquisition") the assets of five owned and operated video specialty
stores for approximately $2.1 million (exclusive of approximately $0.2 million
in acquisition costs) consisting of $1.3 million in cash and $0.8 million of
promissory notes which may be paid in stock at the seller's election in certain
circumstances as described under "Updates to Business -- Recent Acquisitions".
For purposes of Unaudited Pro Forma Combined Condensed Balance Sheet
presentation, it is assumed that payment in stock will not be elected. The
August 1996 Acquisition was accounted for as a purchase and the Company recorded
$1.9 million of related goodwill. Except as otherwise expressly indicated, the
pro forma information contained in this Supplement includes financial data and
other information about the August 1996 Acquisition, as well as financial data
and other information about the Recent Acquisitions consummated in May 1996,
under the caption "Recent Acquisitions".

Pro Forma Prospective Acquisition. The Company expects to acquire the
assets of 14 owned and operated video specialty stores that are described under
"Prospective Acquisition -- Super Video Group" (the "Pro Forma Prospective
Acquisition") for aggregate consideration (subject to subsequent adjustment) of
$10.6 million, consisting of the following: $6.6 million in cash, $3.9 million
in shares of Common Stock (approximately 365,988 shares at an assumed formula
price of $10.71 per share based on the average of the bid and asked prices as
quoted on Nasdaq for the Company's Common Stock for the fifteen trading days
preceding July 31, 1996), and approximately $0.2 million in acquisition costs.
The shares associated with the Pro Forma Prospective Acquisition are to be
issued in three equal installments (six, twelve and eighteen months from the
Acquisition date) and the number of shares issuable will be adjusted in certain
cases by the difference between the formula price on the acquisition date and
the closing value of the Company's common stock on the issuance date. Any
difference will be due and payable to the Seller, at the Company's option, in
cash or additional common stock. See note 3 to the table which appears under
"Prospective Acquisitions--Consideration to be paid." The Pro Forma Prospective
Acquisition will be accounted for using the purchase method of accounting.

The following unaudited pro forma combined condensed financial statements
reflect (i) the consummation of the Recent Acquisitions, (ii) the completion of
the Public Offering at a purchase price of $13.00 per share and the application
of the net proceeds therefrom, (iii) the borrowing of $4.4 million under the
Credit Facility and the use of such funds to refinance approximately $3.1
million of previously existing indebtedness and pay approximately $1.3 million
of the cash portion of the purchase price for the Recent Acquisitions, (iv) the
assumed consummation of the August 1996 Acquisition and the Pro Forma
Prospective Acquisition on the terms described in this Prospectus and (v) the
assumed borrowing of $8.1 million under the Credit Facility to pay the cash
portion of the purchase price of the August 1996 Acquisition and the Pro Forma
Prospective Acquisition (collectively, the "Pro Forma Transactions"). The
unaudited pro forma combined balance sheet at July 31, 1996 gives effect to the
Pro Forma Transactions as if each had occurred at that date. The unaudited pro
forma combined statements of operations for the year ended January 31, 1996 and
six months ended July 31, 1996 give effect to the Pro Forma Transactions as if
each had occurred at February 1, 1995.

S-6
<PAGE> 7

In the opinion of the Company's management, all adjustments necessary to
present fairly such unaudited pro forma combined condensed financial statements
have been made based on the terms and structure of the Pro Forma Transactions.
In the opinion of the Company's management, the purchase prices have been
preliminarily allocated to all significant tangible and intangible assets in
accordance with APB 16 and the final allocation is not expected to differ
materially from the allocation reflected in the unaudited pro forma combined
condensed financial statements. In connection with the preliminary allocation of
purchase prices, no value has been assigned to the various employment
arrangements entered into between the Company and certain prior owners of the
entities acquired. Such employment contracts were entered into with respect only
to those prior owners who remain in the employment of the Company. Such
contracts serve to identify the new or proposed salary arrangements with
previous owners at competitive market rates. In assessing the value of
non-competition arrangements, the Company considered the significant competitive
pressure that now exists in all geographic markets and the fact that the
industry is undergoing a significant consolidation by large operators with more
economic substance which acts as a deterrent to others seeking to enter the
market. Accordingly, the Company does not believe these arrangements possess any
significant value. The Company believes, however, that changes in the
composition of the assets acquired and the liabilities assumed in connection
with the Recent Acquisitions and the Pro Forma Prospective Acquisition will
occur due to changes in the ordinary course of business of the video specialty
stores acquired; however, the terms of the agreements relating to the Recent
Acquisitions and the Pro Forma Prospective Acquisition provide that operations
of these stores are to continue in the ordinary course of business until the
date of their acquisition. Therefore, the Company believes any related change in
adjustments should not be material to the unaudited pro forma combined condensed
financial statements.

The unaudited pro forma combined condensed financial statements do not
purport to represent what the Company's results of operations or financial
position would actually have been had the Pro Forma Transactions occurred on
either of the dates set forth above or to project the Company's results of
operations for any future period.

The unaudited pro forma financial information should be read in connection
with the accompanying notes, the historical financial statements and notes
thereto of the Company, certain of the sellers of the 172 stores in the Recent
Acquisitions (the "Sellers"), the sellers of the five stores acquired in the
August 1996 Acquisition and the sellers of the 14 stores to be acquired in the
Pro Forma Prospective Acquisition, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in the
original Prospectus or in this Supplement.

S-7
<PAGE> 8

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JULY 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
AUGUST 1996 PROPOSED PRO FORMA COMPANY
WEST COAST ACQUISITION(1) ACQUISITION(1) ADJUSTMENTS PRO FORMA(2)
---------- --------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 2,335 $ 48 $ 574 $ (605)(3)
8,071 (4)
(8,319)(5) $ 2,104
Accounts and other receivables.... 1,470 1 1 1,472
Merchandise inventories........... 2,752 20 -- 2,772
Prepaid expenses and other current
assets.......................... 841 -- -- 841
-------- ---- ------ ------- --------
Total current assets............ 7,398 69 575 (853) 7,189
Videocassette rental inventory,
net............................. 15,265 360 972 (508)(5) 16,089
Furnishings, equipment and
leasehold improvements, net..... 6,091 139 426 6,656
Other assets...................... 1,541 11 123 1,675
Intangible assets, net of
amortization.................... 77,197 123 -- (123)(3) 88,778
11,581 (5)
-------- ---- ------ ------- --------
Total assets.................... $107,492 $702 $2,096 $10,097 $120,387
======== ==== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt............................ $ 23 $ -- $ -- $ -- $ 23
Accounts payable.................. 7,947 263 639 (837)(3) 8,012
Accrued expenses and other
liabilities..................... 6,069 0 179 (179)(3) 6,069
Income taxes...................... 1,314 0 0 1,314
Advances from stockholders'....... 0 707 0 (707)(3) --
-------- ---- ------ ------- --------
Total current liabilities....... 15,353 970 818 (1,723) 15,418
Long-term debt.................... 4,502 0 0 8,071 (4)
840 (5) 13,413
Deferred tax liability............ 447 0 0 447
Other long-term liabilities....... 48 0 211 (211)(3) 48
-------- ---- ------ ------- --------
Total liabilities............... 20,350 970 1,029 6,977 29,326
Stockholders' equity:
Common stock........................ 121 15 142 (153)(5) 125
Additional paid-in capital.......... 86,397 0 227 2,544 (5)
1,144 (3) 90,312
Treasury stock...................... 0 0 (304) 304 (5) --
Loans to stockholders............... 0 0 (62) 62 (3) --
Accumulated surplus (deficit)....... 624 (283) 1,064 (781)(5) 624
-------- ---- ------ ------- --------
Total stockholders' equity...... 87,142 (268) 1,067 3,120 91,061
-------- ---- ------ ------- --------
Total liabilities and
stockholders' equity.......... $107,492 $702 $2,096 $10,097 $120,387
======== ==== ====== ======= ========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.

S-8
<PAGE> 9

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JULY 31, 1996

(1) The August 1996 Acquisition includes the acquisition of JJ Video, Inc.,
Picture Show Video, Inc., Picture Show Video #4, Inc., Picture Show
Video-Gardenside, Inc. and Picture Show Video-Winchester, Inc. on August 26,
1996. The Pro Forma Proposed Acquisition consists of the Super Video group
(defined herein under "Pro Forma Prospective Acquisition"). For more
information on the August 1996 and Pro Forma Proposed Acquisitions, see the
accompanying historical financial statements.

(2) See the introductory paragraphs under "Unaudited Pro Forma Combined
Condensed Financial Statements".

(3) Reflects the elimination of certain assets and liabilities of certain
Sellers which, in accordance with the various purchase and sale agreements,
were not acquired by the Company, as follows (in thousands):

<TABLE>
<S> <C> <C>
Cash..................................................... $ 605
Intangible assets........................................ 123
------
Total assets not acquired........................... $ 728
------
Accounts payable......................................... $ 837
Accrued expenses and other liabilities................... 179
Advances from stockholders............................... 707
Other long-term liabilities.............................. 211
------
Total liabilities not acquired...................... $1,934
------ ------
Net liabilities not acquired........................ $1,206
======
</TABLE>

The increase in additional paid-in capital of $1.14 million reflects the
$1.20 million of net liabilities not acquired less the elimination of loans
to stockholders in the amount of $0.06 million.

(4) Reflects the increase in borrowing under the Credit Facility to finance a
portion of the purchase price of the August 1996 and Pro Forma Prospective
Acquisitions.

(5) Reflects (i) the allocation of purchase price paid in connection with the
Acquisitions based on the fair value of the assets and liabilities acquired
and (ii) the elimination of historical stockholders' equity relating to the
entities acquired in connection with the August 1996 and Pro Forma
Prospective Acquisitions. The purchase price paid in connection with the
August 1996 and Pro Forma Prospective Acquisitions is $13.1 million, which
consists of: $7.9 million in cash, $4.0 million in Common Stock (365,988
shares valued at $10.71 per share), $0.8 million of indebtedness (the
"Indebtedness") to be settled by delivery, on August 26, 1997, of an
unsecured promissory note of the Company payable in full on August 26, 2000,
subject to the right of the sellers to elect, prior to August 26, 1997, to
receive in lieu of such note, 91,017 shares of the Company's Common Stock,
and $0.4 million in acquisition costs, $0.1 million of which had been
accrued at July 31, 1996). The pro forma effect of these transactions is as
follows (in thousands):

<TABLE>
<S> <C> <C>
Cash portion of purchase price........................... $7,869
Plus: Fees and expenses.................................. 450
------
------
Net cash change................................... $8,319
======
</TABLE>

At July 31, 1996 Other assets included $0.1 million of unpaid fees and
expenses associated with the Acquisitions.

S-9
<PAGE> 10

The allocation of purchase price is as follows (in thousands):

<TABLE>
<CAPTION>
HISTORICAL VALUE FAIR PRO-FORMA
OF NET ASSETS VALUE NET ASSETS
ACQUIRED ADJUSTMENT ACQUIRED
----------------- ----------- ----------
<S> <C> <C> <C>
Cash......................................... $ 17 $ 17
Merchandise inventories...................... 20 20
Accounts receivable.......................... 2 2
Videocassette rental inventory............... 1,332 (508) 824
Furnishings, equipment and leasehold
improvements, net.......................... 565 565
Other assets................................. 134 134
Goodwill..................................... -- 11,581 11,581
------ ------- -------
Total................................... $ 2,070 $11,073 $ 13,143
Accounts payable............................. $ 65 $ 65
------ ------- -------
Total liabilities....................... $ 65 $ 0 $ 65
------ ------- -------
Total........................................ $ 2,005 $11,073 $ 13,078
====== ======= =======
</TABLE>

These transactions had the following effect on stockholders' equity (in
thousands):

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY RETAINED
STOCK CAPITAL STOCK EARNINGS
------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Elimination of historical stockholders'
equity................................... $(157) $ (227) $ 304 $(781)
Elimination of historical stockholder's
equity reflected in note(3).............. (1,144)
Shares issued as partial consideration for
Acquisitions............................. 4 3,915
----- ------- ---- ----
Net changes in stockholders' equity........ $(153) $ 2,544 $ 304 $(781)
===== ======= ==== ====
</TABLE>

S-10
<PAGE> 11

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS(1)(2)
YEAR ENDED JANUARY 31, 1996 AND THE SIX MONTHS ENDED JULY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1996(3)
-------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------
PRO FORMA COMPANY
WEST PRIOR RECENT PROPOSED PRO FORMA PRO
COAST ACQUISITIONS ACQUISITIONS ACQUISITION ADJUSTMENTS FORMA
------ ------------ ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenues............................... $9,209 $ 0 $57,758 $7,274 $ (927) $73,314
Franchise fees................................ 3,211 3,260 1,475 0 (1,595) 6,351
Merchandise and other sales................... 2,299 502 9,100 1,284 (54) 13,131
------ ------ ------- ------ ------- -------
Total revenue............................... 14,719 3,762 68,333 8,558 (2,576)(4) 92,796
Operating costs and expenses:
Store operating costs......................... 6,234 0 32,931 4,089 (3,708)(5) 39,546
Cost of goods sold............................ 1,384 622 7,863 1,408 (2,722)(6) 8,555
Amortization of videocassette and video game
rental inventory............................ 1,972 0 16,503 1,180 (3,254)(7) 16,401
General and administrative.................... 3,659 2,728 8,385 617 (1,849)(8) 13,540
Intangible amortization....................... 254 0 67 0 4,271 (9) 4,592
------ ------ ------- ------ ------- -------
Total operating costs/expenses.............. 13,503 3,350 65,749 7,294 (7,262) 82,634
------ ------ ------- ------ ------- -------
Operating income................................ 1,216 412 2,584 1,264 4,686 10,162
Interest expense................................ 640 213 610 39 (579)(10) 923
Other, net...................................... 0 0 (743) (21) (62)(11) (826)
------ ------ ------- ------ ------- -------
Income before provision for income taxes and
extraordinary item............................ 576 199 2,717 1,246 5,327 10,065
Income taxes.................................... 242 0 523 48 3,648(12) 4,461
------ ------ ------- ------ ------- -------
Income before extraordinary item................ $ 334 $ 199 $ 2,194 $1,198 $ 1,679 $ 5,604
====== ====== ======= ====== ======= =======
Pro forma income before extraordinary item per
share......................................... $ 0.06(13) $ 0.44(14)
====== =======
SIX MONTHS ENDED JULY 31, 1996(3)
-------------------------------------------------------------------
HISTORICAL
-----------------------------------------
PRO FORMA
WEST RECENT PROPOSED PRO FORMA COMPANY
COAST ACQUISITIONS ACQUISITION ADJUSTMENTS PRO FORMA
------- ------------ ------------ ----------- ---------
Revenues:
Rental revenues................................ $17,371 $19,272 $3,961 $ (319) $40,285
Franchise fees................................. 2,310 115 0 (402) 2,023
Merchandise and other sales.................... 2,718 2,855 929 (13) 6,489
------- ------- ------ ------- -------
Total revenue................................ 22,399 22,242 4,890 (734)(4) 48,797
Operating costs and expenses:
Store operating costs.......................... 9,004 10,680 1,948 (1,123)(5) 20,509
Cost of goods sold............................. 1,787 2,211 994 (1,202)(6) 3,790
Amortization of videocassette and video game
rental inventory............................. 3,204 5,022 745 (669)(7) 8,302
General and administrative..................... 4,688 2,406 273 (334)(8) 7,033
Intangible amortization........................ 989 34 0 1,296 (9) 2,319
------- ------- ------ ------- -------
Total operating costs/expenses............... 19,672 20,353 3,960 (2,032) 41,953
------- ------- ------ ------- -------
Operating income................................. 2,727 1,889 930 1,298 6,844
Interest expense................................. 508 198 0 (200)(10) 506
Other, net....................................... (68) 188 (8 ) (27)(11) 85
------- ------- ------ ------- -------
Income before provision for income taxes and
extraordinary item............................. 2,287 1,503 938 1,525 6,253
Income taxes..................................... 1,003 329 54 1,358 2,744
------- ------- ------ ------- -------
Income before extraordinary item................. $ 1,284 $ 1,174 $ 884 $ 167 $ 3,509
======= ======= ====== ======= =======
Pro forma income before extraordinary item per
share.......................................... $ 0.16(13) $ 0.27 (14)
======= =======
</TABLE>

S-11
<PAGE> 12

NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS

(1) Recent Acquisitions include the following historical financial data for the
year ended January 31, 1996 (in thousands):

<TABLE>
<CAPTION>
OPERATING NET
RENTAL OTHER TOTAL INCOME INCOME
REVENUE REVENUE REVENUE (LOSS) (LOSS)
------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
A) MAY 17, 1996 ACQUISITIONS
PALMER CORPORATION AND SUBSIDIARIES (Unaudited).... $17,297 $ 6,067 $23,364 $ (166) $ 233
------- ------- ------- ------ ------
RED GIRAFFE:
American Video, Inc. and Red Giraffe Video,
Inc........................................... 8,557 987 9,544 631 482
Lancaster Group, Inc............................. 1,239 189 1,428 39 6
------- ------- ------- ------ ------
9,796 1,176 10,972 670 488
------- ------- ------- ------ ------
MASSACHUSETTS FRANCHISEES:
New Age Entertainment, Inc. ..................... 3,592 405 3,997 12 (43)
HB Associates, Inc............................... 2,381 374 2,755 29 (5)
Best Entertainment, Inc.......................... 1,327 225 1,552 271 270
Video Innovators, Inc............................ 774 73 847 69 29
------- ------- ------- ------ ------
8,074 1,077 9,151 381 251
------- ------- ------- ------ ------
5 OTHER UNAFFILIATED SELLING GROUPS:
A-Z Video Systems, Inc. (Unaudited).............. 3,382 178 3,560 213 21
------- ------- ------- ------ ------
Showtime, Inc.................................... 3,475 436 3,911 (56) (63)
------- ------- ------- ------ ------
Video Giant, Inc................................. 4,906 305 5,211 189 110
------- ------- ------- ------ ------
VIDEO VIDEO:
Video Video of Parsippany, Inc., Video Video of
Chatham, Inc. and Video Video Management
Corporation (Unaudited)....................... 1,078 202 1,280 3 (50)
Video Video of Westfield, Inc. (Unaudited)....... 706 140 846 (91) (114)
------- ------- ------- ------ ------
1,784 342 2,126 (88) (164)
------- ------- ------- ------ ------
VIDEOLAND:
Anthony Cocca's Videoland, Inc................... 3,999 484 4,483 532 514
Vidko, Inc. (Unaudited).......................... 522 27 549 135 135
Kobie-Co Movie Outlet............................ 2,637 306 2,943 499 481
------- ------- ------- ------ ------
7,158 817 7,975 1,166 1,130
------- ------- ------- ------ ------
$55,872 $10,398 $66,270 $2,309 $2,006
------- ------- ------- ------ ------
B) AUGUST 1996 ACQUISITION
JJ Video, Inc., Picture Show Video, Inc., Picture
Show Video-Gardenside, Inc., Picture Show
Video #4, Inc., and Picture Show
Video-Winchester, Inc......................... 1,886 177 2,063 275 188
------- ------- ------- ------ ------
$57,758 $10,575 $68,333 $2,584 $2,194
======= ======= ======= ====== ======
</TABLE>

- ---------------

Included within Other Revenue, which consists primarily of merchandise revenue,
is royalty and advertising income of $1,446 relating to Palmer Corporation and
$29 relating to American Video, Inc. and Red Giraffe Video, Inc.

See historical financial statements of the August 1996 Acquisition contained
elsewhere in this Supplement.

S-12
<PAGE> 13

NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS

(1) Recent Acquisitions include the following unaudited historical financial
data for the six month period ended July 31, 1996 (in thousands):

<TABLE>
<CAPTION>
OPERATING NET
RENTAL OTHER TOTAL INCOME INCOME
REVENUE REVENUE REVENUE (LOSS) (LOSS)
------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
(A) ACQUISITIONS ON MAY 17, 1996:
PALMER CORPORATION AND SUBSIDIARIES:............... $ 5,469 $1,584 $ 7,052 $ 814 $ 121
------- ------ ------- ------ ------
RED GIRAFFE:
American Video, Inc. and Red Giraffe Video,
Inc........................................... 2,686 260 2,946 164 94
Lancaster Group, Inc. ........................... 354 53 407 11 2
------- ------ ------- ------ ------
3,040 313 3,353 175 96
------- ------ ------- ------ ------
MASSACHUSETTS FRANCHISEES:
New Age Entertainment, Inc....................... 1,283 125 1,407 81 54
HB Associates, Inc............................... 814 121 936 168 172
Best Entertainment, Inc.......................... 437 74 510 167 174
Video Innovators, Inc............................ 307 47 355 (13) (7)
------- ------ ------- ------ ------
2,841 367 3,208 403 393
------- ------ ------- ------ ------
5 OTHER UNAFFILIATED SELLING GROUPS:
A-Z Video Systems, Inc........................... 1,136 50 1,188 252 154
------- ------ ------- ------ ------
Showtime, Inc.................................... 1,115 158 1,272 (9) (12)
------- ------ ------- ------ ------
Video Giant, Inc. ............................... 1,511 160 1,671 (555) (346)
------- ------ ------- ------ ------
VIDEO VIDEO:
Video Video of Parsippany, Inc., Video Video of
Chatham, Inc. and Video Video Management
Corporation................................... 353 61 414 35 4
Video Video of Westfield, Inc.................... 204 32 236 11 (10)
------- ------ ------- ------ ------
557 93 650 46 (6)
------- ------ ------- ------ ------
VIDEOLAND:
Anthony Cocca's Videoland, Inc................... 1,633 66 1,699 345 355
Vidko, Inc....................................... 175 9 184 65 67
Kobie-Co Movie Outlet............................ 859 95 954 227 226
------- ------ ------- ------ ------
2,667 170 2,837 637 648
------- ------ ------- ------ ------
18,336 2,895 21,231 1,763 1,048
------- ------ ------- ------ ------
(B) AUGUST 1996 ACQUISITION:
JJ Video, Inc., Picture Show Video, Inc., Picture
Show Video-Gardenside Inc., Picture Show Video #
4, Inc., and Picture Show Video-Winchester,
Inc.............................................. 936 75 1,011 126 126
------- ------ ------- ------ ------
TOTAL RECENT ACQUISITIONS.......................... $19,272 $2,970 $22,242 $1,889 $1,174
======= ====== ======= ====== ======
</TABLE>

- ---------------

Included within Other Revenue, which consists primarily of merchandise revenue,
is royalty and advertising income of $394 relating to Palmer Corporation and $8
relating to American Video, Inc. and Red Giraffe Video, Inc.

See Index to Consolidated Financial Statements set forth in this Supplement for
cross-reference to historical financial statements of the August 1996
Acquisition.

(2) See the introductory paragraphs under "Unaudited Pro Forma Combined
Condensed Financial Statements."

(3) West Coast includes the historical results of operations of the Company.
Prior Acquisitions include the results of operations of the WCEI Companies
prior to the acquisition thereof by the Company. Recent Acquisitions and Pro
Forma Prospective Acquisition includes the historical results of operations
of the Sellers.

S-13
<PAGE> 14

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JANUARY 31, ENDED
1996 JULY 31,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
(4) Adjustment consists of the following (in thousands):
a. To record the elimination of franchisee fees recorded by
the WCEI Companies received from the Massachusetts
Franchisees, as such amounts will be considered
intercompany transactions upon acquisition................ $ 474 $ 131
b. To eliminate rental revenues ($927 for the year ended
January 31, 1996, and $319 for the six months ended July 31,
1996) and merchandise sales ($54 for the year ended
January 31, 1996 and $13 for the six months ended July 31,
1996) included in the historical financial statements of
certain Sellers relating to stores not being acquired
pursuant to the Recent Acquisitions....................... 981 332
c. To conform the classification used by a Seller for
advertising reimbursements with those used by the Company (see
corresponding adjustments 5(f) and 6(b)). ................ 1,121 271
------- -------
$ 2,576 $ 734
======= =======
(5) Adjustment consists of the following (in thousands):
a. To record the elimination of franchisee fees paid by the
Massachusetts Franchisees to the WCEI Companies, as such
amounts will be considered intercompany transactions upon
acquisition............................................... $ 474 $ 131
b. To record the change in historical compensation, including
fringe benefits related to owners of certain Sellers. (In
negotiating the Recent Acquisitions and the Pro Forma
Prospective Acquisition, employment agreements were
entered into in those specific instances where an owner
was to be retained. In all other situations, the asset
purchase agreements specifically exclude employment
reference as such individuals will not be employed by the
Company. The net adjustment includes $1,468 for the year
ended January 31, 1996 and $630 for the six months ended
July 31, 1996 related to those owners to be retained, at
lower compensation levels, and $364 for the year ended
January 31, 1996 and $106 for the six months ended July
31, 1996 related to those owners not to be retained.) .... 1,832 736
c. To eliminate store operating costs included in the
historical financial statements of the Sellers relating to
stores not acquired in association with the Recent
Acquisitions.............................................. 953 373
d. To record the reduction in depreciation expense as a
result of depreciating the acquired furnishings, equipment and
leasehold improvements over their estimated remaining
useful lives.............................................. 1,290 271
e. To conform the method of accounting for handling fees
under a revenue sharing agreement with the method used by the
Company................................................... 148 37
f. To conform the classification used by a Seller for fees
payable under a revenue sharing agreement with those used by
the Company (see offsetting adjustment 4(c) and 6(b)). ... (989) (425)
------- -------
$ 3,708 $ 1,123
======= =======

</TABLE>

S-14
<PAGE> 15

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JANUARY 31, ENDED
1996 JULY 31,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
(6) Adjustment consists of the following (in thousands):
a. To eliminate the cost of goods sold included in the
historical financial statements of the Sellers relating to
merchandise sales of the stores not acquired in
association with the Recent Acquisitions.................. $ 23 $ 14
b. To conform the classification used by a Seller for
advertising reimbursements, fees payable under a revenue
sharing agreement and cost of previously viewed tape sales
with those used by the Company (see corresponding
adjustments 4(c), 5(f) and 7(g)). ........................ 2,699 1,188
------- -------
$ 2,722 $ 1,202
======= =======
(7) Adjustment consists of the following (in thousands):
a. To record a decrease in videocassette rental inventory
amortization expense resulting from the allocations of
purchase price to videocassette rental tapes of the
acquired entities, based on current replacement cost for
bulk purchases of used tapes, as well as the assignment of
a three year amortizable life which serves to extend the
remaining economic useful lives of videocassette rental
tapes acquired. Replacement cost for bulk purchases of
used tapes is significantly less than the cost of new tape
purchases. As a result, future amortization relating to
these tapes, on a per tape basis, will be significantly
less than the amortization relating to new tape purchases.
In addition, to the extent the acquired tapes have book
values lower than newly purchased tapes, sales of the
acquired tapes should result in higher operating income
than sales of new tape purchases. These favorable effects
resulting from purchase accounting will diminish with the
passage of time and will not extend beyond the three year
period subsequent to acquisition which is the period over
which these tapes will be amortized. The Company believes
that there will be no changes to future revenue associated
with base stock inventory acquired and therefore there is
no corresponding pro forma adjustment to revenue
necessary. The Company believes that its method of
amortization, as well as that of the entities being
acquired, results in an appropriate matching of tape
amortization expense with the revenue received from the
associated rental of such tapes........................... $ 3,843 $ 1,161
------- -------
b. To conform classification used by a Seller for cost of
previously viewed tape sales with those used by the Company
(see corresponding adjustment 6(b))....................... $ (589) $ (492)
------- -------
$ 3,254 $ 669
======= =======
(8) Adjustment consists of the following (in thousands):
a. To record the change in historical compensation, including
fringe benefits related to owners of certain entities to be
acquired. (In negotiating the Recent Acquisitions,
employment agreements were entered into in those specific
instances where an owner was to be retained. In all other
situations, the asset purchase agreements specifically
exclude employment reference as such individuals will not
be employed by the Company. The net adjustment includes
$330 for the year ended January 31, 1996 and $75 for the
six months ended July 31, 1996 related to those owners to
be retained at lower compensation levels and $215 for the
year ended January 31, 1996 and $0 for the six months
ended July 31, 1996 related to those owners not to be
retained.) ............................................... $ 545 $ 75
</TABLE>

S-15
<PAGE> 16

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JANUARY 31, ENDED
1996 JULY 31,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
b. To record the elimination of historical compensation and
related fringe benefits totaling $1,047 for the year ended
January 31, 1996 and $248 six months ended July 31, 1996,
and lease expense totaling $201 for the year ended January
31, 1996 and $11 for the six months ended July 31, 1996.
(The Company believes its pre- existing corporate
infrastructure is sufficient to handle the operations
being acquired without retaining certain general and
administrative employees of certain entities to be
acquired. As a result, the Company entered into agreements
with certain Sellers relating to the termination of
existing employees and the assumption of a lease
arrangement by the former owners upon acquisition.) ...... 1,248 259
c. To eliminate general and administrative costs included in
the historical financial statements of the Sellers relating to
a business not acquired in association with the Prior
Acquisitions.............................................. 56 --
------- -------
$ 1,849 $ 334
======= =======
(9) Adjustment consists of the following (in thousands):
a. To record goodwill amortization relating to the excess of
the estimated purchase price, including related acquisition
costs, over the estimated fair value of assets acquired in
the Recent Acquisitions and the Pro Forma Prospective
Acquisition (20 years on a straight-line basis)........... $ 4,081 $ 1,296
b. To record the amortization of intangibles, principally
franchise agreements, resulting from the acquisition of the
WCEI Companies (15 years on a straight-line basis)........ 190 0
------- -------
$ 4,271 $ 1,296
======= =======
(10) Adjustment consists of the following (in thousands):
a. To eliminate historical interest expense due to the
partial use of offering proceeds to extinguish outstanding
borrowings................................................ $ 1,502 $ 572
b. To record interest expense related to borrowings under the
Credit Facility at the lending bank's base rate (7% at January
31, 1996 and July 31, 1996)............................... (923) (372)
------- -------
$ 579 $ 200
======= =======
(11) Adjustment consists of the following (in thousands):
- To eliminate minority shareholder interest acquired as part
of the Recent Acquisitions.................................... $ 62 $ 27
======= =======
(12) Adjustment consists of the following (in thousands):
a. To reflect the estimated effect on the income tax
provision as if the Prior, Recent and Pro Forma Prospective
Acquisitions had been taxed as C corporations. ........... $ 1,028 $ 719
b. To reflect the income tax effect on the pro forma
adjustments (4) through (11) above at an effective tax rate of
39%, exclusive of non-deductible goodwill totaling $1,389
for the year ended January 31, 1996 and $695 for the six
months end July 31, 1996 ................................. 2,620 639
------- -------
$ 3,648 $ 1,358
======= =======
</TABLE>

S-16
<PAGE> 17

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JANUARY 31, ENDED
1996 JULY 31,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
(13) Unaudited pro forma income before extraordinary item per share
has been calculated for the year ended January 31, 1996 and
the six month period ended July 31, 1996 by dividing the
unaudited pro forma income before extraordinary item amount by
the weighted average number of shares of common stock
outstanding (4,756,000 at January 31, 1996 and (7,957,000)
July 31, 1996). Unaudited pro forma income before
extraordinary item reflects an adjustment to the consolidated
statement of operations to give effect to the Merger and the
0.340-for-1 reverse stock split as if they had occurred as of
February 1, 1992. Accordingly, the pro forma income tax
provision and pro forma income before extraordinary item have
been calculated as if each entity included in the consolidated
statement of operations had been included in the Company's
consolidated income tax returns and subject to corporate
income taxation as a C Corporation during all periods
presented. In addition, shares to be issued as contingent
consideration in conjunction with the Recent Acquisitions have
been considered outstanding since May 17, 1996.
(14) Unaudited pro forma income per share for the year ended
January 31, 1996 and the six month period ended July 31, 1996
have been calculated by dividing unaudited pro forma income by
the pro forma weighted average number of shares of Common
Stock outstanding after giving effect to (i) the Merger, (ii)
the issuance of shares upon formation of the Company, (iii)
the 0.340-for-1 reverse stock split and the shares issued in
conjunction with the Public Offering, (iv) the shares issued
and to be issued in conjunction with the Recent Acquisitions,
(v) repayment of all existing outstanding debt, (vi)
borrowings under the Credit Facility, (vii) the impact of the
Warrant and a portion of the Convertible Note, (viii) the
assumed election by a Seller to convert the Indebtedness
incurred in association with the August 1996 Acquisition into
shares of Common Stock and (ix) issuance of shares in
connection with the Pro Forma Prospective Acquisition (as
defined under "Unaudited Pro Forma Combined Condensed
Financial Statements"), as if all activity occurred as of
February 1, 1995. See Notes 1 and 7 to the Company's
consolidated financial statements. The pro forma weighted
average number of common shares used to calculate pro forma
income per share at January 31, 1996 and July 31, 1996, was
12,779,080.
</TABLE>

S-17
<PAGE> 18

SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

The selected historical financial data presented under the captions
Statement of Operations Data for the six month periods ended July 31, 1995 and
1996, and Balance Sheet data at July 31, 1996 have been derived from unaudited
consolidated financial statements of the Company, appearing elsewhere herein.
The selected historical financial data presented under the captions Statement of
Operations Data for the three years ended January 31, 1996, and Balance Sheet
Data at January 31, 1996 and January 31, 1995 have been derived from the
Company's consolidated financial statements, appearing in the Original
Prospectus, which were audited by Price Waterhouse LLP. The selected historical
financial data presented under the captions Statement of Operations Data for the
year ended January 31, 1993 and Balance Sheet Data at January 31, 1994 and
January 31, 1993, have been derived from the Company's consolidated statement of
operations and balance sheet, which were audited by Price Waterhouse LLP and not
included in this Supplement or the Original Prospectus. The selected historical
financial data presented under the captions Statement of Operations Data and
Balance Sheet Data at and for the year ended January 31, 1992 have been derived
from unaudited financial statements of the Company which have not been included
in this Supplement or the Original Prospectus. The unaudited pro forma financial
data presented under the captions Statement of Operations Data and Balance Sheet
Data at and for the year ended January 31, 1996, and at and for the six month
period ended July 31, 1996 have been derived from the unaudited pro forma
combined condensed financial statements, appear elsewhere herein. The unaudited
pro forma combined financial data do not purport to represent what the Company's
results of operations and financial position would actually have been had the
Recent Acquisitions, the Public Offering, or the Pro Forma Prospective
Acquisition actually occurred at the dates indicated, or to project the
Company's results of operations or financial position for any future period. The
Selected Historical and Pro Forma Combined Financial Data set forth below should
be read in conjunction with the financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Unaudited Pro Forma Combined Condensed Financial Statements"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 31
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------- ------ -------
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 921 $1,120 $2,520 $6,503 $14,719 $5,510 $22,399
Operating costs and expenses............ 995 1,225 2,564 6,118 13,503 5,113 19,672
------ ------ ------ ------ ------- ------ ------
Operating income (loss)................. (74) (105) (44) 385 1,216 397 2,727
Interest expense, net and other......... 26 45 42 118 640 137 440
------ ------ ------ ------ ------- ------ ------
Income (loss) before income taxes and
extraordinary item.................... (100) (150) (86) 267 576 260 2,287
Income taxes (benefit).................. -- -- (14) 63 242 96 1,003
------ ------ ------ ------ ------- ------ ------
Income (loss) before extraordinary
item.................................. $ (100) $ (150) $ (72) $ 204 $ 334 164 1,284
====== ====== ====== ====== ======= ====== ======
Pro forma income (loss) before
extraordinary item per share.......... $(0.35)(2) $(0.36)(2) $(0.07)(2) $ 0.12(2) $ 0.06(2) $ 0.16(2) $ 0.03(2)
OTHER DATA:
Depreciation and amortization(4)........ $ 512 $ 418 $ 870 $1,628 $ 2,585 $1,187 $ 4,563
Purchases of videocassette rental
inventory............................. 232 471 685 1,430 2,002 1,065 5,395
STORE DATA:
Increase (decrease) in same store
revenue(5)............................ -- 14.9% (6.1)% 14.2% 4.8% 0.5% 0.6%
Company-owned stores at end of period... 6 8 14 28 28 28 201
Franchised stores at end of period...... -- -- -- -- 304 307 295
------ ------ ------ ------ ------- ------ ------
Total stores at end of period........... 6 8 14 28 332 335 496
====== ====== ====== ====== ======= ====== ======

PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
JAN. 31, 1996 JULY 31, 1996
------------- -------------

<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $92,796 $48,797
Operating costs and expenses............ 82,634 41,953
------- -------
Operating income (loss)................. 10,162 6,844
Interest expense, net and other......... 97 591
------- -------
Income (loss) before income taxes and
extraordinary item.................... 10,065 6,253
Income taxes (benefit).................. 4,461 2,744
------- -------
Income (loss) before extraordinary
item.................................. $ 5,604 $ 3,509
======= =======
Pro forma income (loss) before
extraordinary item per share.......... $ .44(3) $ .27(3)
OTHER DATA:
Depreciation and amortization(4)........ $22,134 $10,918
Purchases of videocassette rental
inventory............................. 20,361 11,449
STORE DATA:
Increase (decrease) in same store
revenue(5)............................ 1.5% 0.6%
Company-owned stores at end of period... 216 220
Franchised stores at end of period...... 310 295
------- -------
Total stores at end of period........... 526 515
======= =======
</TABLE>

(footnotes on following page)

S-18
<PAGE> 19

<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------
PRO FORMA(1)
JANUARY 31, ------------
------------------------------------------------ JULY 31, JULY 31,
1992 1993 1994 1995 1996 1996 1996
----- ----- ----- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents......... $ -- $ 23 $ 12 $ 45 $ 611 $ 2,335 $ 2,104
Videocassette rental inventory,
net............................. 67 162 388 1,464 1,509 15,265 16,089
Total assets...................... 216 360 770 3,631 16,515 107,492 120,387
Long-term debt, less current
portion......................... 328 302 332 738 7,101 4,502 13,413
Total liabilities................. 656 906 1,338 3,266 15,972 20,350 29,326
Stockholders' equity.............. (440) (546) (568) 365 543 87,142 91,061
</TABLE>

(2) Unaudited pro forma income (loss) before extraordinary item per share has
been calculated for each of the years in the five year period ended January
31, 1996 and for each of the six month periods ended July 31, 1995 and 1996
by dividing the respective unaudited pro forma income (loss) before
extraordinary item amounts by the weighted average number of shares of
common stock outstanding (289,000, 418,000, 843,000, 1,693,000 and
4,756,000, as of January 31, 1992, 1993, 1994, 1995 and 1996, respectively
and 4,756,000 as of July 31, 1995 and 1996). Unaudited pro forma income
(loss) before extraordinary item reflects an adjustment to the consolidated
statement of operations to give effect to the Merger and the 0.340-for-1
reverse stock split as if they had occurred as of February 1, 1992.
Accordingly, the pro forma income tax provision (benefit) and pro forma
income (loss) before extraordinary item have been calculated as if each
entity included in the consolidated statement of operations had been
included in the Company's consolidated income tax returns and subject to
corporate income taxation as a C Corporation during all periods presented.

(3) Unaudited pro forma income per share for the year ended January 31, 1996 and
the six month period ended July 31, 1996 have been calculated by dividing
unaudited pro forma income by the pro forma weighted average number of
shares of Common Stock outstanding after giving effect to (i) the Merger,
(ii) the issuance of shares upon formation of the Company, (iii) the
0.340-for-1 reverse stock split and the shares issued in conjunction with
the Public Offering, (iv) the shares issued and to be issued in conjunction
with the Recent Acquisitions, (v) repayment of all existing outstanding
debt, (vi) borrowings under the Credit Facility, (vii) the impact of the
Warrant and a portion of the Convertible Note, (viii) the assumed election
by Seller to convert the Indebtedness incurred in association with the
August 1996 Acquisition into shares of Common Stock and (ix) issuance of
shares in connection with the Pro Forma Prospective Acquisition (as defined
under "Unaudited Pro Forma Combined Condensed Financial Statements"), as if
all activity occurred as of February 1, 1995. See Notes 1 and 7 to the
Company's consolidated financial statements. The pro forma weighted average
number of common shares used to calculate pro forma income per share at
January 31, 1996 and July 31, 1996, was 12,779,080.

(4) The Company's policy is that videocassette rental inventory, which includes
video games, is stated at cost and is amortized over its estimated economic
life with no provision for salvage value. Videocassettes that are considered
base stock are amortized over 36 months on a straight-line basis. New
releases are amortized as follows: the first through third copies of each
title per store are amortized as base stock and succeeding copies of each
title per store are amortized over nine months on a straight-line basis.

(5) Same store revenue is defined as the aggregate revenues from Company-owned
stores open for the entirety of the periods being compared. Increase
(decrease) reflects change from prior fiscal year.

S-19
<PAGE> 20

UPDATES TO "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"

The following portions of the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Original
Prospectus are hereby updated and revised as follows:

OVERVIEW

Since 1989, the Company has experienced rapid growth in revenue primarily
as a result of acquiring video specialty store chains, opening new stores and
increasing existing store revenues. The number of stores owned and operated by
the Company increased from one at June 30, 1989 to 28 at January 31, 1996, while
during the same period the number of franchised stores increased from none to
304. Until 1993, all of the Company's stores were located in Ohio. After
acquiring the Videosmith(R) chain in 1994, the Company owned and operated stores
in Ohio and Massachusetts. In 1995, the acquisition of the franchise-related
operating assets of the WCEI Companies provided the Company with 305 franchised
stores located principally in Pennsylvania, New Jersey, Illinois, Maryland,
Massachusetts, Ohio and Florida as well as purchasing, management information
and retail operations systems developed specifically to manage video specialty
stores. Upon consummation of the Recent Acquisitions, the Company owned and
operated 200 stores and was the franchisor of 303 stores. The Recent
Acquisitions significantly increased the number of stores in Pennsylvania, Ohio,
New Jersey and New York and expanded the Company's stores to a total of 25
states. Consummation of the Prospective Acquisitions in September 1996 or
October, together with the August 1996 Acquisition, will have increased the
number of stores in New Jersey, Ohio, Kentucky and Louisiana.

Historically, the Company's revenues have been derived primarily from the
rental of videocassettes and video games together with sales of previously
viewed videocassettes, ("rental revenues"), while lesser amounts have been
derived from payments from franchisees ("franchise fees") and sales of
videocassettes, miscellaneous merchandise and other sales ("merchandise and
other sales"). Acquisitions of franchised stores and stores with differing
levels of merchandise and other sales compared with rental revenues have had,
and may in the future have, an effect on the Company's mix of revenue
components. See "-- Pro Forma Results of Operations." The Company believes that
convenience, selection, customer service, weather and, to a lesser extent, price
are the most significant factors in determining rental volumes. Significant
increases in rental revenues largely depend upon the appeal of new releases
coming from motion picture producers and video game developers. Management plans
and executes various buying, marketing and operating strategies so as to take
maximum advantage of those competitive factors which are under its control. The
Company receives franchise fee payments monthly in arrears from its
approximately 300 franchised stores. The franchise fee payment due from each
franchisee is equal to 7% of the aggregate revenues from all of the franchisee's
stores for the prior month, of which 2% of such aggregate revenues has been
devoted to paying marketing and advertising costs. Merchandise and other sales
are derived primarily from new videocassettes sold directly to customers, sales
of supplies to franchisees, video game sales and the sale of confectionery and
other movie-related merchandise.

Store operating expenses generally consist of expenses incurred at the
store level, including amortization of videocassette and video game rental
inventory, personnel expense, lease expense and utility expense and
depreciation. For purposes of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," videocassette and video game
rental inventory amortization expense has been removed from store operating
expenses and discussed separately. Videocassette and video game rental inventory
amortization expense is a substantial component of total expenses and will vary
depending on the amortization policy adopted. The Company's policy is to state
videocassette rental inventory, which includes video games, at cost and amortize
inventory over its estimated economic life with no provision for salvage value.
Videocassettes that are base stock are amortized over 36 months on a
straight-line basis. New release videocassettes are amortized as follows: the
first through third copies of each title per store are amortized as base stock
and succeeding copies of each title per store are amortized over nine months on
a straight-line basis. The Company believes that its method of amortization, as
well as that of the entities being acquired, results in an appropriate matching
of tape amortization expense with the revenue received from the associated
rental of such tapes.

Cost of sales is a smaller component of total expenses consisting primarily
of costs associated with purchasing videocassettes to be sold directly to
customers, supplies to be sold to franchisees, video games and confectionery
items. General and administrative expenses are non-store level expenses and
include general corporate expenses such as marketing and advertising, personnel,
administration, legal and accounting and

S-20
<PAGE> 21

amortization expenses. These functions are primarily performed at the Company's
headquarters in Philadelphia, Pennsylvania.

Intangible assets are primarily comprised of franchise rights and goodwill.
Franchise rights are amortized on a straight-line basis over 15 years, the
estimated remaining economic life of such rights. Goodwill is amortized on a
straight-line basis over 20 years.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, on a historical
basis and on a pro forma basis, statement of operations data and other data
expressed as a percentage of total revenue and the number of stores open at the
end of each period.

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------ PRO FORMA
SIX MONTHS ---------------------------
ENDED SIX MONTHS
YEAR ENDED JANUARY 31, JULY 31, YEAR ENDED ENDED JULY
------------------------ -------------- JANUARY 31, 31,
1994 1995 1996 1995 1996 1996 1996
----- ----- ----- ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues...................... 89.2% 86.2% 62.6% 81.9% 77.6% 79.0% 82.6%
Franchise fees....................... -- -- 21.8 6.1 10.3 6.8 4.1
Merchandise and other sales.......... 10.8 13.8 15.6 12.0 12.1 14.2 13.3
----- ----- ----- ----- ----- ----- -----
Total.............................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Operating costs and expenses:
Store operating expenses(1).......... 51.7 52.7 42.3 55.6 40.2 42.6 42.0
Cost of sales........................ 1.7 5.9 9.4 5.1 8.0 9.2 7.8
Amortization of videocassette and
video game rental inventory(2)..... 31.1 22.1 13.4 17.6 14.3 17.7 17.0
General and administrative........... 17.2 13.4 24.9 14.1 20.9 14.6 14.4
Intangible amortization.............. -- -- 1.7 .4 4.4 5.0 4.8
----- ----- ----- ----- ----- ----- -----
Total.............................. 101.7 94.1 91.7 92.8 87.8 89.1 86.0
----- ----- ----- ----- ----- ----- -----
Operating income (loss).............. (1.7) 5.9 8.3 7.2 12.2 10.9 14.0
Non-operating (income) expense,
net................................ 1.7 1.8 4.4 2.5 2.0 0.1 1.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item................. (3.4) 4.1 3.9 4.7 10.2 10.8 12.8
Provision (benefit) for income
taxes.............................. (0.5) 1.0 1.6 1.7 4.5 4.8 5.6
----- ----- ----- ----- ----- ----- -----
Income (loss) before extraordinary
item............................... (2.9)% 3.1% 2.3% 3.0% 5.7% 6.0 7.2%
===== ===== ===== ===== ===== ===== =====
OTHER DATA:
Purchases of videocassette rental
inventory.......................... 27.2% 22.0% 13.6% 19.3% 24.1% 21.9% 23.5%
STORE DATA:
Increase (decrease) in same store
revenue(3)......................... (6.1)% 14.2% 4.8% 0.5% 0.6% 1.5% 0.6%
Company-owned stores open at end of
period............................. 14 28 28 28 201 216 220
Franchised stores open at end of
period............................. -- -- 304 307 295 310 295
----- ----- ----- ----- ----- ----- -----
Total stores open at end of period... 14 28 332 335 496 526 515
===== ===== ===== ===== ===== ===== =====
</TABLE>

- ---------------
(1) Exclusive of amortization of videocassette and video game rental inventory.

(2) The Company's tape amortization policy requires that videocassette rental
inventory, which includes video games, is stated at cost and is amortized
over its estimated economic life with no provision for salvage value.
Videocassettes that are considered base stock are amortized over 36 months
on a straight-line basis. New releases are amortized as follows: the first
through third copies of each title per store are amortized as base stock and
succeeding copies of each title per store are amortized over nine months on
a straight-line basis.

(3) Same store revenue is defined as the aggregate revenues from Company-owned
stores open for the entirety of the periods being compared. Increase
(decrease) reflects change from prior fiscal year, or equivalent three month
period.

S-21
<PAGE> 22

PRO FORMA RESULTS OF OPERATIONS

Pro forma results of operations are not necessarily indicative of what the
Company's results of operations would have been had the Company actually made
the Recent Acquisitions or the Pro Forma Prospective Acquisition reflected in
the Pro Forma Statement of Operations Data on the dates indicated, nor do they
purport to project future results of operations. Any significant acquisitions in
future periods could impact the future mix of rental revenues, franchise fees
and merchandise and other sales and (because each such component of revenues
involves different types of expenses) the future mix of expenses and the
Company's operating margins. See "Risk Factors -- Acquisition Risks."

Revenues. Rental revenues represented 79.0% and 82.6% of pro forma total
revenues for the year ended January 31, 1996 and for the six months ended July
31, 1996, respectively, as compared with 62.6% and 77.6% of historical total
revenues for the same periods. Merchandise and other sales represented 14.2% and
13.3%, respectively, of total revenues for the year ended January 31, 1996 and
for the six months ended July 31, 1996, respectively, on a pro forma basis as
compared with 15.6% and 12.1%, respectively, on a historical basis and franchise
fees represented 6.8% and 4.1% of total revenues on a pro forma basis for the
year ended January 31, 1996 and for the six months ended July 31, 1996,
respectively, as compared with 21.8% and 10.3%, respectively, on a historical
basis. These differences reflect the fact that the primary revenue source for
the businesses acquired in the Recent Acquisitions and the August 1996
Acquisition and the business to be acquired in the Pro Forma Prospective
Acquisition is rental revenue. The Company believes that future Acquisitions, if
any, of owned and operated stores (particularly Acquisitions of existing West
Coast Video(R) franchised stores) should increase rental revenues as a
percentage of total revenues.

Store Operating Expenses. Store operating expenses represented 42.6% and
42.0%, respectively, of pro forma total revenues for the year ended January 31,
1996 and for the six months ended July 31, 1996, respectively, as compared with
42.3% and 40.2%, respectively, of historical total revenues for the same
periods. In the future, a change in the mix of the number of Company-owned and
franchised stores should result in a change in store operating expenses as a
percentage of total revenues, since franchising operations involve no store
operating expenses.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game inventory was 17.7% and
17.0% of total pro forma revenues for the year ended January 31, 1996 and for
the six months ended July 31, 1996, respectively, compared to 13.4% and 14.3%,
respectively, of historical total revenues for the same periods, because the
rental of purchased stocks of videocassettes and video games constitutes a
larger component of the Company's business on a pro forma basis than on an
historical basis. Pro forma and historical amortization of videocassette and
video game rental inventory as a percentage of rental revenue were approximately
the same within each period.

General and Administrative Expenses. General and administrative expenses
were 14.6% and 14.4% of pro forma total revenues for the year ended January 31,
1996 and for the six months ended July 31, 1996, respectively, as compared with
24.9% and 20.9%, respectively, of total historical revenues during the same
periods. This difference was due primarily to a consolidation of the
administrative function on a pro forma basis so that the incremental increase in
revenues was greater than the incremental increase in general and administrative
costs. The Company believes that its current general and administrative
infrastructure can support additional Acquisitions without major augmentation
which should result in improving general and administrative expense margins.

Income before extraordinary item. Income before extraordinary item was
6.0% and 7.2% of revenues on a pro forma basis for the year ended January 31,
1996 and for the six months ended July 31, 1996, respectively, as compared with
2.3% and 5.7%, respectively, for the Company historically during the same
periods. This difference was due primarily to the expected economies of scale on
a pro forma basis compared to the Company's current operations.

HISTORICAL RESULTS OF OPERATIONS FOR THE COMPANY

The Company's revenues constituted 15.9% and 45.9% of pro forma combined
total revenues for the fiscal year ended January 31, 1996 and for the six months
ended July 31, 1996, respectively.

S-22
<PAGE> 23

SIX MONTHS ENDED JULY 31, 1996 COMPARED TO SIX MONTHS ENDED JULY 31, 1995

Revenues. Revenues increased $16.9 million, or 307.3%, from $5.5 million
for the six months ended July 31, 1995 to $22.4 million for the six months ended
July 31, 1996. Of this increase approximately $2.9 million was contributed by
the franchise business which was acquired by the Company on July 12, 1995 and
which was therefore included in the Company's accounts for all six months of
1996 but less than one month in 1995. An additional $13.7 million of revenues
was contributed by the 172 video rental stores purchased on May 17, 1996 from
the proceeds of the Offering. The remaining increase of $0.3 million of revenues
is due to sales increases in stores owned by the Company prior to the 172 stores
acquired on May 17, 1996.

Rental revenues increased $12.9 million, or 286.7%, from $4.5 million for
the six months ended July 31, 1995 to $17.4 million for the six months ended
July 31, 1996, primarily due to $12.6 million of rental revenues contributed by
the 172 video rental stores purchased on May 17, 1996. The remaining increase in
rental revenues of $0.3 million is due to rental increases of the stores owned
by the Company prior to the 172 stores acquired on May 17, 1996 for a full six
months in both 1995 and 1996.

Franchise fee revenues increased $2.0 million, or 666.7%, from $0.3 million
for the six months ended July 31, 1995 to $2.3 million for the six months ended
July 31, 1996 due to the acquisition of the franchise business on July 12, 1995
and which was therefore included in the Company's accounts for all six months in
1996 but only for 19 days in 1995.

Merchandise and other sales increased $2.0 million, or 285.7%, from $0.7
million for the six months ended July 31, 1995 to $2.7 million for the six
months ended July 31, 1996, primarily due to $1.1 million of merchandise and
other sales contributed by the 172 video rental stores purchased on May 17,
1996. The remaining difference of $0.9 million relates to the franchise business
whose merchandise and other sales only contributed 19 days of revenues in 1995
as compared to all 6 months in 1996.

Store Operating Expenses. Store operating expenses net of amortization of
videocassette rental inventory decreased $6.0 million, or 200.0%, from $3.0
million for the six months ended July 31, 1995 to $9.0 million for the six
months ended July 31, 1996. As a percentage of total revenues, store operating
expenses decreased 14.3 percentage points from 54.5% for the six months ended
July 31, 1995 to 40.2% for the six months ended July 31, 1996. In addition, as a
percentage of rental revenues and merchandise and other sales (excluding
franchise fees), store operating costs decreased 12.9 percentage points from
57.7% for the six months ended July 31, 1995 to 44.0% for the six months ended
July 31, 1996. This reflects lower operating costs as a percent of revenue for
the 172 video rental stores purchased on May 17, 1996. In addition, the
franchise business contributed $3.2 million of total revenues ($2.3 million of
franchise fees and $0.9 million of merchandise and other sales) during the
period which involve virtually no store operating expenses.

Cost of Sales. Cost of sales increased $1.5 million, or 500.0%, from $0.3
million for the six months ended July 31, 1995 to $1.8 million for the six
months ended July 31, 1996, primarily as a result of an increase in sales of
merchandise and other sales due to the acquisition of the franchise business on
July 12, 1995 and the acquisition on May 17, 1996 of 172 video rental stores. As
a percentage of merchandise and other sales, cost of sales increased by 23.8
percentage points from 42.9% for the six months ended July 31, 1995 to 66.7% for
the six months ended July 31, 1996. This was primarily due to the acquisition of
the franchise business which had an increase in merchandise sales of $0.9
million for the six month period ended July 31, 1996 as compared to the 19 days
the franchise business was owned during the six month period ended July 31,
1995. Sales to franchisees are made at substantially lower margins. For the six
months ended July 31, 1996, sales to franchisees represented 34.4% of all
merchandise and other sales as compared to 4.8% for the six months ended July
31, 1995.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
increased by $2.2 million, or 220.0%, from $1.0 million for the six months ended
July 31, 1995 to $3.2 million for the six months ended July 31, 1996, primarily
as a result of the acquistion of the 172 video rental stores which were acquired
on May 17, 1996. As a percentage of rental revenues this amortization decreased
3.8 percentage points from 22.2% for the six months ended July 31, 1995 to 18.4%
for the six months ended July 31, 1996. This is primarily due to the bulk
purchases of used tapes acquired in

S-23
<PAGE> 24

conjunction with the 172 video rental stores acquired on May 17, 1996 as more
fully explained in Note 4 to the Consolidated Financial Statements.

General and Administrative Expense. General and administrative expenses,
including intangible amortization, increased $4.9 million, or 612.5%, from $0.8
million for the six months ended July 31, 1995 to $5.7 million for the six
months ended July 31, 1996. As a percentage of total revenues, general and
administrative expenses increased 10.9 percentage points from 14.5% for the six
months ended July 31, 1995 to 25.4% for the six months ended July 31, 1996. A
significant part of the increases both in dollars and percentage of sales is due
to $1.0 million or a 0.5% increase in amortization of goodwill associated with
the July, 1995 acquisition of the franchise business and the May, 1996
acquisition of 172 video rental stores. The remaining dollar and percentage
increases are primarily related to the additional personnel and non-store
operating costs which were absorbed from the acquisitions of the 172 video
rental stores and the franchise business. General and administrative expenses of
the franchise business are historically higher than the video rental store
business because the principal cost of its business is the administrative cost
of providing support services to franchisees.

Non-Operating Expense. Net non-operating expense increased $0.3 million,
or 300.0%, from $0.1 million for the six months ended July 31, 1995 to $0.4
million for the six months ended July 31, 1996. Interest expense comprises
almost all of this net amount. As a percentage of total revenues, interest
expense increased 0.4 percentage points from 1.8% for the six months ended July
31, 1995 to 2.2% for the six months ended July 31, 1996. This increase is
attributable to additional interest expense incurred in connection with the
acquisitions of the franchise business and the acquisition of the 172 video
rental stores.

Extraordinary Item. For the six months ended July 31, 1996, the
extraordinary item increased $0.4 million ($0.2 million net of taxes) to $0.4
million. In conjunction with the early extinguishment of a portion of the
previously outstanding subordinated debt the Company was required by terms of
the note upon completion of the Offering to pay a prepayment penalty of $0.4
million.

Net Income. As a result of the foregoing, net income increased $0.8
million, or 400.0%, for the six months ended July 31, 1996 from $0.2 million for
the six months ended July 31, 1995.

HISTORICAL RESULTS OF OPERATIONS FOR PALMER VIDEO

Palmer Video's revenues constituted 25.2% and 14.5% of pro forma combined
total revenues for the fiscal year ended January 31, 1996 and for the six months
ended July 31, 1996, respectively.

HISTORICAL RESULTS OF OPERATIONS FOR RED GIRAFFE

The consolidated pro forma revenues of American Video, Inc. and Red Giraffe
Video, Inc. (as used in this section, "Red Giraffe") constituted 11.8% and 6.9%
of pro forma combined total revenues for the year ended January 31, 1996 and for
the six months ended July 31, 1996, respectively.

LIQUIDITY AND CAPITAL RESOURCES

THE COMPANY

For the six months ended July 31, 1996, the Company had net cash provided
by operating activities of $4.9 million, net cash used in investing activities
of $60.5 million (consisting primarily of cash used to purchase videocassette
rental inventory of $5.4 million, and $54.9 million of net cash paid for the
acquisitions of new video rental stores acquired on May 17, 1996) and net cash
provided by financing activities of $57.7 million (consisting of net repayment
of debt of $9.2 million offset by 4.5 million net borrowings from the Credit
Facility (as described below), $0.7 million in fees paid relating the Credit
Facility and $63.1 million in net proceedings from the issuance of Common Stock
(in the offering on May 14, 1996) resulting in a net increase in cash and cash
equivalents of $1.7 million.

S-24
<PAGE> 25

connection with certain acquisitions. On May 14, 1996 the Company raised net
proceeds of $63.1 million in the Offering, refinanced its outstanding bank debt
through the $65 million Credit Facility, paid down all of its other outstanding
indebtedness, and consummated the Recent Acquisitions (see "Business -- Recent
Acquisitions"), which it expects will increase its future flows of cash provided
by operating activities. The Company expects to meet its short-term liquidity
requirements through net cash provided by operations and borrowings under the
Credit Facility. Management believes that these sources of cash will be
sufficient to meet the Company's operating needs for at least the next 12
months.

The Company expects to finance the acquisition and development of
additional stores and the build-out of new stores and leasehold improvements in
acquired and new stores with cash provided by operations, seller financing,
issuance of additional equity shares and by accessing proceeds of the $65
million Credit Facility from PNC Bank, National Association, ("PNC Bank") (see
"Risk Factors -- Acquisition Risks -- Financing Growth Strategy"). The Company
expects to fund the Prospective Acquisitions by issuing approximately 412,605
shares of Common Stock at an assumed formula price of $10.71 per share, subject
to increase or decrease if the price determined under the pricing formula is
less or more than $10.71 per share, and by borrowing approximately $9.3 million
under the Credit Facility. The Credit Facility consists of a two-year revolving
credit facility followed by a three-year term loan. Borrowings under the
facility are available for working capital, capital expenditures, refinancing of
existing indebtedness and for certain permitted acquisition financing. The
maximum amount available for borrowing at any time will equal 2.75 times the
Company's operating cash flow (as defined for the purposes of the Credit
Facility) during the previous four quarters. At the Company's option, interest
rates will vary from either PNC Bank's base rate, as defined, to 1% above such
base rate, or from the Eurodollar rate, as defined, to 2.5% above such
Eurodollar rate, in each case depending on the ratio of the Company's total debt
to operating cash flow, as defined. Borrowings are secured by a first security
interest in substantially all of the Company's assets, including the stock of
its subsidiaries. Borrowings are subject to various conditions including
compliance with certain financial tests and ratios.

Build-out costs for new stores are expected to range from $200,000 to
$250,000 per store. The aggregate costs of converting acquired stores to West
Coast signage and format are expected to be approximately $2.3 million over an
18-month period ending in November 1997, with respect to the Recent Acquisitions
made in May, 1996, and in the case of the August 1996 Acquisition and the
Prospective Acquisitions are expected to be approximately $0.3 over the 18-month
periods following consummation of the August 1996 Acquisition and the
Prospective Acquisitions. The aggregate costs of upgrading West Coast's
management information systems and integrating acquired stores onto such systems
are expected to be approximately $0.9 million over the 18-month period ending in
November 1997. Over the next two years the Company will make additional payments
of cash and Common Stock, currently estimated for the purpose of the Company's
pro forma financial statements at $3.4 million in the aggregate, to the sellers
of 19 stores purchased in connection with the Recent Acquisitions at formulaic
purchase prices based on certain financial measurements for such stores in
future periods. The Company has options to purchase an additional four stores at
similar formulaic prices. Under certain cross-purchase and area development and
option agreements described in this Supplement under "Updates to Business," the
Company will be entitled to acquire (and, subject to certain conditions, will be
required to acquire, if the owners so elect) all of the assets of up to 35
stores operated or to be operated by such owners during a period commencing in
1997 and ending 2001. The purchase prices will be equal to specified multiples
of the stores' net operating cash flow; the purchase prices of four such stores
may be paid in cash or in shares of Common Stock, at the seller's election, and
the other purchase prices will be payable partly in cash and partly, at the
Company's election, in cash or in shares of Common Stock.

The Company may also seek additional debt financing or equity capital
through private or public offerings of securities. The availability of debt
financing or equity capital will depend upon prevailing market conditions, the
market price of the Common Stock and other factors over which the Company has no
control, as well as the Company's financial condition and results of operations.
The number of shares of Common Stock to be issued in connection with the
Prospective Acquisition will also be affected by such factors, since such number
will be determined in accordance with a formula based on trading prices of the
Common Stock. There can be no assurance that funds will be available in
sufficient amounts to finance the acquisition or opening of enough video
specialty stores to sustain the Company's recent rates of growth.

S-25
<PAGE> 26

Videocassette and interactive electronic entertainment product rental
inventories are treated as noncurrent assets under generally accepted accounting
principles because they are not assets which are reasonably expected to be
completely realized in cash or sold in the normal business cycle. Although the
rental of this inventory generates the major portion of the Company's revenue,
the classification of these assets as noncurrent results in their exclusion from
working capital. The aggregate amount payable for this inventory, however, is
reported as a current liability until paid and, accordingly, is included in the
computation of working capital. Consequently, the Company believes working
capital is not an appropriate measure of its liquidity. Due to the accounting
treatment of videocassette and interactive electronic entertainment products
rental inventory as a noncurrent asset, the Company expects to operate with a
working capital deficit following this offering.

PALMER VIDEO

Prior to its acquisition by West Coast in May 1996, Palmer Video financed
its operations primarily from internal cash flow and bank debt. The Company
assumed and repaid $0.9 million of outstanding liabilities of Palmer Video upon
consummation of the Recent Acquisition of Palmer Video.

RED GIRAFFE

Prior to its acquisition by West Coast in May 1996, Red Giraffe financed
its operations primarily from cash flows from operations and bank financing. The
Company assumed and repaid $2.7 million of Red Giraffe's outstanding long-term
debt upon consummation of the Recent Acquisition of Red Giraffe.

S-26
<PAGE> 27

PROSPECTIVE ACQUISITIONS

In September 1996, the Company expects to enter into definitive asset
purchase agreements with two selling groups (collectively, the "Prospective
Sellers") to acquire a total of 18 video specialty stores for aggregate
consideration (excluding costs related to the Prospective Acquisitions) of
$12,270,000, which is expected to consist of $7,831,000 payable in cash (or,
with respect to up to $400,000 of such amount, at the Company's election through
assumption of liabilities) and $4,419,000 payable in shares of Common Stock to
be valued in accordance with the average closing or bid and asked prices of
Common Stock on Nasdaq over a 15 trading-day period ending one to three trading
days before the closing date (approximately 412,605 shares if the formula price
is $10.71 per share; if the formula price is more or less than $10.71 per share,
the number of shares will be proportionately decreased or increased). The cash
portion of the purchase price will be financed with borrowings under the Credit
Facility. The terms of the Prospective Acquisitions were negotiated at arm's
length.

Stores to be Acquired. Set forth below is a brief description of the
Prospective Acquisitions:

<TABLE>
<CAPTION>
NUMBER OF
OWNED AND
OPERATED
NAMES OF SELLER(S) STORES LOCATIONS
- -------------------------------------------- --------- --------------------------------
<S> <C> <C>
Group of 15 entities under common control, Lyndhurst, Kearny, New Milford,
each doing business under the name Super Hillsdale, Hackensack, Wayne,
Video Stores ("Super Video").............. Bergenfield, Belleville,
14 Harrison, Rahway, Wallington,
Montclair, Park Ridge and
Emerson New Jersey
Reel Entertainment, Inc. ("Reel Baton Rouge, Lafayette, Lake
Entertainment")........................... 4 Charles and Hammond, Louisiana
--
Total............................. 18
</TABLE>

The 18 stores typically range in size from 2,300 to 5,800 square feet. The
leases for the stores generally do not vary in important respects from the
typical lease for the Company's existing stores.

Giving effect to the August 1996 Acquisition and the Prospective
Acquisitions, the Company will have owned and operated or franchised stores in
24 states and three foreign countries.

Consideration to be Paid. The following table sets forth the consideration
to be paid for the stores to be acquired in connection with the Prospective
Acquisitions:

<TABLE>
<CAPTION>
CASH COMMON STOCK
PROSPECTIVE -------------------- --------------------
SELLER AMOUNT %(1) AMOUNT %(1) TOTAL
- ------------------------------------- ---------- ----- ---------- ----- -----------
<S> <C> <C> <C> <C> <C>
Super Video.......................... $6,631,000 62.9% $3,919,000(3) 37.1% $10,550,000(2)
Reel Entertainment................... 1,200,000(4) 70.6 500,000(4) 29.4 1,700,000
---------- ---------- -----------
$7,831,000 $4,419,000 $12,250,000
</TABLE>

- ---------------

(1) Percentage of total consideration for each Prospective Acquisition
represented by the cash component and by the stock component, respectively.

(2) Subject to subsequent adjustment based upon proration for rental prepayments
and other prepaid expenses.

(3) One-third of these shares will be delivered six months after the closing
date of this Prospective Acquisition, one-third on the first anniversary of
the closing date and the remaining one-third 18 months after the closing
date. The consideration payable six months following the closing date, as
well as half of the consideration payable twelve months following the
closing date, will be subject to redetermination based on the closing price
of Common Stock on Nasdaq on such issuance date, if such closing price is
less than the originally determined average price. The additional
consideration to be paid to this Prospective

S-27
<PAGE> 28

Seller in such event would be payable, at the Company's election, in cash
and/or in shares of Common Stock valued for this purpose on the basis of the
subsequent closing price.

(4) One-quarter of the total amount of cash and one-quarter of the total amount
of stock will be delivered at the closing of each of the four stores. These
closings are currently expected to occur on or about October 1 and December
2, 1996 and March 3 and May 1, 1997. At its election, the Company may
substitute cash for stock at any or all of the closings for the four stores.

Financial statements for Super Video are contained elsewhere in this
Supplement. Certain pro forma data contained in this Prospectus has been
presented as of and for the Company's fiscal year ended January 31, 1996 and the
six months ended July 31, 1996. Included in this data is financial data of Super
Video as of and for the year ended December 31, 1995 and the six months ended
June 30, 1996.

S-28
<PAGE> 29

UPDATES TO "BUSINESS"

The following paragraphs are hereby added to the end of "Business - Recent
Acquisitions:"

On August 26, 1996, the Company acquired in the August 1996
Acquisition the assets of five video specialty stores located in Ohio and
Kentucky for $2.1 million in cash (exclusive of acquisition costs of $0.25
million), of which $1,240,000 was paid in cash at closing. The remaining
$840,000 is payable by delivery, on August 26, 1997, of an unsecured
promissory note of the Company bearing interest at a rate of 2% per annum
and payable in full, as to both principal and interest, on August 26, 2000,
subject to the right of the sellers to elect, prior to August 26, 1997, to
receive in lieu of such note shares of the Company's Common Stock valued
for this purpose at $9.23 per share. Such election may be made only within
ten days after delivery by the Company, on one or more dates selected by
the Company, of a current prospectus covering such stock.

The Company also entered into a cross purchase agreement with the
sellers of the five stores, under which the sellers have the right to
require the Company to buy, and the Company has the right to require the
sellers to sell, up to four additional stores operated or to be operated by
the sellers. Such options are exercisable at specified times between August
1997 and October 2000. The purchase prices for such additional stores will
be equal to 3.5 times their respective net operating cash flow (as defined)
for specified periods and will be payable by delivery of promissory notes
having terms that are substantially similar to those of the note described
above or, at the seller's election, exercisable in a similar manner to the
election described above, in shares of Common Stock valued for this purpose
at $9.23 per share.

Financial statements for the former owners of the stores acquired in
the August 1996 Acquisition are contained elsewhere in this Supplement.

The following paragraph is added as the new penultimate paragraph of
"Business -- Franchising":

In September 1996 the Company expects to enter into an area
development agreement and a related option agreement with respect to a
total of up to 31 franchised stores to be located in Louisiana. The
developer, which will have exclusive rights to a defined territory in the
Louisiana area, will pay the Company $225,000 upon execution of the
agreements and will pay up to an additional $26,000 as stores are opened.
The option agreement is expected to give the Company the right to acquire,
at specified times, the assets of specified numbers of the franchised
stores, during a 39-month period commencing on October 1, 1998, at a
purchase price equal to approximately 4.5 times the stores' aggregate net
operating cash flow, as defined in the option agreement. A portion of each
of such purchase prices, equal to the lesser of $2.0 million or 50% of such
purchase price, will be payable in cash and the balance will be payable, at
the Company's election, in cash or in shares of Common Stock. The price to
be used in calculating the number of shares to be issued will be the
average closing price of Common Stock over the 15 trading day period ending
on the third trading day prior to the closing date of the store in
question. Subject to the satisfaction of certain conditions, the area
development agreement also gives the franchisees the right, during a
39-month period commencing on April 1, 1998, to require the Company to
acquire between ten and 31 of such stores at specified times at the same
price and on the same terms as described above.

S-29
<PAGE> 30

UPDATES TO "RESALES"

The following paragraph is added to the "Resales" section of the Original
Prospectus:

The shares to issued at the four successive closings of the
Prospective Acquisition of Reel Entertainment will be subject to
restrictions on resale for six, three, six and three months, respectively,
so that such shares are currently expected to become freely tradable in
equal installments on or about March 2, April 1, August 1 and September 3,
1997. All shares to be issued in connection with the Prospective
Acquisition of Super Video and the August 1996 Acquisition will be issued
in installments ranging from six to 18 months following closing and may be
freely resold commencing on the respective dates of issuance. Any shares to
be issued upon consummation of the purchase of any of up to 31 stores
pursuant to the option agreement with Reel Entertainment will become freely
tradable in six equal installments on the closing date for such stores and
three, six, nine, twelve and 15 months thereafter.

UPDATES TO "EXPERTS"

The following paragraphs are added to the "Experts" Section of the original
Prospectus:

The financial statements of the sellers in the August 1996 Acquisition
(JJ Video, Inc., Picture Show Video, Inc., Picture Show Video #4, Inc.,
Picture Show Video -- Gardenside, Inc. and Picture Show Video --
Winchester, Inc.) have been included herein and will be included in the
Registration Statement in reliance on the report of Messrs. Switzer,
McGaughey & Company, P.S.C., certified public accountants, as of the dates
and for the periods indicated in their reports appearing elsewhere herein,
and on the authority of said firm as experts in auditing and accounting.

The combined financial statements of Large Corporation, Lyndhurst
Video Inc., Kearny Video Inc., New Milford Video Inc., Hillsdale Video
Inc., Hack Video Inc., Bell Video Inc., Bergen Video Inc., Harris Video
Inc., Rahway Video Inc., Wall Video Inc., Mont Video Inc., Super Video of
Park Ridge, Inc., Emerson Video LLC and Super Video Mgt. Co. (members of
the Super Video group) have been included herein and will be included in
the Registration Statement in reliance on the reports of KPMG Peat Marwick
LLP, independent certified public accountants, as of the dates and for the
periods indicated in their reports appearing elsewhere herein and on the
authority of said firm as experts in auditing and accounting.

PRICE RANGE OF COMMON STOCK; DIVIDENDS

The Company's Common Stock has traded on Nasdaq's National Market System
under the symbol "WCEC" since May 14, 1996. The Company believes that
approximately three dealers are engaged in making a market in the Company's
Common Stock. The following table sets forth, for the fiscal period indicated,
the high and low sales prices for the Company's Common Stock as reported by
Nasdaq.

<TABLE>
<CAPTION>
SALE PRICES
-------------
FISCAL YEAR ENDING JANUARY 31, 1997 HIGH LOW
---------------------------------------------------------------------- ---- ----
<S> <C> <C>
Second Quarter
(from May 14, 1996 through July 31, 1996)........................... 13 1/2 9 1/4
Third Quarter
(from August 1, 1996 through August 31, 1996)....................... 10 1/4 7 5/8
</TABLE>

There were approximately 51 record owners of the Company's Common Stock as
of September 9, 1996. The last reported sales price for the Common Stock on
Nasdaq on September 20, 1996 was $9.25 per share

For the foreseeable future, the Company expects to retain its earnings to
finance the expansion and development of its business. The payment of dividends
is within the discretion of the Company's Board of Directors and will depend on
the earnings, capital requirements, restrictions in future credit agreements and
the operating and financial condition of the Company, among other factors. The
Credit Facility contains a covenant prohibiting the payment of dividends without
the lender's consent. There can be no assurance that the Company will ever pay
dividends in the future.

S-30
<PAGE> 31

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE REGISTRANT
West Coast Entertainment Corporation
Interim Financial Statements........................................................ F-2
PROSPECTIVE ACQUISITION
Large Corporation, Lyndhurst Video Inc., Kearny Video Inc., New Milford Video Inc.,
Hillsdale Video Inc., Hack Video Inc., Bell Video Inc., Bergen Video Inc., Harris
Video Inc., Rahway Video Inc., Wall Video Inc., Mont Video Inc., Super Video of Park
Ridge, Inc., Emerson Video, LLC and Super Video Mgt. Co.
Independent Auditors' Report........................................................ F-8
Combined Balance Sheets............................................................. F-9
Combined Statements of Income....................................................... F-10
Combined Statements of Stockholders' Equity (Deficit)............................... F-11
Combined Statements of Cash Flows................................................... F-12
Notes to Combined Financial Statements.............................................. F-13
Interim Combined Financial Statements............................................... F-20
AUGUST 1996 ACQUISITION
JJ Video, Inc., Picture Show Video, Inc., Picture Show Video #4, Inc., Picture Show
Video-Gardenside, Inc. and Picture Show Video-Winchester, Inc.
Independent Accountants' Report..................................................... F-24
Combined Balance Sheets............................................................. F-25
Combined Income Statement........................................................... F-26
Combined Statement of Stockholders' Equity.......................................... F-27
Combined Statement of Cash Flow..................................................... F-28
Notes to the Combined Financial Statements.......................................... F-29
Interim Financial Statements........................................................ F-33
</TABLE>

F-1
<PAGE> 32

WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR PAR VALUE)

<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1996 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents.................................. $ 2,335 $ 611
Accounts receivable........................................ 1,470 1,085
Merchandise inventory...................................... 2,752 504
Prepaid expenses and other current assets.................. 841 151
-------- --------
Total current assets.................................. 7,398 2,351
Videocassette rental inventory, net of amortization............. 15,265 1,509
Furnishings, equipment and leasehold improvements, net.......... 6,091 1,235
Other assets.................................................... 1,541 4,258
Intangible assets, net of accumulated amortization.............. 77,197 6,967
Deferred tax asset.............................................. 0 195
-------- --------
Total assets.......................................... $107,492 $ 16,515
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current portion of long-term debt.......................... $ 23 $ 2,091
Accounts payable........................................... 7,947 1,327
Accrued expenses and other liabilities..................... 6,069 4,686
Income taxes............................................... 1,314 760
Advances from shareholders................................. 0 7
-------- --------
Total current liabilities............................. 15,353 8,871
Long-term debt (net of current portion)......................... 4,502 7,101
Deferred tax liability.......................................... 447 0
Other long-term liabilities..................................... 48 0
-------- --------
Total liabilities..................................... 20,350 15,972
STOCKHOLDER'S EQUITY:
Common stock ($0.01 par value, 12,070 shares outstanding at
July 31, 1996 and 4,756 shares outstanding at January 31,
1996).................................................... 121 48
Preferred stock ($0.01 par value, 2,000 shares authorized,
no shares issued)........................................ 0 0
Additional paid in capital................................. 86,397 911
Accumulated surplus/(deficit).............................. 624 (416)
-------- --------
Total stockholder's equity............................ 87,142 543
-------- --------
Total liabilities and stockholder's equity............ $107,492 $ 16,515
======== ========
</TABLE>

See accompanying notes to financial statements

F-2
<PAGE> 33

WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31 JULY 31
------------------- -------------------
1996 1995 1996 1995
------- ------ ------- ------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Rental revenue............................ $14,957 $2,164 $17,371 $4,515
Merchandise and other sales............... 1,787 339 2,718 663
Franchise fees............................ 933 332 2,310 332
------- ------ ------- ------
Total revenues....................... 17,677 2,835 22,399 5,510
Operating costs and expenses:
Store operating expenses.................. 7,531 1,500 9,004 3,064
Cost of goods sold........................ 1,094 151 1,787 283
Amortization of videocassette and video
game rental inventory................... 2,818 455 3,204 971
General and administrative................ 3,102 532 4,688 773
Intangible amortization................... 856 22 989 22
------- ------ ------- ------
Total operating costs and expenses... 15,401 2,660 19,672 5,113
------- ------ ------- ------
Income from operations......................... 2,276 175 2,727 397
Interest expense............................... 223 100 508 137
Other, net..................................... (59) 0 (68) 0
------- ------ ------- ------
Income before provision for income taxes and
extraordinary item........................... 2,112 75 2,287 260
Provision for income taxes..................... 929 46 1,003 96
------- ------ ------- ------
Income before extraordinary item............... 1,183 29 1,284 164
Extraordinary item (net of income tax benefit
of $156)..................................... (244) 0 (244) 0
------- ------ ------- ------
Net income..................................... $ 939 $ 29 $ 1,040 $ 164
======= ====== ======= ======
Income per common share data:
Income before extraordinary item............... $ 0.11 $ 0.01 $ 0.16 $ 0.03
======= ====== ======= ======
Extraordinary item............................. ($ 0.02) $ 0.00 ($ 0.03) $ 0.00
======= ====== ======= ======
Net income..................................... $ 0.09 $ 0.01 $ 0.13 $ 0.03
======= ====== ======= ======
Weighted average shares outstanding............ 11,089 4.756 7,957 4.756
======= ====== ======= ======
</TABLE>

See accompanying notes to financial statements

F-3
<PAGE> 34

WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31
----------------------
1996 1995
-------- -------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income..................................................... $ 1,040 $ 164
Adjustments to reconcile net income to cash flows provided by (used
in) operating activities:
Amortization of videocassette rental inventory................. 3,204 971
Depreciation and amortization of furnishings, equipment and
leasehold improvements........................................ 370 193
Amortization of intangible assets.............................. 989 23
Changes in assets and liabilities:
Accounts receivable............................................ 131 39
Merchandise inventories........................................ 135 11
Prepaid expenses and other assets.............................. (486) (23)
Accounts payable............................................... 534 154
Accrued expenses and other liabilities......................... (1,991) 214
Income taxes................................................... 554 50
-------- -------
Net cash provided by operating activities................. 4,480 1,796
-------- -------
Cash flows from investing activities:
Purchase of property and equipment............................. (141) (65)
Purchase of videocassette rental inventory..................... (5,395) (1,065)
Purchase of retail video stores, net of cash acquired.......... (54,932) 0
Purchase of franchising business, net of cash acquired......... 0 (3,453)
Changes in other assets related to acquisitions................ 0 (177)
-------- -------
Net cash used in investing activities..................... (60,468) (4,760)
-------- -------
Cash flows from financing activities:
Proceeds from long-term debt................................... 5,600 5,665
Repayment of long-term debt.................................... (10,267) (1,684)
Proceeds from issuance of common stock, net.................... 63,079 0
Shareholder distributions...................................... 0 (39)
Changes in other assets related to financing................... (700) (177)
-------- -------
Net cash provided by financing activities................. 57,712 3,765
-------- -------
Net increase in cash and cash equivalents........................... 1,724 801
Cash and cash equivalents, beginning of period...................... 611 45
-------- -------
Cash and cash equivalents, end of period............................ $ 2,335 $ 846
======== =======
Supplemental cash flow data:
Interest paid.................................................. $ 508 $ 137
======== =======
Income taxes paid.............................................. $ 293 $ 0
======== =======
</TABLE>

See accompanying notes to financial statements

F-4
<PAGE> 35

WEST COAST ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes included in West Coast
Entertainment Corporation's ("the Company") registration statement on Form S-1
as declared effective by the SEC on May 9, 1996.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from these estimates.

In the opinion of management, all adjustments necessary for a fair
presentation of this interim financial information have been included. Such
adjustments consisted only of normal recurring items. The results of operations
for the three and six month periods ended July 31, 1996 are not necessarily
indicative of the results to be expected for the year ending January 31, 1997.

For purposes of determining income per common share data for the three and
six month periods ended July 31, 1995 the income tax provisions have been
adjusted as if each entity included in the consolidated statement of operations
had been included in the Company's consolidated income tax returns and subject
to corporate income taxation as a C corporation from February 1, 1995 to July
12, 1995.

Income per common share data has been calculated utilizing the weighted
average number of common shares outstanding after giving effect to the
0.340-for-1 reverse stock split, which was approved by the Board of Directors on
May 14, 1996, as if it had occurred as of February 1, 1995. In addition, shares
to be issued as contingent consideration in conjunction with the Recent
Acquisitions (Note 5) have been considered outstanding since May 17, 1996.

2. INITIAL PUBLIC OFFERING OF COMMON STOCK AND ACQUISITIONS

On May 14, 1996 the Company completed an initial public offering of
5,400,000 shares of common stock at $13.00 per share ("the Offering"). The net
proceeds of the offering after deducting applicable issuance costs and expenses,
were $63.1 million. The proceeds were used to fund the acquisitions discussed in
Note 5 and repay approximately $9.6 million in long-term debt.

3. EXTRAORDINARY ITEM

In conjunction with the early extinguishment of a portion of the previously
outstanding subordinated debt the Company as called for by the terms of the note
upon completion of the Offering was required to pay a prepayment penalty of
$400,000 ($244,000 net of income tax benefit).

F-5
<PAGE> 36

WEST COAST ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. VIDEOCASSETTE RENTAL INVENTORY

Videocassette rental inventory and related amortization are as follows (in
thousands):

<TABLE>
<CAPTION>
JULY 31, 1996 JANUARY 31, 1996
-------------- -----------------
<S> <C> <C>
Videocassette rental inventory............................ $ 20,258 $ 3,299
Accumulated amortization.................................. $ (4,993) $(1,790)
------- -------
$ 15,265 $ 1,509
======= =======
</TABLE>

Videocassette rental inventory amortization expense resulting from the
allocation of purchase price to videocassette rental tapes of the acquired
entities is based on current replacement cost for bulk purchases of used tapes
as well as the assignment of a three year amortizable life which serves to
extend the remaining economic useful lives of videocassette rental tapes
acquired. Replacement cost for bulk purchases of used tapes is significantly
less than the cost of new tape purchases. As a result, future amortization
relating to these tapes, on a per tape basis, will be significantly less than
the amortization relating to new tape purchases. In addition, to the extent the
acquired tapes have book values lower than newly purchased tapes, sales of the
acquired tapes should result in higher operating income than sales of new tape
purchases. The favorable effects resulting from purchase accounting will
diminish with the passage of time and will not extend beyond the three year
period subsequent to acquisition which is the period over which these tapes will
be amortized.

5 ACQUISITIONS

On May 17, 1996 the Company acquired 172 video specialty stores ("the
Recent Acquisitions"), including 13 stores owned by franchisees of the Company.
Taking into account certain adjustments and calculation of certain contingent
payments, the aggregate consideration of $84.3 million was paid consisting of
the following: $52.5 million in cash, approximately $24.5 million in shares of
common stock (1.9 million shares), approximately $4.7 million of acquisition
costs and approximately $2.6 million in minimum contingent consideration (of
which approximately $1.4 million and $1.2 million is to be paid in cash and
stock, respectively). The purchase method of accounting was used to record the
acquisitions. The excess of the cost over the estimated fair value of the assets
acquired of $71.0 million will be amortized over 20 years on a straight-line
basis. The results of operations of the acquired stores have been included in
operations of the Company since the date of acquisition.

The following unaudited pro forma information presents the results of
operations as though (i) the Recent Acquisitions had occurred as of the
beginning of the periods presented, (ii) each entity included in the
consolidated statement of operations had been included in the Company's
consolidated income tax returns and subject to corporate income taxation as a C
corporation during all periods presented, (iii) the acquisition of a business
acquired on July 12, 1995 had occurred on February 1, 1995, (iv) the repayment
of all previously existing outstanding debt had occurred as of the beginning of
the periods reported, and (v) the borrowings under the new credit facility had
occurred as of the beginning of the periods presented.

F-6
<PAGE> 37

WEST COAST ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma net income per share for the three and
six month periods ended July 31, 1996 and 1995 was calculated by dividing the
respective unaudited pro forma net income by the pro forma weighted average
number of shares of Common Stock outstanding after giving effect to (i) the
0.340-for-1 reverse stock split approved by the Board of Directors on May 14,
1996, and the shares issued in conjunction with the Offering, (ii) the shares
issued or to be issued as contingent consideration in conjunction with the
Recent Acquisitions and (iii) the impact of a detachable warrant with a primary
supplier of videocassettes and a portion of a convertible note which was
converted into shares of the Company's common stock as if the Offering of common
stock had occurred on the first day of the periods presented. The pro forma
weighted average number of common shares used to calculate pro forma net income
per share is 12,322,075.

<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT AS SHARE DATA)
Pro forma revenues.................................... $20,300 $19,254 $42,896 $40,840
Pro forma net income.................................. 1,441 1,125 2,928 2,379
Pro forma net income per share........................ $ 0.12 $ 0.09 $ 0.24 $ 0.19
</TABLE>

6 LONG TERM DEBT

On May 17, 1996 the Company obtained a $60,000,000 Credit Facility ("the
Facility") from a bank, which consists of a two year revolving credit facility
followed by a three year term loan. In association with the borrowing the
Company paid a fee of $700,000 on May 17, 1996 which has been recorded in other
long term assets and will be amortized over the term of the Facility. Borrowings
under the Facility are available for working capital, capital expenditures,
refinancing of existing indebtedness, and for certain permitted acquisition
financing. As of July 31, 1996 the Company had $4,500,000 outstanding under the
Facility.

On July 31, 1996 the Company received a commitment from the Bank to
increase the Facility to $65,000,000 effective August 5, 1996.

Borrowings are limited to 2.75 times the Company's operating cash flow, as
defined, during the previous four quarters. At the Company's option, interest
rates vary from either the Bank's base rate, as defined, to 1% above such base
rate, or from the Eurodollar rate, as defined, to 2.5% above such Eurodollar
rate (7.0% at July 31, 1996). Additionally, the Facility provides for a
commitment fee payable quarterly, computed as 0.375-0.5% of the unused portion
of the available Facility during the previous quarter. In each case the rate is
dependent on the ratio of the Company's total debt to operating cash flow for
the preceding quarter.

The Facility is secured by a first security interest in substantially all
of the Company's assets, including the stock of its subsidiaries and contain
certain restrictive covenants, including among others compliance with certain
financial tests and ratios and dividend restrictions.

F-7
<PAGE> 38

INDEPENDENT AUDITORS' REPORT

The Stockholders
Large Corporation, Lyndhurst Video Inc., Kearny
Video Inc., New Milford Video Inc., Hillsdale
Video Inc., Hack Video Inc., Bell Video Inc.,
Bergen Video Inc., Harris Video Inc., Rahway
Video Inc., Wall Video Inc., Mont Video Inc.,
Super Video of Park Ridge, Inc., Emerson Video,
LLC and Super Video Mgt. Co.:

We have audited the accompanying combined balance sheets of Large
Corporation, Lyndhurst Video Inc., Kearny Video Inc., New Milford Video Inc.,
Hillsdale Video Inc., Hack Video Inc., Bell Video Inc., Bergen Video Inc.,
Harris Video Inc., Rahway Video Inc., Wall Video Inc., Mont Video Inc., Super
Video of Park Ridge, Inc., Emerson Video, LLC and Super Video Mgt. Co. as of
December 31, 1995 and 1994 and the related combined statements of income,
stockholders' equity (deficit) and cash flows for the years then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Large Corporation,
Lyndhurst Video Inc., Kearny Video Inc., New Milford Video Inc., Hillsdale Video
Inc., Hack Video Inc., Bell Video Inc., Bergen Video Inc., Harris Video Inc.,
Rahway Video Inc., Wall Video Inc., Mont Video Inc., Super Video of Park Ridge,
Inc., Emerson Video, LLC and Super Video Mgt. Co. as of December 31, 1995 and
1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.

Princeton, New Jersey
March 15, 1996

F-8
<PAGE> 39

LARGE CORPORATION, LYNDHURST VIDEO INC.,
KEARNY VIDEO INC., NEW MILFORD VIDEO INC.,
HILLSDALE VIDEO INC., HACK VIDEO INC.,
BELL VIDEO INC., BERGEN VIDEO INC., HARRIS
VIDEO INC., RAHWAY VIDEO INC., WALL VIDEO INC.,
MONT VIDEO INC., SUPER VIDEO OF PARK RIDGE, INC.,
EMERSON VIDEO, LLC AND SUPER VIDEO MGT. CO.

COMBINED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 688,434 722,746
Accounts receivable............................................. 5,185 1,997
---------- ---------
Total current assets....................................... 693,619 724,743
---------- ---------
Videocassette rental inventory, net.................................. 884,184 510,486
Property and equipment, net (note 3)................................. 502,449 364,061
Other assets......................................................... 126,775 93,889
---------- ---------
$2,207,027 1,693,179
========== =========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current liabilities:
Note payable (note 4)........................................... $ 400,000 525,000
Accounts payable................................................ 837,071 788,210
Accrued expenses................................................ 110,002 77,137
Notes payable to stockholders (note 5).......................... -- 213,000
---------- ---------
Total current liabilities.................................. 1,347,073 1,603,347
Deferred rent........................................................ 204,609 168,274
---------- ---------
1,551,682 1,771,621
---------- ---------
Stockholders' equity (deficit) (notes 10 and 11):
Common stock, no par value per share; authorized 131,000 shares;
29,535 and 26,314 issued shares, and 13,677 and 10,456
outstanding shares in 1995 and 1994, respectively.............. 142,060 50,060
Additional paid-in capital...................................... 226,438 226,438
Retained earnings (accumulated deficit)......................... 667,096 (51,062)
---------- ---------
1,035,594 225,436
Less:
Notes receivable from stockholder (note 8)...................... (76,371) --
Less treasury stock, at cost.................................... (303,878) (303,878)
---------- ---------
Total stockholders' equity (deficit)....................... 655,345 (78,442)
---------- ---------
$2,207,027 1,693,179
========== =========
</TABLE>

See accompanying notes to combined financial statements.

F-9
<PAGE> 40

COMBINED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Revenues:
Movie rentals................................................... $7,274,275 5,922,416
Merchandise sales............................................... 1,283,695 1,305,505
---------- ---------
8,557,970 7,227,921
---------- ---------
Operating costs and expenses:
Store operating expenses........................................ 4,088,968 3,459,645
Amortization of videocassette rental inventory.................. 1,180,322 880,376
Cost of sales................................................... 1,407,862 1,437,303
General and administrative expenses............................. 617,263 510,965
---------- ---------
7,294,415 6,288,289
---------- ---------
Operating income........................................... 1,263,555 939,632
---------- ---------
Other income (expense):
Other........................................................... 7,409 73,271
Interest income................................................. 13,905 12,359
Interest expense................................................ (38,642) (27,103)
---------- ---------
(17,328) 58,527
---------- ---------
Income before income taxes................................. 1,246,227 998,159
Income taxes (note 6)................................................ 48,069 27,017
---------- ---------
Net income................................................. $1,198,158 971,142
========== =========
</TABLE>

See accompanying notes to combined financial statements.

F-10
<PAGE> 41

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
NOTE
RETAINED RECEIVABLE TOTAL
ADDITIONAL EARNINGS TREASURY FROM STOCKHOLDERS'
COMMON PAID-IN (ACCUMULATED STOCK, STOCK- EQUITY
STOCK CAPITAL DEFICIT) AT COST HOLDER (DEFICIT)
-------- ---------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993....... $ 48,060 226,438 (22,204) (303,878) -- (51,584)
Net income....................... -- -- 971,142 -- -- 971,142
Cash dividends paid.............. -- -- (1,000,000) -- -- (1,000,000)
Acquisition of Wall Video Inc.... 1,000 -- -- -- -- 1,000
Establishment of Mont Video
Inc............................ 1,000 -- -- -- -- 1,000
-------- ------- ---------- -------- ------- ----------
Balance, December 31, 1994....... 50,060 226,438 (51,062) (303,878) -- (78,442)
Net income....................... -- 1,198,158 -- -- 1,198,158
Cash dividends paid.............. -- (480,000) -- -- (480,000)
Exercised of stock option........ 90,000 -- -- -- (90,000) --
Establishment of Super Video of
Park Ridge, Inc................ 1,000 -- -- -- -- 1,000
Establishment of Emerson Video,
LLC............................ 1,000 -- -- -- -- 1,000
Payment on note receivable from
shareholder.................... -- -- -- -- 13,629 13,629
-------- ------- ---------- -------- ------- ----------
Balance, December 31, 1995....... $142,060 226,438 667,096 (303,878) (76,371) 655,345
======== ======= ========== ======== ======= ==========
</TABLE>

See accompanying notes to combined financial statements.

F-11
<PAGE> 42

COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................. $ 1,198,158 971,142
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,341,242 1,025,293
Loss on disposal of assets................................ 19,132 --
Changes in assets and liabilities:
Accounts receivable.................................. (3,188) (1,997)
Other assets......................................... (32,886) (40,384)
Accounts payable..................................... 48,861 168,511
Accrued expenses..................................... 32,865 (100,942)
Deferred rent........................................ 36,335 7,035
----------- ----------
Total adjustments............................... 1,442,361 1,057,516
----------- ----------
Net cash provided by operating activities....... 2,640,519 2,028,658
----------- ----------
Cash flows from investing activities:
Purchases of videocassette rental inventory, net............... (1,554,020) (1,182,778)
Purchase of equipment.......................................... (318,440) (170,480)
----------- ----------
Net cash used in investing activities........... (1,872,460) (1,353,258)
----------- ----------
Cash flows from financing activities:
Payment on note receivable from stockholder.................... 13,629 --
Repayment of notes payable..................................... (213,000) --
Proceeds from note payable..................................... 600,000 525,000
Payment on note payable........................................ (725,000) --
Proceeds from issuance of common stock......................... 2,000 2,000
Cash dividends paid............................................ (480,000) (1,000,000)
----------- ----------
Net cash used in financing activities........... (802,371) (473,000)
----------- ----------
Net increase (decrease) in cash and cash equivalents................ (34,312) 202,400
Cash and cash equivalents, beginning of year........................ 722,746 520,346
----------- ----------
Cash and cash equivalents, end of year.............................. $ 688,434 722,746
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 39,111 27,649
Income taxes.............................................. 22,928 387
=========== ==========
Supplemental disclosure of noncash activity:
In 1995, the Company issued shares of its common stock to a
stockholder in exchange for a note receivable in the amount of
$90,000 (note 8)
</TABLE>

See accompanying notes to combined financial statements.

F-12
<PAGE> 43

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1994

(1) ORGANIZATION

Large Corporation, Lyndhurst Video Inc., Kearny Video Inc., New Milford
Video Inc., Hillsdale Video Inc., Hack Video Inc., Bell Video Inc., Bergen Video
Inc., Harris Video Inc., Rahway Video Inc., Wall Video Inc., Mont Video Inc.,
Super Video of Park Ridge, Inc., Emerson Video, LLC and Super Video Mgt. Co.
(collectively the Company or the Companies), each a New Jersey corporation, own
and operate video specialty stores located primarily in northern New Jersey. All
of such Companies are commonly owned and therefore combined in the accompanying
financial statements. As of December 31, 1995, the Company operated fourteen
stores, three of which began operations during 1995. As of December 31, 1994,
the Company operated eleven stores.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Videocassette rental inventory

Videocassette rental inventory, which includes video games, is recorded at
cost, and amortized over its estimated economic life with no provision for
salvage value. Copies one through three of each title per store are amortized as
base stock over 36 months on a straight-line basis. The fourth through ninth
copies of each title per store are amortized over 36 months on an accelerated
basis. The tenth and any additional copies of each title per store are amortized
over nine months on an accelerated basis.

Amortization expense related to videocassette rental inventory totaled
$1,180,322 and $880,376 for the years ended December 31, 1995 and 1994,
respectively. As videocassettes are sold or retired, the applicable cost and
accumulated amortization are eliminated from the accounts, and any gain or loss
is recorded.

Property and equipment

Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives as follows:

<TABLE>
<S> <C>
Furniture and fixtures......................... 5 years
Equipment...................................... 5 years
Leasehold improvements......................... Shorter of estimated useful
life or lease term
</TABLE>

Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized. Gains and
losses on dispositions are reflected in income.

Revenue recognition

Revenue is recognized at the time of rental or sale.

Store opening costs

Store opening costs, which consist primarily of payroll, advertising and
supplies, are expensed as incurred.

F-13
<PAGE> 44

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995 AND 1994

Income taxes

All of the Companies, except Emerson Video, LLC, have elected to be treated
as an "S" corporation for Federal tax purposes under Subchapter S of the
Internal Revenue Code. Accordingly, no provisions for Federal income taxes are
required for those entities and the results of operations for those entities are
included pro rata in the individual income tax returns of their stockholders.

For state income tax purposes Super Video Mgt. Co., Lyndhurst Video Inc.,
Kearny Video Inc., New Milford Video Inc., Hillsdale Video Inc., Hack Video Inc.
and Super Video of Park Ridge, Inc. have elected to be treated as an "S"
corporation, under the tax regulations of the State of New Jersey while the
remaining entities (excluding Emerson Video, LLC) are treated as C-corporations
under the tax regulations of the State of New Jersey.

Statement of Financial Accounting Standards No. 109, (Statement 109)
"Accounting for Income Taxes" requires a change from the deferred method under
APB Opinion 11 to the asset and liability method of accounting for income taxes.
Under the asset and liability method of Statement 109, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

Fair value of financial instruments

Statement of Financial Accounting Standards SFAS No 107, "Disclosure about
Fair Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The Company believes that there is no
material difference between the fair value and the reported amounts of financial
instruments in the combined balance sheets.

Use of estimates

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

The Companies consider all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

F-14
<PAGE> 45

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995 AND 1994

(3) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1995 and 1994 are comprised of the
following:

<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Furniture and fixtures............................................ $ 464,286 326,849
Equipment......................................................... 243,638 200,016
Leasehold improvements............................................ 407,046 291,774
----------- --------
1,114,970 818,639
Less accumulated depreciation..................................... 612,521 454,578
----------- --------
$ 502,449 364,061
=========== ========
</TABLE>

(4) NOTE PAYABLE

The Company has obtained a $750,000 line of credit from a bank. The
interest rate on the line of credit is prime plus 1-1/2% (9.5% as of December
31, 1995). As of December 31, 1995, the Companies have borrowed $400,000
($525,000 at December 31, 1994). The line is secured by substantially all assets
of the Companies and the personal guarantee of each of the stockholders.

(5) NOTES PAYABLE TO STOCKHOLDERS

At December 31, 1994, the Company had notes payable to stockholders as
follows:

<TABLE>
<S> <C>
Promissory note payable December 31, 1995 to a stockholder, with interest
payable monthly at 10%................................................. $ 98,415
Promissory note payable December 31, 1995 to a stockholder, with interest
payable monthly at 10%................................................. 98,415
Promissory note payable December 31, 1995 to a stockholder, with interest
payable monthly at 10%................................................. 16,170
---------
$ 213,000
=========
</TABLE>

All such notes were paid in full during 1995.

(6) INCOME TAXES

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31, 1995 and 1994 are
primarily net operating loss carryforwards.

These items amounted to approximately $58,000 in 1995 and 1994, and are
offset by a valuation allowance for a similar amount due to the uncertainty of
their recoverability.

F-15
<PAGE> 46

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995 AND 1994

The current and deferred income tax expense for the years ended December
31, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
State income tax:
Current................................................ $ 48,069 27,017
Deferred............................................... -- --
-------- -------
$ 48,069 27,017
======== ======
</TABLE>

A reconciliation of the difference between what the annual tax provision
would have been if computed on the state income tax rate of 9% and what was
actually provided for financial reporting purposes, as shown in the foregoing
summary for the years ended December 31, 1995 and 1994, respectively, are as
follows:

<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
State income tax expense....................................... $112,160 89,834
Effect of corporations taxed at different rates................ (70,181) (90,439)
Increase (decrease) in valuation allowance..................... -- 24,293
Other.......................................................... 6,090 3,329
-------- -------
$ 48,069 27,017
======== =======
</TABLE>

The Companies have net operating losses for state purposes totaling
approximately $230,000 which expire 2005 through 2010.

(7) COMMITMENTS

Each of the Companies occupy premises for store and office space under
operating leases. Certain of the leases require the stores to pay all operating
expenses and real estate taxes. Minimum rental commitments for the next five
years and in the aggregate are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------------------------------------
<S> <C>
1996....................................................... $1,196,415
1997....................................................... 1,014,748
1998....................................................... 905,405
1999....................................................... 813,805
2000....................................................... 343,485
Thereafter................................................. 1,065,822
----------
$5,339,680
==========
</TABLE>

Rent expense, including store operating expenses and real estate taxes,
charged to operations for the year ended December 31, 1995 and 1994 amounted to
$1,206,075 and $971,286, respectively.

At December 31, 1995 and 1994, Super Video Mgt. Co. had $77,400 of open
letters of credit for security deposits on three store leases.

F-16
<PAGE> 47

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995 AND 1994

(8) RELATED PARTY TRANSACTIONS

On May 20, 1995, a stockholder of the Company exercised an option to
purchase 90,000 shares of common stock. In connection therewith, the Company
issued a note receivable from the stockholder for a principal amount of $90,000
bearing interest at 6.42% per year, payable in monthly installments through May
20, 1998.

Certain stockholders of the Companies are shareholders in 495 Kearny Ave.
Corp., General Partner to 495 Kearny Ave. Associates, Limited Partnership, which
owns the store premises leased by Kearny Video Inc. Rent expense for the Kearny
store for the years ended December 31, 1995 and 1994 was $116,796 and $109,546,
respectively.

(9) EMPLOYEE BENEFIT PLAN

Super Video Mgt. Co. adopted a 401(k) plan (the Plan) effective January 1,
1992. The Plan covers substantially all employees. Matching contributions and
profit sharing contributions to the Plan will be made at the discretion of
management. There were no contributions to the Plan for the years ended December
31, 1995 and 1994.

F-17
<PAGE> 48

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995 AND 1994

(10) COMMON STOCK

Included in common stock in the accompanying combined balance sheets is the
stock of Large Corporation, Lyndhurst Video Inc., Kearny Video Inc., New Milford
Video Inc., Hillsdale Video Inc., Hack Video Inc., Bell Video Inc., Bergen Video
Inc., Harris Video Inc., Rahway Video Inc., Wall Video Inc., Mont Video Inc.,
Super Video of Park Ridge, Inc., Emerson Video, LLC and Super Video Mgt. Co. The
amounts outstanding as of December 31, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
1995 1994
--------- -------
<S> <C> <C>
LargeCorporation, common stock, no par value, 10,000 shares
authorized,
813.5 and 769 shares outstanding in 1995 and 1994, respectively.... $ 30,412 24,120
Lyndhurst Video Inc., common stock, no par value, 10,000 shares
authorized, 813.5 and 769 shares outstanding in 1995 and 1994,
respectively....................................................... 17,781 4,724
Kearny Video Inc., common stock, no par value, 10,000 shares
authorized, 813.5 and 769 shares outstanding in 1995 and 1994,
respectively....................................................... 12,415 3,464
New Milford Video Inc., common stock, no par value, 10,000 shares
authorized, 813.5 and 769 shares outstanding in 1995 and 1994,
respectively....................................................... 17,310 4,364
Hillsdale Video Inc., common stock, no par value, 10,000 shares
authorized, 813.5 and 769 shares outstanding in 1995 and 1994,
respectively....................................................... 17,963 4,724
Super Video Mgt. Co., common stock, no par value, 10,000 shares
authorized, 813.5 and 769 shares outstanding in 1995 and 1994,
respectively....................................................... 16,080 1,664
Hack Video Inc., common stock, no par value, 10,000 shares
authorized, 5,130 and 4,887 shares outstanding in 1995 and 1994,
respectively....................................................... 12,926 1,000
Bergen Video Inc., common stock, no par value, 10,000 shares
authorized, 106 and 99 shares outstanding in 1995 and 1994,
respectively....................................................... 1,070 1,000
Bell Video Inc., common stock, no par value, 10,000 shares
authorized, 106
and 99 shares outstanding in 1995 and 1994, respectively........... 5,611 1,000
Harris Video Inc., common stock, no par value, 10,000 shares
authorized; 106 and 99 shares outstanding in 1995 and 1994,
respectively....................................................... 5,282 1,000
Rahway Video Inc., common stock, no par value, 10,000 shares
authorized,
106 and 99 shares outstanding in 1995 and 1994, respectively....... 1,070 1,000
Wall Video Inc., common stock, no par value, 10,000 shares
authorized, 1,071 and 1,000 shares outstanding in 1995 and 1994,
respectively....................................................... 1,070 1,000
Mont Video Inc., common stock, no par value 10,000 shares authorized,
1,071 and 1,000 shares outstanding in 1995 and 1994,
respectively....................................................... 1,070 1,000
SuperVideo of Park Ridge, Inc., common stock, no par value 1,000
shares authorized, 1,000 shares outstanding in 1995 (none in
1994).............................................................. 1,000 --
Emerson Video, LLC, 100 units issued and outstanding in 1995 (none in
1994).............................................................. 1,000 --
--------- -------
$ 142,060 50,060
========= =======
</TABLE>

F-18
<PAGE> 49

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995 AND 1994

(11) TREASURY STOCK

Included in treasury stock in the accompany combined balance sheets is the
treasury stock of Large Corporation, Lyndhurst Video Inc., Kearny Video Inc.,
New Milford Video Inc., Hillsdale Video Inc., Super Video Mgt. Co. and Hack
Video Inc. The amounts included in the treasury stock, at cost, as of December
31, 1995 and 1994 are as follows:

<TABLE>
<S> <C>
Large Corporation, 1,550 shares................................ $ 27,450
Lyndhurst Video Inc., 1,550 shares............................. 61,000
Kearny Video Inc., 1,550 shares................................ 39,650
New Milford Video Inc., 1,550 shares........................... 54,900
Hillsdale Video Inc., 1,550 shares............................. 61,000
Super Video Mgt. Co., 1,550 shares............................. 9,150
Hack Video Inc., 6,558 shares.................................. 50,728
---------
$ 303,878
=========
</TABLE>

F-19
<PAGE> 50

INTERIM COMBINED FINANCIAL STATEMENTS

COMBINED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 573,730
Accounts receivable........................................................ 998
-----------
Total current assets.................................................. 574,728
Videocassette rental inventory, net............................................. 971,765
Furnishings and equipment, net.................................................. 426,158
Other assets.................................................................... 123,441
-----------
$ 2,096,092
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 639,092
Accrued expenses and other liabilities..................................... 179,198
-----------
Total current liabilities............................................. 818,290
Deferred Rent................................................................... 211,088
-----------
Total liabilities..................................................... 1,029,378
-----------
Stockholders' equity:
Common stock, no par value, 131,000 shares authorized, 29,535 shares issued
and 13,677 shares outstanding............................................. 142,060
Additional paid-in capital................................................. 226,438
Retained earnings.......................................................... 1,064,178
-----------
1,432,676
Less:
Notes receivable from stockholder.......................................... (62,084)
Treasury stock, at cost.................................................... (303,878)
-----------
Total stockholders' equity............................................ 1,066,714
-----------
$ 2,096,092
===========
</TABLE>

See accompanying notes to combined financial statements.

F-20
<PAGE> 51

COMBINED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues
Rental revenue................................................. $3,960,961 $3,346,317
Merchandise sales.............................................. 929,114 670,232
---------- ----------
4,890,075 4,016,549
---------- ----------
Operating Costs and expenses
Store operating expenses....................................... 1,947,859 1,773,870
Amortization of videocassette rental inventory................. 745,363 605,826
Cost of goods sold............................................. 993,599 578,093
General and administrative..................................... 273,587 307,018
---------- ----------
3,960,408 3,264,807
---------- ----------
Operating Income.......................................... 929,667 751,742
Interest Income..................................................... 8,364 6,402
Interest Expense.................................................... -- (22,650)
---------- ----------
Income Before Taxes................................................. 938,031 735,494
Income Taxes........................................................ 54,363 21,315
---------- ----------
Net Income................................................ $ 883,668 $ 714,179
========== ==========
</TABLE>

See accompanying notes to combined financial statements.

F-21
<PAGE> 52

COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 883,668 $ 714,179
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 821,654 691,817
Changes in assets and liabilities:
Accounts receivable.................................... 4,187 (2,003)
Other assets........................................... 3,334 (36,220)
Accounts payable....................................... (197,979) (15,477)
Accrued expenses....................................... 69,196 --
Deferred rent.......................................... 6,479 15,389
---------- ----------
Total adjustments................................. 706,871 653,506
---------- ----------
Net cash provided by operating activities......... 1,590,539 1,367,685
Cash flows from investing activities:
Purchases of videocassette rental inventory, net................. (832,944) (732,550)
Purchase of equipment............................................ -- (194,577)
---------- ----------
Net cash used in investing activities............. (832,944) (927,127)
---------- ----------
Cash flows from financing activities:
Payment on note receivable from stockholder...................... 14,287 --
Repayment of notes payable....................................... (400,000) (230,000)
Proceeds from issuance of common stock........................... -- 2,000
Cash dividends paid.............................................. (486,586) (480,000)
---------- ----------
Net cash used in financing activities............. (872,299) (708,000)
---------- ----------
Net increase (decrease) in cash and cash equivalents.................. (114,704) (267,442)
---------- ----------
Cash and cash equivalents, beginning of period........................ 688,434 722,746
Cash and cash equivalents, end of period.............................. $ 573,730 $ 455,304
========== ==========
</TABLE>

See accompanying notes to combined financial statements.

F-22
<PAGE> 53

JUNE 30, 1996
UNAUDITED

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
Companies' audited financial statements included elsewhere herein.

In the opinion of management, all adjustments necessary for a fair
presentation of this interim financial information have been included. Such
adjustments consisted only of normal recurring items. The results of operations
for the six month periods ended June 30, 1995 and 1996 are not necessarily
indicative of the results to be expected for the full year.

2. VIDEOCASSETTE RENTAL INVENTORY

Videocassette rental inventory and related amortization are as follows:

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
Videocassette rental inventory......................................... $3,959,030
Accumulated amortization............................................... 2,987,265
----------
$ 971,765
==========
</TABLE>

3. SUBSEQUENT EVENT

On August 23, 1996 the Companies' entered into a definitive agreement to
sell substantially all of its assets to West Coast Entertainment Corporation.

F-23
<PAGE> 54

The Board of Directors and Shareholders
JJ Video, Inc., Picture Show Video, Inc.,
Picture Show Video #4, Inc.,
Picture Show Video-Gardenside, Inc.
and Picture Show Video-Winchester, Inc.

We have audited the accompanying combined balance sheets of JJ Video, Inc.,
Picture Show Video, Inc., Picture Show Video #4, Inc., Picture Show
Video-Gardenside, Inc. and Picture Show Video-Winchester, Inc. as of December
31, 1995 and 1994, and the related combined statements of income, stockholders'
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of JJ Video, Inc.,
Picture Show Video, Inc., Picture Show Video #4, Inc., Picture Show
Video-Gardenside, Inc. and Picture Show Video-Winchester, Inc. as of December
31, 1995 and 1994 and the combined results of operations and its cash flows for
each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.

/S/ SWITZER, MCGAUGHEY & COMPANY, PSC
------------------------------------
Switzer, McGaughey & Company, PSC

Lexington, Kentucky
August 21, 1996

F-24
<PAGE> 55

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.
COMBINED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

ASSETS

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 1).................................................. $ 65,161 $ 103,342
Accounts Receivable (Note 2)................................... 1,350 64,729
Inventory (Note 1)............................................. 24,608 15,789
---------- ----------
Total Current Assets...................................... 91,119 183,860
Video Cassette Rental Inventory, Net (Note 1)....................... 379,077 502,623
Equipment and Improvements, Net (Notes 1 and 3)..................... 152,309 169,858
Other Assets (Notes 1 and 4)........................................ 167,724 234,764
---------- ----------
TOTAL ASSETS.............................................. $ 790,229 $1,091,105
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses.......................... 263,164 293,158
Note Payable -- Shareholder (Note 5)........................... 787,803 966,661
Current Maturities of Long Term Debt........................... -- 22,707
---------- ----------
Total Current Liabilities................................. 1,050,967 1,282,526
LONG TERM LIABILITIES:
Long Term Debt Less Current Maturities......................... -- 13,843
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock (Note 6).......................................... 15,100 15,100
Retained Earnings (Deficit).................................... (275,838) (220,364)
---------- ----------
Total Stockholders' Equity................................ (260,738) (205,264)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $ 790,229 $1,091,105
========== ==========
</TABLE>

See notes to the combined financial statements.

F-25
<PAGE> 56

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.

COMBINED INCOME STATEMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Retail Video Rentals............................... $1,885,766 $1,592,377 $1,164,313
Product Sales...................................... 177,455 113,922 69,341
---------- ---------- ----------
Total Revenue............................ 2,063,221 1,706,299 1,233,654
Cost and Expenses:
Store Operating Costs......................... 955,715 855,614 580,598
Video Tape Amortization (Note 1).............. 685,068 466,063 384,179
Cost of Sales................................. 77,605 28,889 3,027
General and Administrative.................... 69,683 98,019 106,973
---------- ---------- ----------
Total Costs and Expenses................. 1,788,071 1,448,585 1,074,777
Income from Operations................... 275,150 257,714 158,877
Other Expenses:
Interest...................................... 86,624 75,087 51,488
---------- ---------- ----------
NET INCOME......................................... $ 188,526 $ 182,627 107,389
========== ========== ==========
</TABLE>

See notes to the combined financial statements.

F-26
<PAGE> 57

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.

COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
RETAINED STOCKHOLDERS'
COMMON PAID IN EARNINGS EQUITY
STOCK CAPITAL (DEFICIT) (DEFICIT)
------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1992........................... $15,100 $ 10,100 $ (370,780) $(345,580)
1993 Net Income............................... 107,389 107,389
Repayment of Paid in Capital.................. -- (10,000) -- (10,000)
------- -------- ---------- ---------
Balance,
December 31, 1993........................... 15,100 100 (263,391) (248,191)
1994 Net Income............................... -- -- 182,627 182,627
Repayment of Paid in Capital.................. -- (100) -- (100)
Shareholder Distributions..................... -- -- (139,600) (139,600)
------- -------- ---------- ---------
Balance,
December 31, 1994........................... 15,100 -- (220,364) (205,264)
1995 Net Income............................... -- -- 188,526 188,526
Shareholder Distributions..................... -- -- (244,000) (244,000)
------- -------- ---------- ---------
Total......................................... $15,100 $ -- $ (275,838) (260,738)
======= ======== ========== =========
</TABLE>

See notes to the combined financial statements.

F-27
<PAGE> 58

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.
COMBINED STATEMENT OF CASH FLOW

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income........................................ $ 188,526 $ 182,627 $ 107,389
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Amortization of Video Tapes....................... 685,068 466,063 384,179
Depreciation...................................... 27,859 32,870 27,279
Amortization of Intangible Assets................. 67,040 35,994 2,700
Loss on Sale of Equipment......................... -- 999 --
Changes in Assets and Liabilities:
Accounts Receivable............................... 63,379 (64,111) (350)
Inventory......................................... (8,818) (8,230) (1,587)
Accounts Payable and Accrued Expenses............. (29,994) 120,475 20,257
--------- ----------- ---------
Net Cash Provided by Operating Activities.... 993,060 766,687 539,867
Cash Flows from Investing Activities:
Purchase of Intangible Assets..................... -- (256,424) --
Purchase of Equipment and Improvements............ (10,312) (43,084) (71,995)
Purchase of Video Cassette Rental Inventory....... (561,522) (773,520) (370,134)
Proceeds from the Sale of Equipment............... -- 52,000 --
Building Deposits................................. -- (3,000) --
========= =========== =========
Net Cash Used in Investing Activities........ $(571,834) $(1,024,028) $(442,129)
Cash Flows from Financing Activities:
Shareholder Distributions......................... (244,000) (139,600) --
Proceeds from Long Term Debt...................... -- -- 66,248
Repayment of Long Term Debt....................... (36,550) (21,486) (8,213)
Shareholder Loan Advances......................... 7,500 770,000 160,000
Shareholder Loan Payments......................... (186,357) (321,592) (283,841)
Return of Paid in Capital......................... -- (100) (10,000)
--------- ----------- ---------
Net Cash Provided by (Used in) Financing
Activities................................. (459,407) 287,222 (75,806)
--------- ----------- ---------
Increase (Decrease) in Cash............................ (38,181) 29,881 21,932
Cash at Beginning of Year.............................. 103,342 73,461 51,529
--------- ----------- ---------
Cash at End of Year.................................... $ 65,161 $ 103,342 $ 73,461
========= =========== =========
Supplemental Disclosures:
Cash Paid During the Year for:
Interest..................................... $ 106,419 $ 41,598 $ 25,465
========= =========== =========
</TABLE>

See notes to the combined financial statements.

F-28
<PAGE> 59

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The company operates five non-franchised video specialty stores located in
Lexington, Kentucky (2 locations), Cincinnati, Ohio (2 locations) and
Winchester, Kentucky. Each location is operated as a separate corporation and
all have elected to be S corporations for income tax purposes. The store in
Winchester, Kentucky and one of the Lexington stores began operations in June of
1994.

Combining of Financial Statements

These financial statements combine the accounts of the following
corporations which are related through common majority ownership and management.
All significant intercompany transactions have been eliminated.

<TABLE>
<CAPTION>
CORPORATION LOCATION
------------------------------------------------------------------ -----------------
<S> <C>
JJ Video, Inc..................................................... Lexington, KY
Picture Show Video, Inc........................................... Cincinnati, OH
Picture Show Video #4, Inc........................................ Cincinnati, OH
Picture Show Video Gardenside, Inc................................ Lexington, KY
Picture Show Video Winchester, Inc................................ Winchester, KY
</TABLE>

Concentration of Vendors

The company purchases substantially all of its video cassettes for rental
and retail sales from one vendor, Wax Works, Inc.

Use of Estimates

Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the balance sheet dates
and the reported amounts of revenue and expenses during the years then ended.
Actual results could differ from those estimates.

Revenue Recognition

Revenue is recognized at the time of rental or sales of video cassettes or
video games.

Cash

The company considers all liquid investments with original maturities of
three months or less to be cash equivalents.

Inventory

Merchandise and supply inventory primarily consisting of prerecorded video
cassettes are stated at the lower of cost or market value. Cost of the inventory
is determined using the first-in, first-out (FIFO) method.

Video Rental Tapes

Video cassette rental inventory (including video games) is recorded at cost
and amortized over its estimated useful life with no provision for salvage
value. Video cassettes that are considered catalog tapes are amortized over 36
months on a straight-line basis. New release video cassettes are amortized as
follows:

F-29
<PAGE> 60

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995, 1994 AND 1993

10% of new release video cassettes are amortized as catalog tapes
(straight-line for 36 months)

90% of new release video cassettes are amortized over 9 months on a
straight-line basis.

The company believes that its method of amortization results in an
appropriate matching of tape amortization with tape rental revenue.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Video Rental Tapes.................................... $1,104,215 $ 994,383 $ 507,473
Accumulated Amortization.............................. (725,138) (491,760) (312,307)
---------- --------- ---------
Video Rental Tapes, Net............................... $ 379,077 $ 502,623 $ 195,166
========== ========= =========
</TABLE>

Equipment and Improvements

Equipment and improvements are recorded at cost. Depreciation is provided
for over the estimated useful lives of the assets using the straight line
method.

Intangible Assets

Intangible assets include organizational costs, non-compete agreements and
value assigned in two purchase agreements as a premium value for lease
locations. The costs of intangible assets are being amortized on a straight-line
basis over various lives not exceeding five years.

Amortization expense for intangible assets was $67,040, $35,994 and $2,700
for the years ended December 31, 1995, 1994 and 1993, respectively.

Income Taxes

Each of the corporations combined in these financial statements have
elected to be treated as an S corporation for income tax purposes. Accordingly,
the income (loss) of the corporations is reported and taxed at the shareholder
level and, therefore, there are no corporate level federal or state income taxes
provided for in these financial statements.

NOTE 2 -- RELATED PARTY RECEIVABLES

At December 31, 1994 accounts receivable included $63,379 due from two
corporations controlled by the principal stockholder. This amount was repaid in
1995.

NOTE 3 -- EQUIPMENT AND IMPROVEMENTS

Equipment and improvements consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Equipment & Improvements............................. $ 266,369 $256,057 $279,221
Accumulated Depreciation............................. (114,060) (86,199) (66,578)
---------- -------- --------
Net Equipment & Improvements......................... $ 152,309 $169,858 $212,643
========== ======== ========
</TABLE>

Depreciation expense was $27,859, $32,870 and $27,279 for the years ended
December 31, 1995, 1994 and 1993, respectively.

F-30
<PAGE> 61

DECEMBER 31, 1995, 1994 AND 1993

NOTE 4 -- OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Organizational Expenses............................................... $ 5,424 $ 5,424
Non-Compete Agreements -- Cost........................................ 14,500 14,500
Lease Assignment Value................................................ 250,000 250,000
--------- --------
Total Cost.................................................. $ 269,924 $269,924
Less Accumulated Amortization......................................... (113,384) (46,344)
--------- --------
Net Intangible Assets............................................ 156,540 223,580
Building Deposits..................................................... 11,184 11,184
--------- --------
Total Other Assets............................................... $ 167,724 $234,764
========= ========
</TABLE>

NOTE 5 -- SHAREHOLDER LOANS

The principal stockholder of the corporations has advanced the company
funds on a revolving line of credit basis. The loans are unsecured to the
principal stockholder and due on demand. A bank which has loaned the principal
stockholder funds to make the shareholder loans has a secured interest in
substantially all of the assets of the corporations. The shareholder loans bear
interest at various rates, currently ranging from Prime + 1% to 10.00%.

Balances due on the shareholder loans are as follows:

<TABLE>
<S> <C>
December 31, 1995.............................................. $787,803
========
December 31, 1994.............................................. $966,661
========
December 31, 1993.............................................. $518,263
========
</TABLE>

NOTE 6 -- COMMON STOCK

All the corporations have issued no par value common stock. The following
schedule details the authorized and issued shares of the corporations.

<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
SHARES SHARES AMOUNT
---------- ----------- -------
<S> <C> <C> <C>
JJ Video, Inc.............................................. 1,000 111 $15,100
Picture Show Video, Inc.................................... 1,000 100 --
Picture Show Video #4, Inc................................. 1,000 100 --
Picture Show Video-Gardenside, Inc......................... 1,000 111 --
Picture Show Video-Winchester, Inc......................... 1,000 111 --
----- --- -------
Total................................................. 5,000 533 $15,100
===== === =======
</TABLE>

F-31
<PAGE> 62

DECEMBER 31, 1995, 1994 AND 1993

NOTE 7 -- OPERATING LEASE AGREEMENTS

The company has operating leases for the building facilities it occupies
which expire at various dates through June 30, 2001. Some of the leases have
option for renewal for varying terms. Minimum future rental payments under these
leases as of December 31, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
---------------------------------------------------------------
<S> <C>
1996........................................................... $ 244,168
1997........................................................... 194,920
1998........................................................... 142,271
1999........................................................... 107,730
2000........................................................... 111,150
Thereafter..................................................... 56,540
---------
Total..................................................... $ 856,779
========
</TABLE>

The company is currently operating on a month-to-month basis at its St.
Bernard location in Cincinnati. The current monthly obligation is $3,100.

Rent expense was $292,491, $255,796 and $193,955 for the years ended
December 31, 1995, 1994 and 1993, respectively.

NOTE 8 -- DEFERRED PAYMENTS

On June 23, 1994, Picture Show Video-Gardenside, Inc. and Picture Show
Video-Winchester, Inc. purchased existing assets of two Movie Warehouse video
stores. As part of this purchase agreement, the company agreed to pay to Movie
Warehouse a monthly payment of $1,250 ($625 per corporation) commencing on
August 1, 1994 with the final payment due on July 31, 1996. These payments have
been included in store operating costs. At December 31, 1995, $8,750 was
remaining to be paid under the agreement.

NOTE 9 -- SUBSEQUENT EVENTS

The corporations and its stockholders have entered into negotiations with
West Coast Entertainment Corporation to sell substantially all the assets of the
corporations combined in these financial statements.

In January, 1996, one of the corporations entered into an operating lease
agreement for a vehicle. The monthly obligation is $2,061 for a period of 24
months.

In June, 1996, one of the corporations entered into an operating lease
agreement for a vehicle. The monthly obligation is $832 for a period of 36
months.

F-32
<PAGE> 63

INDEPENDENT ACCOUNTANTS' REPORT

The Board of Directors and Shareholders
JJ Video, Inc., Picture Show Video, Inc.,
Picture Show Video #4, Inc.,
Picture Show Video-Gardenside, Inc.
and Picture Show Video-Winchester, Inc.

We have reviewed the accompanying combined balance sheets of JJ Video,
Inc., Picture Show Video, Inc., Picture Show Video #4, Inc., Picture Show
Video-Gardenside, Inc. and Picture Show Video-Winchester, Inc. as of June 30,
1996 and 1995, and the related combined statements of income, stockholders'
equity (deficit), and cash flows for each of the six month periods then ended.
These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying combined financial statements for them to be
in conformity with generally accepted accounting principles.

/S/ SWITZER, MCGAUGHEY & COMPANY, PSC
---------------------------------------
Switzer, McGaughey & Company, PSC

Lexington, Kentucky
August 23, 1996

F-33
<PAGE> 64

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.
COMBINED BALANCE SHEETS

JUNE 30, 1996 AND 1995

ASSETS

<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 1)................................................. $ 47,833 $ 11,789
Accounts Receivable (Note 2).................................. 1,350 1,350
Inventory (Note 1)............................................ 19,498 20,199
--------- ----------
Total Current Assets..................................... 68,681 33,338
Video Cassette Rental Inventory, Net (Note 1)...................... 360,126 442,137
Equipment and Improvements, Net (Notes 1 and 3).................... 138,855 158,318
Other Assets (Notes 1 and 4)....................................... 134,212 201,245
--------- ----------
TOTAL ASSETS............................................. $ 701,874 $ 835,038
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses......................... $ 262,517 $ 273,901
Note Payable -- Shareholder (Note 5).......................... 707,456 841,762
--------- ----------
Total Current Liabilities................................ 969,973 1,115,663
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock (Note 6)......................................... 15,100 15,100
Retained Earnings (Deficit)................................... (283,199) (295,725)
--------- ----------
Total Stockholders' Equity (Deficit)..................... (268,099) (280,625)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $ 701,874 $ 835,038
========= ==========
</TABLE>

See accompanying notes and Accountants' Review Report.

F-34
<PAGE> 65

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.

COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Retail Video Rentals............................................ $ 936,349 $ 932,836
Product Sales................................................... 74,862 96,333
---------- ----------
Total Revenue......................................... 1,011,211 1,029,169
Cost and Expenses:
Store Operating Costs...................................... 472,614 471,421
Video Tape Amortization (Note 1)........................... 278,261 335,409
Cost of Sales.............................................. 55,937 43,122
General and Administrative................................. 39,821 28,922
---------- ----------
Total Costs and Expenses.............................. 846,633 878,874
Income from Operations................................ 164,578 150,295
Other Expenses:
Interest................................................... 38,939 45,656
---------- ----------
NET INCOME...................................................... 125,639 104,639
Retained Earnings (Deficit),
Beginning of Period........................................ (275,838) (220,364)
Shareholder Distributions....................................... (133,000) (180,000)
---------- ----------
Retained Earnings (Deficit),
End of Period.............................................. $ (283,199) $ (295,725)
========== ==========
</TABLE>

See accompanying notes and Accountants' Review Report.

F-35
<PAGE> 66

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.

COMBINED STATEMENT OF CASH FLOW

FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................................. $ 125,639 $ 104,639
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Amortization of Video Tapes................................. 278,261 335,409
Depreciation................................................ 14,949 13,679
Amortization of Intangible Assets........................... 33,512 33,519
Changes in Assets and Liabilities:
Accounts Receivable......................................... -- 63,379
Inventory................................................... 5,110 (4,410)
Accounts Payable and Accrued Expenses....................... (647) (19,257)
--------- ---------
Net Cash Provided by Operating Activities.............. 456,824 526,958
Cash Flows from Investing Activities:
Purchase of Equipment and Improvements...................... (1,496) (2,140)
Purchase of Video Cassette Rental Inventory................. (259,308) (274,922)
--------- ---------
Net Cash Used in Investing Activities.................. (260,804) (277,062)
Cash Flows from Financing Activities:
Shareholder Distributions................................... (133,000) (180,000)
Repayment of Long Term Debt................................. -- (36,550)
Shareholder Loan Payments................................... (80,348) (124,899)
--------- ---------
Net Cash Used In Financing Activities.................. (213,348) (341,449)
--------- ---------
Decrease in Cash................................................. (17,328) (91,553)
Cash at Beginning of Period...................................... 65,161 103,342
--------- ---------
Cash at End of Period............................................ $ 47,833 $ 11,789
========= =========
Supplemental Disclosures:
Cash Paid During the Period for:
Interest............................................... $ 25,675 $ 30,774
========= =========
</TABLE>

See accompanying notes and Accountants' Review Report.

F-36
<PAGE> 67

JJ VIDEO, INC., PICTURE SHOW VIDEO, INC.,
PICTURE SHOW VIDEO #4, INC., PICTURE SHOW VIDEO-
GARDENSIDE, INC. AND PICTURE SHOW VIDEO-WINCHESTER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS

JUNE 30, 1996 AND 1995

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Combining of Financial Statements

<TABLE>
<CAPTION>
CORPORATION LOCATION
--------------------------------------------------------------- -----------------
<S> <C>
JJ Video, Inc.................................................. Lexington, KY
Picture Show Video, Inc........................................ Cincinnati, OH
Picture Show Video #4, Inc..................................... Cincinnati, OH
Picture Show Video-Gardenside, Inc............................. Lexington, KY
Picture Show Video-Winchester, Inc............................. Winchester, KY
</TABLE>

Concentration of Vendors

The company purchases substantially all of its video cassettes for rental
and retail sales from one vendor, Wax Works, Inc.

Use of Estimates

Revenue Recognition

Revenue is recognized at the time of rental or sales of video cassettes or
video games.

Cash

The company considers all liquid investments with original maturities of
three months or less to be cash equivalents.

Inventory

F-37
<PAGE> 68

JUNE 30, 1996 AND 1995

Video Rental Tapes

10% of new release video cassettes are amortized as catalog tapes
(straight-line for 36 months)

90% of new release video cassettes are amortized over 9 months on a
straight-line basis.

The company believes that its method of amortization results in an
appropriate matching of tape amortization with tape rental revenue.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Video Rental Tapes................................................. $1,153,158 $1,048,255
Accumulated Amortization........................................... (793,032) (606,118)
---------- ----------
Video Rental Tapes, Net............................................ $ 360,126 $ 442,137
========== ==========
</TABLE>

Equipment and Improvements

Equipment and improvements are recorded at cost. Depreciation is provided
for over the estimated useful lives of the assets using the straight line
method.

Intangible Assets

Amortization expense for intangible assets was $33,512 and $33,519 for the
six months ended June 30, 1996 and 1995, respectively.

Income Taxes

NOTE 2 -- RELATED PARTY RECEIVABLES

At December 31, 1994 accounts receivable included $63,379 due from two
corporations controlled by the principal stockholder. This amount was repaid
during the first six months of 1995.

F-38
<PAGE> 69

JUNE 30, 1996 AND 1995

NOTE 3 -- EQUIPMENT AND IMPROVEMENTS

Equipment and improvements consist of the following:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
--------- --------
<S> <C> <C>
Equipment & Improvements.............................................. $ 267,862 $258,196
Accumulated Depreciation.............................................. (129,007) (99,878)
--------- --------
Net Equipment & Improvements.......................................... $ 138,855 $158,318
========= ========
</TABLE>

Depreciation expense was $14,949 and $13,679 for the six months ended June
30, 1996 and 1995, respectively.

NOTE 4 -- OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
--------- --------
<S> <C> <C>
Organizational Expenses........................................... $ 5,424 $ 5,424
Non-Compete Agreements -- Cost.................................... 14,500 14,500
Lease Assignment Value............................................ 250,000 250,000
--------- --------
Total Cost................................................... $ 269,924 $269,924
Less Accumulated Amortization..................................... (146,896) (79,863)
--------- --------
Net Intangible Assets........................................ 123,028 190,061
Building Deposits................................................. 11,184 11,184
--------- --------
Total Other Assets........................................... $ 134,212 $201,245
========= ========
</TABLE>

NOTE 5 -- SHAREHOLDER LOANS

Balances due on the shareholder loans are as follows:

F-39
<PAGE> 70

JUNE 30, 1996 AND 1995

NOTE 6 -- COMMON STOCK

All the corporations have issued no par value common stock. The following
schedule details the authorized and issued shares of the corporations.

NOTE 7 -- OPERATING LEASE AGREEMENTS

The company has operating leases for the building facilities it occupies
and two automobiles which expire at various dates through June 30, 2001. Some of
the leases have option for renewal for varying terms. Minimum future rental
payments under these leases as of June 30, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-------------------------------------------------------------------------
<S> <C>
1997................................................................ $254,944
1998................................................................ 194,297
1999................................................................ 130,972
2000................................................................ 109,440
2001................................................................ 112,860
Thereafter.......................................................... --
--------
Total............................................................... $802,513
========
</TABLE>

The company is currently operating on a month-to-month basis at its St.
Bernard location in Cincinnati. The current monthly obligation is $3,100.

Rent expense was $141,972 and $147,916 for the six months ended June 30,
1996 and 1995, respectively.

NOTE 8 -- DEFERRED PAYMENTS

On June 23, 1994, Picture Show Video-Gardenside, Inc. and Picture Show
Video-Winchester, Inc. purchased existing assets of two Movie Warehouse video
stores. As part of this purchase agreement, the company agreed to pay to Movie
Warehouse a monthly payment of $1,250 ($625 per corporation) commencing on
August 1, 1994 with the final payment due on July 31, 1996. These payments have
been included in store operating costs. At June 30, 1996, $1,250 was remaining
to be paid under the agreement.

NOTE 9 -- SUBSEQUENT EVENTS

F-40
<PAGE> 71
Filed Pursuant to Rule 424(b)(5)
File No. 333-8683

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

PROSPECTUS

5,000,000 SHARES
WEST COAST ENTERTAINMENT CORPORATION
COMMON STOCK

------------------------

This Prospectus relates to a total of 5,000,000 shares of common stock,
$.01 par value per share ("Common Stock"), of West Coast Entertainment
Corporation ("West Coast" or the "Company") which may be offered and issued from
time to time by the Company in connection with future acquisitions of other
businesses, properties or equity and/or debt securities in business combination
transactions ("Acquisitions") in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"). These shares will ordinarily represent consideration paid upon the
acquisition of businesses or properties. The shares may also include shares to
be delivered upon the exercise or satisfaction of conversion or purchase rights
which are created in connection with acquisitions or which were previously
created or assumed by the companies whose businesses or properties are to be
acquired by West Coast. The Common Stock is quoted on the Nasdaq National Market
under the symbol "WCEC." On September 20, 1996, the last reported sales price
for the Common Stock as reported by Nasdaq was $9.25 per share.

------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF
CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

September 23, 1996
<PAGE> 72

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
---------------------

West Coast Video(R), The Movie Buff's Movie Store(R), Game Power HeadquartersSM,
The Projector(TM), Spotlight on Video(TM), Videosmith(R) and Palmer Video(TM)
are trademarks, trade names and service marks of the Company.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is hereby made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be examined without charge
at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York, 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission.
The Common Stock is traded on Nasdaq. Information filed by the Company with
Nasdaq may be inspected at the offices of Nasdaq at 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy material and other information with the
Commission. Reports, proxy material and other information concerning the Company
can be inspected and copied at the offices of the Commission and Nasdaq referred
to above.
------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 7
Unaudited Pro Forma Combined Condensed
Financial Statements................. 12
Selected Historical and Pro Forma
Combined Financial Data.............. 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 27
Video Industry Overview................ 41
Business............................... 42
Management............................. 54

<CAPTION>
PAGE
-----
<S> <C>
Certain Transactions................... 59
Price Range of Common Stock;
Dividends............................ 60
Plan of Distribution................... 61
Resales................................ 61
Use of Proceeds........................ 62
Principal Stockholders................. 62
Description of Capital Stock........... 64
Shares Eligible for Future Sale........ 67
Legal Matters.......................... 68
Experts................................ 68
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.

2
<PAGE> 73

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information included elsewhere herein.
Except as otherwise indicated, all information herein (a) gives effect to (i)
the Company's issuance of 5,400,000 shares of Common Stock in May 1996 in an
initial public offering (the "Public Offering"), (ii) the Company's acquisition
of 172 video specialty stores in May 1996 (collectively, the "Recent
Acquisitions") and (iii) a 0.340-for-1 reverse split of the Common Stock
effective as of May 14, 1996 and (b) assumes (i) the Company's acquisition of
additional video specialty stores or other businesses or assets described in one
or more supplements to this Prospectus that are being delivered herewith
(collectively, the "Supplements") as being prospective acquisitions
("Prospective Acquisitions") and (ii) exercise of an outstanding warrant (the
"Warrant") to acquire 192,308 shares of Common Stock. Unless the context
otherwise requires, references to "West Coast" or the "Company" include West
Coast Entertainment Corporation and its subsidiaries. References to "system-wide
revenues" include the total of Company-owned store revenues and franchised store
revenues (as distinct from franchise fees paid by the franchisees to the Company
as franchisor).

THE COMPANY

Immediately following consummation of the Recent Acquisitions in May 1996,
West Coast owned and operated 200 video specialty stores and franchised 303
additional stores. The Company believes that it is among the largest video
specialty retailers in the United States in terms of pro forma system-wide
revenues, number of franchised stores and total franchised store revenues. The
Company competes directly against major regional and national video rental
stores in most of its markets and believes it is a leading video rental
operator, in terms of number of stores, in all of the major markets in which
Company-owned stores operate. In addition, the Company believes it is one of
only two domestic video specialty franchisors that has existing franchised
stores outside North America. System-wide, approximately 60% of the Company's
stores, exclusive of stores to be acquired in Prospective Acquisitions as
described in the Supplements, are currently operated under the West Coast
Video(R) name and the remainder are operated under such names as Videosmith(R)
and Palmer Video(TM). The Company intends to apply the West Coast Video(R) name
and its registered trademark The Movie Buff's Movie Store(R) to all of its
stores. For the fiscal year ended January 31, 1996, the Company's pro forma
revenues were $82.2 million and pro forma net income was $4.6 million. For the
three months ended April 30, 1996, the Company's pro forma revenues were $22.6
million and pro forma net income was $1.5 million. See "Selected Historical and
Pro Forma Combined Financial Data."

In order to realize the Company's goal of maximizing revenue and
profitability, the Company has adopted a business strategy designed to (i)
achieve or maintain market dominance in its chosen markets by acquiring,
developing or franchising additional stores, (ii) realize cost savings and
efficiencies by using proven management operating systems to integrate the
stores acquired, developed or franchised, (iii) operate stores designed to
reflect specific local demographics and demonstrated customer preferences and
(iv) build customer loyalty and promote additional rentals by offering superior
customer service through a highly trained sales force having comprehensive
product knowledge.

The Company's growth strategy is to (i) pursue the acquisition of video
specialty stores in this highly fragmented industry, (ii) continue to acquire
its own existing and future franchised stores and (iii) selectively develop new
video specialty stores. Consistent with this strategy, the Company has obtained
and made borrowings under a $60.0 million bank credit facility (the "Credit
Facility"), a portion of which is currently available, subject to certain
conditions, for general corporate purposes and future acquisition financing. The
Company believes it is well-positioned to benefit from consolidation in the
industry among the approximately 28,000 video specialty stores in the United
States, approximately half of which are owned by operators of one or two stores.
In addition, as one of the largest video specialty franchisors in the United
States in terms of pro forma system-wide revenues and one of only two
domestic-based franchisors with existing franchised stores outside North
America, the Company believes it is uniquely positioned to expand through the
acquisition of its existing and future West Coast Video(R) franchisees and the
continuation of its international and domestic franchising activities.

The Company has had preliminary discussions with numerous video rental
store owners at various times regarding the potential acquisition of their
stores. Management expects that some of these discussions will

3
<PAGE> 74

result in new Acquisitions, although the Company has no agreements or
commitments to acquire stores except as described herein. On June 19, 1996, the
Company announced that it had reached agreements in principle with the owners of
a total of 72 video retail stores, subject to completion of due diligence and
other closing conditions and regulatory approvals. Except as described in the
Supplements, the Company has not entered into definitive agreements in regard to
the acquisition of any of such stores or any other stores, and there can be no
assurance that it will do so.

At the date hereof, the Company's stores are located in 24 states and three
foreign countries, with its Company-owned stores concentrated in Ohio,
Pennsylvania, New Jersey, Massachusetts and New York. The Company's stores are
designed and managed to entertain and satisfy a broad range of customers,
including movie and interactive electronic game buffs, and carry between 7,000
and 17,000 videocassettes. Most of the Company's stores are superstores with
over 4,000 square feet per store, although some are smaller, custom-designed
stores, including some which are formatted as urban boutiques containing a wide
variety of older titles ("catalog titles"). The Company believes that its
ability to customize stores to reflect local market demographics gives it a
competitive advantage over chains with limited variation in format.

According to entertainment media analyst Paul Kagan Associates, Inc.
("Kagan Associates"), the domestic video rental and sales industry has grown
from approximately $3.6 billion in revenues in 1985 to over $14 billion in 1994
and is projected to reach approximately $22 billion in 2005. Kagan Associates
estimates the revenues received by movie distributors from international home
video at $3.7 billion in 1995. In 1994, according to Kagan Associates, the home
video market was the largest single source of revenue to movie distributors,
accounting for approximately 48.6% of movie distributors' total domestic
revenues and approximately 46.1% of movie distributors' worldwide revenues.

The principal executive offices of the Company are located at 9990 Global
Road, Philadelphia, Pennsylvania 19115, and its telephone number is (215)
677-1000.

RECENT ACQUISITIONS

In May 1996, West Coast acquired a total of 172 owned and operated video
specialty stores (including 13 stores owned by franchisees of the Company) plus
franchisor's rights in regard to 20 additional stores franchised by one of the
acquired companies. The aggregate consideration paid (excluding certain fees and
contingent consideration relating to newly opened stores) was approximately
$76.4 million, consisting of approximately $52.4 million paid in cash and
approximately $24.0 million paid in shares of Common Stock (1,843,720 shares
valued for this purpose at the initial public offering price of $13.00 per
share). In addition, the Company concurrently repaid approximately $7.0 million
of outstanding indebtedness (inclusive of accrued interest and prepayment
premium). The Company has recorded approximately $67.9 million of the aggregate
purchase price of the Recent Acquisitions as goodwill. See "Business -- Recent
Acquisitions" and "Unaudited Pro Forma Combined Condensed Financial Statements."

4
<PAGE> 75

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................. 5,000,000 shares(1)
Common Stock to be outstanding after this
offering.......................................... 17,213,152 shares(2)
Use of Common Stock being offered................... To constitute all or a portion of the
purchase price of future Acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol....................... WCEC
</TABLE>

- ---------------
(1) The Company intends to seek the agreement of recipients of shares of Common
Stock in Acquisitions to restrictions on their transfer of such shares for
periods ranging from six to 18 months or to structure such transactions to
provide for issuance of shares on a deferred basis over periods of six to 18
months.

(2) Includes 1,843,720 shares of Common Stock issued to certain sellers as part
of the purchase price of the Recent Acquisitions and 192,308 shares issuable
upon exercise of the Warrant but excludes shares contingently issuable to
certain sellers of newly opened stores. See "Business -- Recent
Acquisitions." An additional 525,000 shares of Common Stock have been
reserved for future issuance under the Company's 1995 Equity Incentive Plan,
1995 Director Stock Option Plan and 1995 Employee Stock Purchase Plan. See
"Management -- Director Compensation" and "-- Employee Stock Plans."

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus Summary, under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," elsewhere in this Prospectus and in the
Supplements relate to future events and expectations and as such constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following considerations:

The Company's rapid growth, particularly its acquisition in May 1996 of 11
chains operating 172 video specialty stores and franchising an additional 20
stores, could strain the Company's ability to manage operations, integrate newly
acquired stores into its systems and effectively pursue its growth strategy. The
Company competes with many others, including Blockbuster Entertainment, having
significantly greater financial and marketing resources, market share, and name
recognition than the Company. Further developments in competing technologies
could have a material adverse effect upon the video retail industry and the
Company. Industry and Company revenues are somewhat seasonal and may be affected
by many factors, including variation in the acceptance of new release titles
available for rental and sale, the extent of competition, marketing programs,
weather, the timing of any holiday weekends, special or unusual events and other
factors that may affect retailers in general. There can be no assurance that
stores already acquired or acquired in future will perform as expected or that
the prices paid for such stores will prove to be advantageous. The costs of
integrating newly acquired stores into the Company's systems may vary from the
amounts assumed for purposes of the Company's pro forma financial statements.
Acquisitions of stores within the exclusive territories of existing West Coast
Video(R) franchised stores may require the Company to relocate or sell such
acquired stores, assist the franchisee to relocate, grant the franchisee
additional franchises or territorial or other rights, agree to terminate the
franchise or include the franchisee's stores in the Company's intended program
of acquisitions. The Company's management does not have significant experience
in operating a company as large as the Company now is. The Company's Common
Stock has traded publicly only since May 14, 1996 and no prediction can be made
as to future price levels for such stock. See "Risk Factors."

5
<PAGE> 76

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
--------------------------------------------------- --------------------------
THREE MONTHS THREE
YEAR ENDED ENDED MONTHS
JANUARY 31, APRIL 30, YEAR ENDED ENDED
----------------------------- ----------------- JANUARY 31, APRIL 30,
1994 1995 1996 1995 1996 1996 1996
------ ------ ------- ------ ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................... $2,520 $6,503 $14,719 $2,675 $4,722 $ 82,175 $22,596
Operating income (loss)............... (44) 385 1,216 222 451 7,995 2,908
Income (loss) before income taxes..... (86) 267 576 185 175 8,442 2,666
Net income (loss)..................... (72) 204 334 135 101 4,632 1,487
Pro forma net income (loss) per
share............................... $(0.07)(2) $ 0.12(2) $ 0.06(2) $ 0.03(2) $ 0.02(2) $ 0.38(3) $ 0.12(3)
OTHER DATA:
Depreciation and amortization(4)...... $ 870 $1,628 $ 2,585 $ 612 $ 623 $ 19,726 $ 4,629
Purchases of videocassette rental
inventory........................... 685 1,430 2,002 537 570 18,246 4,697
STORE DATA:
Increase (decrease) in same store
revenue(5).......................... (6.1)% 14.2% 4.8% 2.3% 3.5% 1.5% 0.5%
Company-owned stores at end of
period.............................. 14 28 28 28 28 197 200
Franchised stores at end of period.... -- -- 304 308 296 310 303
------ ------ ------- ------ ------ -------- --------
Total stores at end of period... 14 28 332 336 324 507 503
====== ====== ======= ====== ====== ======== ========
</TABLE>

<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA(1)
---------- ---------
APRIL 30, APRIL 30,
1996 1996
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 207 $ 1,158
Videocassette rental inventory, net................................................... 1,693 14,317
Total assets.......................................................................... 18,606 104,779
Long-term debt, less current portion.................................................. 7,505 4,361
Total liabilities..................................................................... 17,962 18,494
Stockholders' equity.................................................................. 644 86,285
</TABLE>

(2) Unaudited pro forma net income (loss) per share has been calculated for each
of the years in the three year period ended January 31, 1996 and for the
three month periods ended April 30, 1995 and 1996 by dividing the respective
unaudited pro forma net income (loss) amounts by the weighted average number
of shares of common stock outstanding (843,000, 1,693,000 and 4,756,000 at
January 31, 1994, 1995 and 1996, respectively and 4,756,000 at April 30,
1995 and 1996). Unaudited pro forma net income (loss) per share reflects an
adjustment to the consolidated statement of operations to give effect to the
merger (the "Merger") and the 0.340-for-1 reverse stock split discussed in
Notes 1 and 17 to the Company's consolidated financial statements included
elsewhere herein, as if they had occurred as of February 1, 1992.
Accordingly, the pro forma income tax provision (benefit) and pro forma net
income (loss) have been calculated as if each entity included in the
consolidated statement of operations had been included in the Company's
consolidated income tax returns and subject to corporate income taxation as
a corporation subject to taxation under Subchapter C of the Internal Revenue
Code of 1986, as amended (a "C Corporation") during all periods presented.

(3) Unaudited pro forma net income per share for the year ended January 31, 1996
and the three month period ended April 30, 1996 have been calculated by
dividing unaudited pro forma net income by the pro forma weighted average
number of shares of Common Stock outstanding after giving effect to (i) the
Merger, (ii) the issuance of shares upon formation of the Company, (iii) the
0.340-for-1 reverse stock split and the shares issued in conjunction with
the Public Offering, (iv) the shares issued in conjunction with the Recent
Acquisitions, (v) the repayment of all outstanding debt, (vi) borrowings
under the Credit Facility and (vii) the impact of the Warrant and of the
conversion of a portion of an outstanding convertible subordinated secured
note (the "Convertible Note") into 20,844 shares of Common Stock on May 17,
1996, as if all activity occurred as of February 1, 1995. See Notes 1 and 7
to the Company's consolidated financial statements. The pro forma weighted
average number of common shares used to calculate pro forma net income per
share at January 31, 1996 and April 30, 1996 was 12,322,075.

(5) Same store revenue is defined as the aggregate revenues from Company-owned
stores open for the entirety of the periods being compared. Increase
(decrease) reflects change from prior fiscal year.

6
<PAGE> 77

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the Common
Stock offered hereby.

ABILITY TO SUSTAIN GROWTH AND MANAGE OPERATIONS

The Company's rapid growth could strain the Company's ability to manage
operations and effectively pursue its growth strategy. The Company's growth
strategy has involved (i) the acquisition from unrelated third parties in 1993
and 1994 of two chains operating 21 stores, (ii) the opening of eight new
stores, (iii) the acquisition in 1995 of the operating assets now held by the
Company and its wholly owned franchising subsidiary from West Coast Video
Entertainment, Inc., an unrelated third party, and its four unaffiliated
corporations (the "WCEI Companies"), which had a total of 305 franchised stores,
(iv) the acquisition in May 1996 of 11 chains (including four West Coast
Video(R) franchisees) operating 172 stores and franchising an additional 20
stores and (v) the ongoing integration of such new stores and operations into
the Company's management information, telecommunications, management, marketing,
finance and accounting, entertainment purchasing, distribution, retail
operations and merchandising systems. Future expansion will require the
Company's existing management personnel to, among other things, identify and
analyze new markets and new site locations; locate and negotiate with numerous
potential acquirees; consummate acquisitions; arrange for adequate equity or
debt financing to fund expansion; negotiate acceptable real estate leases and
related agreements for existing stores and for stores to be acquired or opened
and develop cost-effective transition plans for acquired stores; hire, train and
assimilate store managers and other store personnel; and address the other
specific risks described in more detail below. See "-- Acquisition Risks."
Accordingly, in some circumstances continued rapid growth could have a material
adverse effect on the Company's financial condition and results of operations.

OPERATING RISKS

Competition. The video retail industry is highly competitive. The Company
competes with other video specialty stores, including stores operated by
regional and national chains, as well as other businesses, such as supermarkets,
pharmacies, convenience stores, bookstores, mass merchants, mail order
operations and other retailers, that offer videos and interactive electronic
entertainment products. Many of the Company's stores compete with stores
operated by the Blockbuster Entertainment division of Viacom Inc.
("Blockbuster"), the dominant video specialty retailer in the United States.
Blockbuster and certain of the Company's non-video specialty store competitors
have significantly greater financial and marketing resources, market share and
name recognition than the Company. In addition, the Company's stores compete
with other leisure-time activities, including movie theaters, network and cable
television, live theater, sporting events and family entertainment centers. The
Company's failure to compete effectively would have a material adverse effect on
its financial condition and results of operations. See
"Business -- Competition."

Technological Obsolescence. The Company competes with pay-per-view cable
television systems ("Pay-Per-View"), in which cable television subscribers pay a
fee to see a movie or other program selected by the subscriber. Existing
Pay-Per-View services offer a limited number of channels and programs and are
generally available only to households with a converter to unscramble incoming
signals. Recently developed technologies, however, permit certain cable
companies, direct broadcast satellite companies, telephone companies and other
telecommunications companies to transmit a much greater number of movies to
homes in more markets as frequently as every five minutes. Ultimately, further
improvements in these technologies or the development of other similar
technologies could lead to the availability of a broad selection of movies to
consumers on demand, which could have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- Competition."
Changes in the manner in which movies are marketed by movie studios, including
an earlier release by movie studios of movie titles to cable television or other
distribution channels, could substantially decrease the demand for video
rentals, which could have a material adverse effect on the Company's financial
condition and results of operations. See "Video Industry Overview" and
"Business -- Competition."

7
<PAGE> 78

Seasonality and Other Factors; Quarterly Fluctuations. The video and
interactive electronic entertainment products rental portions of the Company's
business are somewhat seasonal, and revenues may be affected by many factors,
including variations in the number and timing of theatrical movie releases, the
public acceptance of new release titles available for rental and sale, the
extent of competition, marketing programs, weather, the timing of long holiday
weekends, special or unusual events and other factors that may affect retailers
in general. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General Economic Trends, Quarterly Results and
Seasonality" and "Business -- Growth Strategy."

Fluctuations in Interactive Electronic Entertainment Products
Industry. Rentals and sales volumes for interactive electronic entertainment
products have fluctuated considerably in recent fiscal periods, both
industry-wide and for the Company, as a result of technological changes and the
introduction (or delay in introduction) of new products. Similar fluctuations
may occur in future periods.

Effects of Increased Minimum Wage. Congress has passed legislation raising
the federal minimum wage from $4.25 per hour to $4.75 per hour, commencing
October 1, 1996 and $5.15 per hour, commencing October 1, 1997. Many of the
Company's part-time store-level employees are paid at or slightly above the
minimum wage. The new legislation will materially increase the Company's
employment costs and may have a material adverse effect on the Company's
financial condition and results of operations.

ACQUISITION RISKS

Integration. The success of the Company's growth strategy is dependent
upon its ability to achieve cost savings in connection with Acquisitions
(including the Recent Acquisitions and any future Acquisitions) and otherwise
successfully integrate acquired operations. There can be no assurance, however,
that the Company will be able to achieve such savings or successfully integrate
acquired operations (including the operations comprising the Recent Acquisitions
and any future Acquisitions) into its existing operations. There can be no
assurance that the Recent Acquisitions or future Acquisitions will not have a
material adverse effect upon the Company's operating results while the
operations of the acquired businesses are being integrated into the Company's.
Once integrated, acquired operations may not achieve levels of revenues or
profitability comparable to those achieved by the Company's existing operations
or otherwise perform as expected.

Identification of and Competition for Acquisitions. The Company's growth
strategy includes future Acquisitions. There can be no assurance that the
Company will be able to identify suitable acquisition targets and complete
Acquisitions in either existing or new markets. In addition, certain of the
Company's competitors may seek to acquire some of the same video specialty
stores that the Company seeks to acquire. Such competition for Acquisitions
would increase acquisition prices and related costs and result in fewer
acquisition opportunities, which could have a material adverse effect on the
Company's growth.

Risk that Future Acquisitions Will Not Be Consummated; Misrepresentations
and Breaches by Sellers. While certain of the future Acquisitions may be
scheduled to close substantially concurrently with one another, there can be no
assurance that any of such Acquisitions will be consummated. If one or more of
such Acquisitions does not close, any shares registered in this offering
allocated thereto may be used for the acquisition of other video specialty
stores. See "Use of Proceeds." There is no assurance that the Company would be
able to use such shares to acquire other video specialty stores on acceptable
terms. In consummating Acquisitions, the Company has relied and will rely upon
certain representations, warranties and indemnities made by the sellers with
respect to each of the Acquisitions, as well as its own due diligence
investigation. There can be no assurance that such representations and
warranties will be true and correct, that the Company's due diligence will
uncover all material adverse facts relating to the operations and financial
condition of the stores acquired or that all of the conditions to the Company's
obligations to consummate Acquisitions will be satisfied. Any material
misrepresentations could have a material adverse effect on the Company's
financial condition and results of operations. In addition, the Company has
waived, and expects that it may in the future waive, certain conditions to its
obligations to consummate Acquisitions.

Financing Growth Strategy. The Company currently intends to finance future
Acquisitions, as well as new store openings, primarily from the net proceeds
from the sale of debt or equity securities, cash from

8
<PAGE> 79

operations and borrowings under credit facilities, including the Credit
Facility. Acquisitions may also be made by issuing Company securities (including
the shares offered hereby) to the sellers. There can be no assurance that the
Company will be able to sell debt or equity securities on reasonable terms. The
inability to raise sufficient cash could inhibit implementation of the Company's
growth strategy. The Credit Facility contains various restrictive covenants
which may also inhibit the Company's ability to finance its growth strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Company."

Certain Formulaic Purchase Prices. The purchase prices for certain Recent
Acquisitions contained components that are to be determined over 12 or 18-month
periods after the respective opening dates of 19 stores on the basis of certain
financial measurements for such stores over the final 12 months of such periods.
See "Business -- Recent Acquisitions." The purchase prices for future
Acquisitions may contain similar components. If such components of the purchase
prices are materially more than is currently expected, the Company will have to
deploy more cash or issue more shares of Common Stock than it is currently
budgeting for such purpose.

RISKS ASSOCIATED WITH FRANCHISE OPERATIONS

The standard franchise agreement further provides that a franchisee may
have rights to an exclusive territory within which other franchised or
Company-owned stores will not be set up or operated. The Company is currently
discussing with ten West Coast Video(R)franchisees the terms on which twelve of
the stores acquired in the Recent Acquisitions, which are located within such
franchisees' exclusive territories, will be integrated into the Company's
system; possibilities include, but are not limited to, relocating such an
acquired store or selling it to a third party, assisting the franchisee to
relocate, granting the franchisee additional franchises or territorial or other
rights, or including the franchisee's stores in the intended program of Company
acquisitions of franchisees' stores described under "Business -- Growth Strategy
- -- Continue to Acquire West Coast Franchisee Stores." Although the Company does
not expect that any such method of integration of such stores will have a
material adverse effect, there can be no assurance in this regard.

9
<PAGE> 80

all of the Registration States and is currently entitled to sell franchises in
all other states in compliance with the FTC Franchise Rule. Violations of the
FTC Franchise Rule and the franchise offering requirements of the Registration
States could result in civil penalties against the Company and civil and
criminal penalties against the executive officers of the Company. No assurance
can be given that the Company will not be required to cease offering and selling
franchises in certain states because of future changes in franchise laws or the
Company's inability to comply with existing or future franchise laws or until
its franchise offering circular is updated.

RELIANCE ON KEY PERSONNEL; EXPERIENCE OF MANAGEMENT

The Company's operations are dependent on the continued efforts of T. Kyle
Standley, its President and Chief Executive Officer, and its other key
employees. If any of these individuals become unwilling or unable to continue
their employment or association with the Company, or if the Company is unable to
attract and retain other skilled employees, the Company's business could be
materially and adversely affected. The Company does not currently maintain key
man life insurance coverage on any of its executives. Certain key members of the
Company's management group joined the Company upon consummation of the Public
Offering. No Company executive had previous significant experience operating a
company as large, in terms of stores or annual revenues, as the Company. See
"Management."

CONTROL BY THE PRINCIPAL EXECUTIVES

At July 1, 1996, Ralph W. Standley III and certain members of his family,
including T. Kyle Standley, in the aggregate, beneficially owned 31.6% of the
Company's outstanding Common Stock. As a result, these stockholders voting
together are effectively able to elect a majority of the Company's directors and
control the Company. These stockholders voting together could delay or prevent a
change in control of the Company or a business combination involving the Company
that is favored by other stockholders. See "-- Anti-Takeover Provisions,"
"Management," "Principal Stockholders" and "Description of Capital Stock."

ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 2,000,000
shares of preferred stock, $.01 par value per share ("Preferred Stock"), in one
or more series and to determine the price, rights, preferences and privileges of
the shares of each such series without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change of control of the Company. In
addition, certain provisions in the Company's Certificate of Incorporation, as
amended, and Restated By-laws (the "By-laws") relating to supermajority
stockholder approval of mergers and certain similar transactions, restrictions
on calling special meetings of stockholders, restrictions on amendments to the
By-laws and prohibitions against action by majority written consent of the
stockholders may discourage or make more difficult any attempt by a person or
group of persons to obtain control of the Company.

In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of a corporation's voting stock. See "Description of Capital
Stock -- Preferred Stock" and "-- Delaware Law and Certain Charter and By-Law
Provisions." The provisions of Section 203 may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely

10
<PAGE> 81

affect the market price of the Company's Common Stock and deprive stockholders
of an opportunity to receive a premium for their shares.

LIMITED TRADING HISTORY; POTENTIAL VOLATILITY OF STOCK PRICE

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of the Common Stock in the
public market, or the perception that the sale of a substantial number of shares
might occur, could have a material adverse effect on the prevailing market price
of the Common Stock or the ability of the Company to raise capital through a
public offering of its equity securities. At July 1, 1996, the Company had
outstanding 12,213,152 shares of Common Stock, of which the 5,400,000 shares
sold in the Public Offering are freely tradeable without restriction or further
registration under the Securities Act, except for those shares held by
"affiliates" (as defined in Rule 144 under the Securities Act) of the Company.
None of the remaining 6,813,152 outstanding shares of Common Stock
(collectively, the "Restricted Shares"), have been registered under the
Securities Act, and they may be resold only upon registration under, or in
compliance with an exemption from the registration requirements of, the
Securities Act. Holders of 2,285,466 Restricted Shares will be eligible to sell
such shares pursuant to Rule 144, as currently in effect, subject to the manner
of sale, volume, notice and information requirements of Rule 144, beginning in
February 1997, holders of 2,470,826 Restricted Shares will be eligible to sell
such shares pursuant to Rule 144 beginning in July 1997 and holders of 2,056,860
Restricted Shares will be eligible to sell such shares pursuant to Rule 144
beginning in May 1998. The Securities and Exchange Commission has sought public
comment on the advisability of shortening the applicable holding periods under
Rule 144 by one year. If such a change in Rule 144 were to be effected, the
respective dates set forth above would be February 1996 and July 1996 (each
subject to certain lock-up agreements) and May 1997. The Company has granted to
holders of Restricted Shares and the Warrant to purchase shares of Common Stock
certain demand and piggyback registration rights. See "Description of Capital
Stock -- Registration Rights," "Shares Eligible for Future Sale," "Management"
and "Certain Transactions."

11
<PAGE> 82

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 1996 AND THREE MONTHS ENDED APRIL 30, 1996

Substantially concurrently with the completion of the Public Offering of
stock on May 17, 1996, the Company acquired in the Recent Acquisitions 172 owned
and operated video specialty stores, plus the rights of one acquired company as
franchisor of an additional 20 franchised stores, for aggregate consideration of
approximately $84.0 million, consisting of the following: $52.4 million in cash,
approximately $24.0 million in shares of Common Stock (1,843,720 shares valued
for this purpose at the initial public offering price of $13.00 per share),
approximately $4.2 million in acquisition costs and approximately $3.4 million
in minimum contingent consideration (of which approximately $2.0 million and
$1.4 million is to be paid in cash and stock, respectively). The Recent
Acquisitions are accounted for using the purchase method of accounting.

The following unaudited pro forma combined condensed financial statements
reflect (i) the consummation of the Recent Acquisitions, (ii) the completion of
the Public Offering at the purchase price of $13.00 per share and the
application of the net proceeds therefrom and (iii) the borrowing of $4.4
million under the Credit Facility and the use of such funds to refinance
approximately $3.1 million of previously existing indebtedness and pay
approximately $1.3 million of the cash portion of the purchase price for the
Recent Acquisitions (collectively, the "Pro Forma Transactions"). The unaudited
pro forma combined balance sheet at April 30, 1996 gives effect to the Pro Forma
Transactions as if each had occurred at that date. The unaudited pro forma
combined statements of operations for the year ended January 31, 1996 and three
months ended April 30, 1996 give effect to the Pro Forma Transactions as if each
had occurred at February 1, 1995.

In the opinion of the Company's management, all adjustments necessary to
present fairly such unaudited pro forma combined condensed financial statements
have been made based on the terms and structure of the Pro Forma Transactions.
In the opinion of the Company's management, the purchase prices have been
preliminarily allocated to all significant tangible and intangible assets in
accordance with APB 16 and the final allocation is not expected to differ
materially from the allocation reflected in the unaudited pro forma combined
condensed financial statements. In connection with the preliminary allocation of
purchase prices, no value has been assigned to the various employment
arrangements entered into between the Company and certain prior owners of the
entities acquired. Such employment contracts were entered into with respect only
to those prior owners who remain in the employment of the Company. Such
contracts serve to identify the new salary arrangements with previous owners at
competitive market rates. In assessing the value of non-competition
arrangements, the Company considered the significant competitive pressure that
now exists in all geographic markets and the fact that the industry is
undergoing a significant consolidation by large operators with more economic
substance which acts as a deterrent to others seeking to enter the market.
Accordingly, the Company does not believe these arrangements possess any
significant value. The Company believes, however, that changes in the
composition of the assets acquired and the liabilities assumed in connection
with the Recent Acquisitions occurred due to changes in the ordinary course of
business of the video specialty stores acquired; however, the terms of the
agreements relating to the Recent Acquisitions provided that operations of these
stores were to continue in the ordinary course of business until the date of
their acquisition. Therefore, the Company believes any related change in
adjustments should not be material to the unaudited pro forma combined condensed
financial statements.

The unaudited pro forma financial information should be read in connection
with the accompanying notes, the historical financial statements and notes
thereto of the Company and certain of the sellers of the 172 stores (the
"Sellers") and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.

12
<PAGE> 83

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
APRIL 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
RECENT PRO FORMA COMPANY
WEST COAST ACQUISITIONS(1) ADJUSTMENTS PRO FORMA(2)
---------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 207 $ 2,200 $56,519(3)
(259)(4)
(56,159)(5)
(1,350)(6) $ 1,158
Accounts and other receivables............ 1,064 448 (99)(4) 1,413
Merchandise inventories................... 538 3,037 -- 3,575
Prepaid expenses and other current
assets................................. 40 497 (229)(4)
183(5) 491
-------- ------- ------- --------
Total current assets................... 1,849 6,182 (1,394) 6,637
Videocassette rental inventory, net....... 1,693 12,224 (129)(4)
529(5) 14,317
Furnishings, equipment and leasehold
improvements, net...................... 1,164 5,743 (545)(4) 6,362
Other assets.............................. 6,871 1,410 (2,612)(3)
(93)(4)
(3,312)(5) 2,264
Intangible assets......................... 6,834 232 67,938(5) 75,004
Deferred tax asset........................ 195 69 (69)(4) 195
-------- ------- ------- --------
Total assets........................... $ 18,606 $25,860 $60,313 $104,779
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 2,091 $ 1,881 $(2,006)(3)
(1,881)(4)
(67)(5) $ 18
Accounts payable.......................... 1,597 5,937 -- 7,534
Accrued expenses and other liabilities.... 5,971 3,736 (2,870)(3)
(1,323)(4)
904(5)
(1,350)(6) 5,068
Income taxes.............................. 798 656 (656)(4) 798
Advances from stockholders'............... -- 900 (900)(4) --
-------- ------- ------- --------
Total current liabilities.............. 10,457 13,110 (10,149) 13,418
Deferred tax liability.................... -- 486 170(5) 656
Long-term debt............................ 7,505 2,646 (2,889)(3)
(2,646)(4)
(255)(5) 4,361
Other long-term liabilities............... -- 1,054 (995)(4) 59
-------- ------- ------- --------
Total liabilities...................... 17,962 17,296 (16,764) 18,494
-------- ------- ------- --------
Stockholders' equity:
Common stock................................ 48 5,968 54(3)
(5,950)(5) 120
Additional paid-in capital.................. 911 1,031 61,618(3)
5,689(4)
17,231(5) 86,480
Treasury stock.............................. -- (210) 210(5) --
Loans to stockholders....................... -- (1,289) 1,289(4) --
Accumulated surplus (deficit)............... (315) 3,064 (3,064)(5) (315)
-------- ------- ------- --------
Total stockholders' equity............. 644 8,564 77,077 86,285
-------- ------- ------- --------
Total liabilities and stockholders'
equity............................... $ 18,606 $25,860 $60,313 $104,779
======== ======= ======= ========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.

13
<PAGE> 84

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
APRIL 30, 1996

(1) Recent Acquisitions include the following (in thousands):

<TABLE>
<CAPTION>
VIDEOCASSETTE
CURRENT RENTAL TOTAL CURRENT TOTAL
ASSETS INVENTORY ASSETS LIABILITIES LIABILITIES
-------- -------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PALMER CORPORATION AND SUBSIDIARIES... $2,791 $ 3,236 $ 8,372 $ 4,134 $ 5,278
------ -------- ------- -------- --------
RED GIRAFFE:
American Video, Inc. and Red
Giraffe Video, Inc............. 614 2,579 4,557 1,969 3,599
Lancaster Group, Inc............. 76 149 551 244 567
------ -------- ------- -------- --------
690 2,728 5,108 2,213 4,166
------ -------- ------- -------- --------
MASSACHUSETTS FRANCHISEES:
New Age Entertainment, Inc....... 132 768 1,550 821 1,193
HB Associates, Inc............... 183 393 884 447 470
Best Entertainment, Inc.......... 163 373 589 125 125
Video Innovators, Inc............ 102 173 594 523 530
------ -------- ------- -------- --------
580.... 1,707 3,617 1,916 2,318
------ -------- ------- -------- --------
5 OTHER UNAFFILIATED SELLING GROUPS:
A-Z Video Systems, Inc........... 131 530 1,108 1,196 1,196
------ -------- ------- -------- --------
Showtime, Inc.................... 365 632 1,288 604 610
------ -------- ------- -------- --------
Video Giant, Inc................. 753 1,031 2,147 328 814
------ -------- ------- -------- --------
VIDEO VIDEO:
Video Video of Parsippany, Inc.,
Video Video of Chatham, Inc.
and Video Video Management
Corporation.................... 110 224 528 733 733
Video Video of Westfield, Inc.... 30 106 160 629 629
------ -------- ------- -------- --------
140 330 688 1,362 1,362
------ -------- ------- -------- --------
VIDEOLAND:
Anthony Cocca's Videoland,
Inc............................ 315 1,375 2,182 984 1,015
Vidko, Inc....................... 111 140 275 76 76
Kobie-Co Movie Outlet............ 306 515 1,075 297 461
------ -------- ------- -------- --------
732 2,030 3,532 1,357 1,552
------ -------- ------- -------- --------
$6,182 $ 12,224 $25,860 $ 13,110 $ 17,296
====== ======== ======= ======== ========
</TABLE>

See Index to Consolidated Financial Statements set forth in this
Registration Statement for cross-reference to historical financial statements of
certain of the Sellers.

(2) See the introductory paragraphs under "Unaudited Pro Forma Combined
Condensed Financial Statements".

14
<PAGE> 85

(3) Reflects the net proceeds received by the Company in connection with the
Public Offering of common stock on May 17, 1996 (and the use of a portion
thereof), as follows (in thousands):

<TABLE>
<S> <C> <C>
Gross proceeds from offering..................................... $70,200
Less: total fees and expenses.................................... $(8,745)
Fees and expenses paid prior to April 30, 1996.............. 940
-------
Fees and expenses to be paid from offering proceeds............ (7,805)
Repayment of current portion of long-term debt................... $(2,006)
Repayment of long-term debt...................................... (7,040)
Accrued interest................................................. (481)
-------
Repayment of debt and accrued interest......................... (9,527)
Borrowings of long-term debt under the Credit Facility......... 4,351
Payment of commitment fee for Credit Facility.................. (700)
-------
Net cash change................................................ $56,519
=======
</TABLE>

At April 30, 1996, (a) Other assets included $3.3 million of the fees and
expenses associated with the offering and (b) Accrued expenses and other
liabilities included $0.5 million of interest and $2.4 million of fees and
expenses. The pro forma adjustments reflect elimination of these items. Other
assets also include the $0.7 million payment of the bank commitment fee for the
Credit Facility.

These transactions had the following pro forma effect on stockholders'
equity (in thousands):

<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN CAPITAL
------ ---------------
<S> <C> <C>
Increase due to issuance of shares........................ $ 54 $70,146
Increase due to conversion of a portion of the Convertible
Note.................................................... -- 217
Decrease due to offering expenses......................... -- (8,745)
---- -------
Net change........................................... $ 54 $61,618
==== =======
</TABLE>

(4) Reflects the elimination of certain assets and liabilities of certain
Sellers which, in accordance with the various purchase and sale agreements,
were not acquired by the Company, as follows (in thousands):

<TABLE>
<S> <C> <C>
Cash............................................................... $ 259
Accounts receivable................................................ 99
Prepaid expenses................................................... 229
Videocassette rental inventory, net................................ 129
Furnishings, equipment and leasehold improvements, net............. 545
Other assets....................................................... 93
Deferred taxes..................................................... 69
------
Total assets not acquired........................................ $1,423
Current portion of long-term debt.................................. $1,881
Accrued expenses and other liabilities............................. 1,323
Income taxes payable............................................... 656
Advances from stockholders......................................... 900
Long-term debt..................................................... 2,646
Other long-term liabilities........................................ 995
------
Total liabilities not acquired................................... $8,401
------
Net liabilities not acquired..................................... $6,978
======
</TABLE>

The increase in additional paid-in capital of $5.7 million reflects the
$7.0 million of net liabilities not acquired less the elimination of loans to
stockholders in the amount of $1.3 million.

15
<PAGE> 86

(5) Reflects (i) the allocation of purchase price paid in connection with the
Recent Acquisitions based on the fair value of the assets and liabilities
acquired, (ii) the elimination of historical stockholders' equity relating
to the entities acquired in connection with the Recent Acquisitions and
(iii) the acceleration of amounts due to the former owner of the WCEI
Companies. The purchase price paid in connection with the Recent
Acquisitions is $84.0 million, which consists of: $52.4 million in cash,
approximately $24.0 million in Common Stock (1,843,720 shares valued at the
initial public offering price of $13 per share), approximately $4.2 million
in acquisition costs ($0.8 million which had been prepaid and $2.5 million
which had been accrued at April 30, 1996) and approximately $3.4 million in
minimum contingent consideration. The pro forma effect of these transactions
is as follows (in thousands):

<TABLE>
<S> <C> <C>
Cash portion of purchase price..................................... $52,410
Plus: Fees and expenses paid from offering proceeds................ 4,243
Fees and expenses paid prior to April 30, 1996................ (816)
-----
Net fees and expenses paid from offering proceeds................ 3,427
Payments of obligations to former owner of the WCEI Companies
(Short-term portion)............................................. 67
Payment of obligations to former owner of the WCEI Companies
(Long-term portion).............................................. 255
-----
Total payment of obligations to former owner of
the WCEI Companies.......................................... 322
-------
Net cash change.................................................. ..... $56,159
=======
</TABLE>

At April 30, 1996 Other assets included $3.3 million of the fees and
expenses associated with the Recent Acquisitions, of which $2.5 was unpaid
as of April 30, 1996. The pro forma adjustment to Accrued expenses and
other liabilities reflects $3.4 million to reflect accrual of minimum
contingent consideration, offset by the elimination of unpaid fees and
expenses.

The preliminary allocation of purchase price (subject to final
determination of certain adjustments) is as follows (in thousands):

<TABLE>
<CAPTION>
HISTORICAL VALUE FAIR PRO FORMA
OF NET ASSETS VALUE NET ASSETS
ACQUIRED ADJUSTMENT ACQUIRED
---------------- ---------- ----------
<S> <C> <C> <C>
Cash...................................... $ 1,941 $ 1,941
Merchandise inventories................... 3,037 3,037
Accounts receivable....................... 349 349
Prepaid expenses.......................... 268 183 451
Videocassette rental inventory, net....... 12,095 529 12,624
Furnishings, equipment and leasehold
improvements, net....................... 5,198 5,198
Other assets.............................. 1,317 1,317
Goodwill.................................. 232 67,938 68,170
-------- -------- --------
Total................................... $ 24,437 $ 68,650 $ 93,087
Accounts payable.......................... $ 5,937 $ 5,937
Accrued expenses and other liabilities.... 2,413 2,413
Deferred tax liability.................... 486 170 656
Other long-term liabilities............... 59 59
-------- -------- --------
Total liabilities....................... $ 8,895 $ 170 $ 9,065
-------- -------- --------
Total................................... $ 15,542 $ 68,480 $ 84,022
======== ======== ========
</TABLE>

16
<PAGE> 87

These transactions had the following effect on stockholders' equity (in
thousands):

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY RETAINED
STOCK CAPITAL STOCK EARNINGS
-------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Elimination of historical stockholders' equity.... $(5,968) $(1,031) $ 210 $(3,064)
Elimination of historical stockholders' equity
reflected in note (4)........................... (5,689)
Shares issued as partial consideration for Recent
Acquisitions.................................... 18 23,951
------- ------- ----- -------
Net change in stockholders' equity................ $(5,950) $17,231 $ 210 $(3,064)
======= ======= ===== =======
</TABLE>

(6) Represents repayment at closing of $1.3 million of accrued liabilities of
one of the Sellers and payment of certain build-out costs relating to an
additional store to be acquired by the Company, pursuant to certain
acquisition agreements.

17
<PAGE> 88

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1996 AND THE THREE MONTHS ENDED APRIL 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1996 THREE MONTHS ENDED APRIL 30, 1996
-------------------------------------------------------------- -----------------------------------------------
HISTORICAL HISTORICAL
------------------------------------ ---------------------
WEST PRIOR RECENT PRO FORMA COMPANY WEST RECENT PRO FORMA COMPANY
COAST ACQUISITIONS ACQUISITIONS ADJUSTMENTS PRO FORMA COAST ACQUISITIONS ADJUSTMENTS PRO FORMA
------ ------------ ------------ ----------- --------- ------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental
revenues... $9,209 $ -- $ 55,872 $ (927) $64,154 $2,414 $ 16,054 $ (319) $18,149
Franchise
fees....... 3,211 3,260 1,475 (1,595) 6,351 1,377 115 (402) 1,090
Merchandise
and other
sales...... 2,299 502 8,923 (54) 11,670 931 2,439 (13) 3,357
------ ------ -------- ------- ------- ------ -------- ------- -------
Total
revenue... 14,719 3,762 66,270 (2,576)(4) 82,175 4,722 18,608 (734)(4) 22,596
Operating costs
and expenses:
Store
operating
costs...... 6,234 -- 32,042 (3,164)(5) 35,112 1,473 8,963 (987)(5) 9,449
Cost of goods
sold....... 1,384 622 7,786 (2,133)(6) 7,659 693 1,947 (710)(6) 1,930
Amortization
of
videocassette
and video
game rental
inventory... 1,972 -- 15,818 (3,100)(7) 14,690 386 4,419 (872)(7) 3,933
General and
adminis-
trative.... 3,659 2,728 8,315 (1,849)(8) 12,853 1,586 2,079 (334)(8) 3,331
Intangible
amortization 254 -- -- 3,612 (9) 3,866 133 -- 912 (9) 1,045
------ ------ -------- ------- ------- ------ -------- ------- -------
Total
operating
costs and
expenses.. 13,503 3,350 63,961 (6,634) 74,180 4,271 17,408 (1,991) 19,688
------ ------ -------- ------- ------- ------ -------- ------- -------
Operating
income....... 1,216 412 2,309 4,058 7,995 451 1,200 1,257 2,908
Interest
expense...... 640 213 523 (1,018)(10) 358 285 146 (341)(10) 90
Other, net..... -- -- (743) (62)(11) (805) (9) 188 (27)(11) 152
------ ------ -------- ------- ------- ------ -------- ------- -------
Income before
provision for
income
taxes........ 576 199 2,529 5,138 8,442 175 866 1,625 2,666
Income taxes... 242 -- 523 3,045 (12) 3,810 74 167 938 (12) 1,179
------ ------ -------- ------- ------- ------ -------- ------- -------
Net income..... $ 334 $ 199 $ 2,006 $ 2,093 $ 4,632 $ 101 $ 699 $ 687 $ 1,487
====== ====== ======== ======= ======= ====== ======== ======= =======
Pro forma net
income per
share........ $ 0.06 -- -- -- $ 0.38 $ 0.02 -- -- $ 0.12
====== ======= ====== =======
</TABLE>

18
<PAGE> 89

NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS

(1) Recent Acquisitions include the following historical financial data for the
year ended January 31, 1996 (in thousands):

<TABLE>
<CAPTION>
OPERATING NET
RENTAL OTHER TOTAL INCOME INCOME
REVENUE REVENUE REVENUE (LOSS) (LOSS)
------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
PALMER CORPORATION AND SUBSIDIARIES (Unaudited).... $17,297 $ 6,067 $23,364 $ (166) $ 233
------- ------- ------- ------ ------
RED GIRAFFE:
American Video, Inc. and Red Giraffe Video,
Inc........................................... 8,557 987 9,544 631 482
Lancaster Group, Inc............................. 1,239 189 1,428 39 6
------- ------- ------- ------ ------
9,796 1,176 10,972 670 488
------- ------- ------- ------ ------
MASSACHUSETTS FRANCHISEES:
New Age Entertainment, Inc. ..................... 3,592 405 3,997 12 (43)
HB Associates, Inc............................... 2,381 374 2,755 29 (5)
Best Entertainment, Inc.......................... 1,327 225 1,552 271 270
Video Innovators, Inc............................ 774 73 847 69 29
------- ------- ------- ------ ------
8,074 1,077 9,151 381 251
------- ------- ------- ------ ------
5 OTHER UNAFFILIATED SELLING GROUPS:
A-Z Video Systems, Inc. (Unaudited).............. 3,382 178 3,560 213 21
------- ------- ------- ------ ------
Showtime, Inc.................................... 3,475 436 3,911 (56) (63)
------- ------- ------- ------ ------
Video Giant, Inc................................. 4,906 305 5,211 189 110
------- ------- ------- ------ ------
VIDEO VIDEO:
Video Video of Parsippany, Inc., Video Video of
Chatham, Inc. and Video Video Management
Corporation (Unaudited)....................... 1,078 202 1,280 3 (50)
Video Video of Westfield, Inc. (Unaudited)....... 706 140 846 (91) (114)
------- ------- ------- ------ ------
1,784 342 2,126 (88) (164)
------- ------- ------- ------ ------
VIDEOLAND:
Anthony Cocca's Videoland, Inc................... 3,999 484 4,483 532 514
Vidko, Inc. (Unaudited).......................... 522 27 549 135 135
Kobie-Co Movie Outlet............................ 2,637 306 2,943 499 481
------- ------- ------- ------ ------
7,158 817 7,975 1,166 1,130
------- ------- ------- ------ ------
$55,872 $10,398 $66,270 $2,309 $2,006
======= ======= ======= ====== ======
</TABLE>

- ---------------

See Index to Consolidated Financial Statements set forth in this Prospectus for
cross-reference to historical financial statements of certain of the Sellers.

19
<PAGE> 90

NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS

Recent Acquisitions include the following unaudited historical financial
data for the three month period ended April 30, 1996 (in thousands):

<TABLE>
<CAPTION>
OPERATING NET
RENTAL OTHER TOTAL INCOME INCOME
REVENUE REVENUE REVENUE (LOSS) (LOSS)
------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
PALMER CORPORATION AND SUBSIDIARIES:................ $ 4,788 $1,397 $ 6,185 $ 540 $ 81
------- ------ ------- ------ -----
RED GIRAFFE:
American Video, Inc. and Red Giraffe Video,
Inc............................................ 2,352 229 2,581 114 63
Lancaster Group, Inc. ............................ 310 47 357 8 1
------- ------ ------- ------ -----
2,662 276 2,938 122 64
------- ------ ------- ------ -----
MASSACHUSETTS FRANCHISEES:
New Age Entertainment, Inc........................ 1,123 110 1,233 56 36
HB Associates, Inc................................ 713 107 820 117 115
Best Entertainment, Inc........................... 382 65 447 116 116
Video Innovators, Inc............................. 269 42 311 (9) (5)
------- ------ ------- ------ -----
2,487 324 2,811 280 262
------- ------ ------- ------ -----
5 OTHER UNAFFILIATED SELLING GROUPS:
A-Z Video Systems, Inc............................ 995 45 1,040 175 103
------- ------ ------- ------ -----
Showtime, Inc..................................... 976 139 1,115 (6) (8)
------- ------ ------- ------ -----
Video Giant, Inc. ................................ 1,323 141 1,464 (386) (231)
------- ------ ------- ------ -----
VIDEO VIDEO:
Video Video of Parsippany, Inc., Video Video of
Chatham, Inc. and Video Video Management
Corporation.................................... 309 54 363 24 3
Video Video of Westfield, Inc..................... 179 28 207 8 (7)
------- ------ ------- ------ -----
488 82 570 32 (4)
------- ------ ------- ------ -----
VIDEOLAND:
Anthony Cocca's Videoland, Inc.................... 1,430 58 1,488 240 236
Vidko, Inc........................................ 153 8 161 45 45
Kobie-Co Movie Outlet............................. 752 84 836 158 151
------- ------ ------- ------ -----
2,335 150 2,485 443 432
------- ------ ------- ------ -----
$16,054 $2,554 $18,608 $1,200 $ 699
======= ====== ======= ====== =====
</TABLE>

- ---------------

See Index to Consolidated Financial Statements set forth in this Prospectus for
cross-reference to historical financial statements of certain of the Sellers.

(2) See the introductory paragraphs under "Unaudited Pro Forma Combined
Condensed Financial Statements."

(3) West Coast includes the historical results of operations of the Company.
Prior Acquisitions include the results of operations of the WCEI Companies
prior to the acquisition thereof by the Company. Recent Acquisitions
includes the historical results of operations of the Sellers.

20
<PAGE> 91

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
JANUARY 31, ENDED
1996 APRIL 30,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
(4) Adjustment consists of the following (in thousands):
a. To record the elimination of franchisee fees recorded by
the WCEI Companies received from the Massachusetts
Franchisees, as such amounts will be considered
intercompany transactions upon acquisition................ $ 474 $ 131
b. To eliminate rental revenues ($927 for the year ended
January 31, 1996, and $319 for the three months ended April
30, 1996) and merchandise sales ($54 for the year ended
January 31, 1996 and $13 for the three month period ended
April 30, 1996) included in the historical financial
statements of certain Sellers relating to stores not being
acquired pursuant to the Recent Acquisitions.............. 981 332
c. To conform the classification used by a Seller for
advertising reimbursements with those used by the Company (see
corresponding adjustments 5(f) and 6(b)). ................ 1,121 271
------- -------
$ 2,576 $ 734
======= =======
(5) Adjustment consists of the following (in thousands):
a. To record the elimination of franchisee fees paid by the
Massachusetts Franchisees to the WCEI Companies, as such
amounts will be considered intercompany transactions upon
acquisition............................................... $ 474 131
b. To record the change in historical compensation, including
fringe benefits related to owners of certain Sellers. (In
negotiating the Recent Acquisitions, employment agreements
were entered into in those specific instances where an
owner was to be retained. In all other situations, the
asset purchase agreements specifically exclude employment
reference as such individuals will not be employed by the
Company. The net adjustment includes $988 for the year
ended January 31, 1996 and $523 for the three month period
ended April 30, 1996 related to those owners to be
retained, at lower compensation levels, and $364 for the
year ended January 31, 1996 and $106 for the three month
period ended April 30, 1996 related to those owners not to
be retained.) ............................................ 1,353 629
c. To eliminate store operating costs included in the
historical financial statements of the Sellers relating to
stores not acquired in association with the Recent
Acquisitions.............................................. 953 373
d. To record the reduction in depreciation expense as a
result of depreciating the acquired furnishings, equipment and
leasehold improvements over their estimated remaining
useful lives.............................................. 1,225 242
e. To conform the method of accounting for handling fees
under a revenue sharing agreement with the method used by the
Company................................................... 148 37
f. To conform the classification used by a Seller for fees
payable under a revenue sharing agreement with those used by
the Company (see offsetting adjustment 4(c) and 6(b)). ... (989) (425)
------- -------
$ 3,164 $ 987
======= =======
(6) Adjustment consists of the following (in thousands):
a. To eliminate the cost of goods sold included in the
historical financial statements of the Sellers relating to
merchandise sales of the stores not acquired in
association with the Recent Acquisitions.................. $ 23 $ 14
b. To conform the classification used by a Seller for
advertising reimbursements and fees payable under a revenue
sharing agreement with those used by the Company (see
corresponding adjustments 4(c) and 5(f)). ................ 2,110 696
------- -------
$ 2,133 $ 710
======= =======
</TABLE>

21
<PAGE> 92

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
JANUARY 31, ENDED
1996 APRIL 30,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
(7) Adjustment consists of the following (in thousands):
- To record a decrease in videocassette rental inventory
amortization expense resulting from the allocations of
purchase price to videocassette rental tapes of the
acquired entities, based on current replacement cost for
bulk purchases of used tapes, as well as the assignment of
a three year amortizable life which serves to extend the
remaining economic useful lives of videocassette rental
tapes acquired. Replacement cost for bulk purchases of used
tapes is significantly less than the cost of new tape
purchases. As a result, future amortization relating to
these tapes, on a per tape basis, will be significantly
less than the amortization relating to new tape purchases.
In addition, to the extent the acquired tapes have book
values lower than newly purchased tapes, sales of the
acquired tapes should result in higher operating income
than sales of new tape purchases. These favorable effects
resulting from purchase accounting will diminish with the
passage of time and will not extend beyond the three year
period subsequent to acquisition which is the period over
which these tapes will be amortized. The Company believes
that there will be no changes to future revenue associated
with base stock inventory acquired and therefore there is
no corresponding pro forma adjustment to revenue necessary.
The Company believes that its method of amortization, as
well as that of the entities being acquired, results in an
appropriate matching of tape amortization expense with the
revenue received from the associated rental of such
tapes...................................................... $ 3,100 $ 872
======= =======
(8) Adjustment consists of the following (in thousands):
a. To record the change in historical compensation, including
fringe benefits related to owners of certain entities to be
acquired. (In negotiating the Recent Acquisitions,
employment agreements were entered into in those specific
instances where an owner was to be retained. In all other
situations, the asset purchase agreements specifically
exclude employment reference as such individuals will not
be employed by the Company. The net adjustment includes
$330 for the year ended January 31, 1996 and $75 for the
three month period ended April 30, 1996 related to those
owners to be retained at lower compensation levels and
$215 for the year ended January 31, 1996 and $0 for the
three month period ended April 30, 1996 related to those
owners not to be retained.) .............................. $ 545 $ 75
b. To record the elimination of historical compensation and
related fringe benefits totaling $1,047 for the year ended
January 31, 1996 and $248 for the three months ended April
30, 1996, and lease expense totaling $201 for the year
ended January 31, 1996 and $11 for the three month period
ended April 30, 1996. (The Company believes its
pre-existing corporate infrastructure is sufficient to
handle the operations being acquired without retaining
certain general and administrative employees of certain
entities to be acquired. As a result, the Company entered
into agreements with certain Sellers relating to the
termination of existing employees and the assumption of a
lease arrangement by the former owners upon
acquisition.) ............................................ 1,248 259
c. To eliminate general and administrative costs included in
the historical financial statements of the Sellers relating to
a business not acquired in association with the Prior
Acquisitions.............................................. 56 --
------- -------
$ 1,849 $ 334
======= =======
</TABLE>

22
<PAGE> 93

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
JANUARY 31, ENDED
1996 APRIL 30,1996
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
--------------- -------------
<S> <C> <C> <C>
(9) Adjustment consists of the following (in thousands):
a. To record goodwill amortization relating to the excess of
the estimated purchase price, including related acquisition
costs, over the estimated fair value of assets acquired in
the Recent Acquisitions (20 years on a straight-line
basis).................................................... $ 3,422 $ 912
b. To record the amortization of intangibles, principally
franchise agreements, resulting from the acquisition of the
WCEI Companies (15 years on a straight-line basis)........ 190 --
------- -------
$ 3,612 $ 912
======= =======
(10) Adjustment consists of the following (in thousands):
a. To eliminate historical interest expense due to the
partial use of offering proceeds to extinguish outstanding
borrowings................................................ $ 1,376 $ 431
b. To record interest expense related to borrowings under the
Credit Facility at the lending bank's base rate (8.25% at
January 31, 1996 and at April 30, 1996)................... (358) (90)
------- -------
$ 1,018 $ 341
======= =======
(11) Adjustment consists of the following (in thousands):
- To eliminate minority shareholder interest acquired as part
of the Recent Acquisitions.................................... $ 62 $ 27
======= =======
(12) Adjustment consists of the following (in thousands):
a. To reflect the estimated effect on the income tax
provision as if the Prior Acquisitions and Recent Acquisitions
had been taxed as C corporations. ........................ $ 517 $ 358
b. To reflect the income tax effect on the pro forma
adjustments (4) through (11) above at an effective tax rate of
39%, exclusive of non-deductible goodwill totaling $1,347
for the year ended January 31, 1996 and $355 for the three
month period ended April 30, 1996 ........................ 2,528 580
------- -------
$ 3,045 $ 938
======= =======
(13) Unaudited pro forma net income per share has been calculated
for the year ended January 31, 1996 and the three month period
ended April 30, 1996 by dividing the unaudited pro forma net
income amount by the weighted average number of shares of
common stock outstanding (4,756,000 at January 31, 1996 and
April 30, 1996). Unaudited pro forma net income reflects an
adjustment to the consolidated statement of operations to give
effect to the Merger and the 0.340-for-1 reverse stock split
as if they had occurred as of February 1, 1992. Accordingly,
the pro forma income tax provision and pro forma net income
have been calculated as if each entity included in the
consolidated statement of operations had been included in the
Company's consolidated income tax returns and subject to
corporate income taxation as a C Corporation during all
periods presented.
</TABLE>

23
<PAGE> 94

<TABLE>
<S> <C> <C> <C>
(14) Unaudited pro forma net income per share for the year ended
January 31, 1996 and the three month period ended April 30,
1996 has been calculated by dividing unaudited pro forma net
income by the pro forma weighted average number of shares of
Common Stock outstanding after giving effect to (i) the
Merger, (ii) the issuance of shares upon formation of the
Company, (iii) the 0.340-for-1 reverse stock split and the
shares issued in conjunction with this offering, (iv) the
shares issued in conjunction with the Recent Acquisitions, (v)
repayment of all existing outstanding debt, (vi) borrowings
under the Credit Facility and (vii) the impact of the Warrant
and a portion of the Convertible Note, as if all activity
occurred as of February 1, 1995. See Notes 1 and 7 to the
Company's consolidated financial statements. The pro forma
weighted average number of common shares used to calculate pro
forma net income per share at January 31, 1996 and April 30,
1996, is 12,322,075.
</TABLE>

24
<PAGE> 95

SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

The selected historical financial data presented under the captions
Statement of Operations Data for the three month periods ended April 30, 1995
and 1996, and Balance Sheet data at April 30, 1996 have been derived from
unaudited consolidated financial statements of the Company, appearing elsewhere
herein. The selected historical financial data presented under the captions
Statement of Operations Data for the three years ended January 31, 1996, and
Balance Sheet Data at January 31, 1996 and January 31, 1995 have been derived
from the Company's consolidated financial statements, appearing elsewhere
herein, which were audited by Price Waterhouse LLP. The selected historical
financial data presented under the captions Statement of Operations Data for the
year ended January 31, 1993 and Balance Sheet Data at January 31, 1994 and
January 31, 1993, have been derived from the Company's consolidated statement of
operations and balance sheet, which were audited by Price Waterhouse LLP and not
included in this Prospectus. The selected historical financial data presented
under the captions Statement of Operations Data and Balance Sheet Data at and
for the year ended January 31, 1992 have been derived from unaudited financial
statements of the Company which have not been included in this Prospectus. The
unaudited pro forma financial data presented under the captions Statement of
Operations Data and Balance Sheet Data at and for the year ended January 31,
1996, have been derived from the unaudited pro forma combined condensed
financial statements, certain of which appear elsewhere herein. The unaudited
pro forma combined financial data do not purport to represent what the Company's
results of operations and financial position would actually have been had the
Recent Acquisitions or the Public Offering actually occurred at the dates
indicated, or to project the Company's results of operations or financial
position for any future period. The Selected Historical and Pro Forma Combined
Financial Data set forth below should be read in conjunction with the financial
statements and notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Unaudited Pro Forma Combined
Condensed Financial Statements" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------------------
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30
------------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------- ------ ------
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................. $ 921 $1,120 $2,520 $6,503 $14,719 $2,675 $4,722
Operating costs and expenses............. 995 1,225 2,564 6,118 13,503 2,453 4,271
------ ----- ------ ------ ------- ------ ------
Operating income (loss).................. (74) (105) (44) 385 1,216 222 451
Interest expense, net and other.......... 26 45 42 118 640 37 276
------ ----- ------ ------ ------- ------ ------
Income (loss) before income taxes........ (100) (150) (86) 267 576 185 175
Income taxes (benefit)................... -- -- (14) 63 242 50 74
------ ------ ------ ------ ------- ------ ------
Net income (loss)........................ $ (100) $ (150) $ (72) $ 204 $ 334 $ 135 $ 101
====== ====== ====== ====== ======= ====== ======
Pro forma net income (loss) per share.... $(0.35)(2) $(0.36)(2) $(0.07)(2) $ 0.12(2) $ 0.06(2) $ 0.03(2) $ 0.02(2)
OTHER DATA:
Depreciation and amortization(4)......... $ 512 $ 418 $ 870 $1,628 $ 2,585 $ 612 $ 623
Purchases of videocassette rental
inventory.............................. 232 471 685 1,430 2,002 537 570
STORE DATA:
Increase (decrease) in same store
revenue(5)............................. -- 14.9% (6.1)% 14.2% 4.8% 2.3% 3.5%
Company-owned stores at end of period.... 6 8 14 28 28 28 28
Franchised stores at end of period....... -- -- -- -- 304 308 296
------ ------ ------ ------ ------- ------ ------
Total stores at end of period............ 6 8 14 28 332 336 324
====== ====== ====== ====== ======= ====== ======

<CAPTION>
PRO FORMA(1)
-------------------------------
THREE MONTHS
ENDED
YEAR ENDED APRIL 30,
JAN. 31, 1996 1996
------------- -------------

<S> <C><C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................. $82,175 $22,596
Operating costs and expenses............. 74,180 19,688
------- -------
Operating income (loss).................. 7,995 2,908
Interest expense, net and other.......... (447) 242
------- -------
Income (loss) before income taxes........ 8,442 2,666
Income taxes (benefit)................... 3,810 1,179
------- -------
Net income (loss)........................ $ 4,632 $ 1,487
======= =======
Pro forma net income (loss) per share.... $ 0.38(3) $ 0.12(3)
OTHER DATA:
Depreciation and amortization(4)......... $19,726 $ 4,629
Purchases of videocassette rental
inventory.............................. 18,246 $ 4,697
STORE DATA:
Increase (decrease) in same store
revenue(5)............................. 1.5% 0.5%
Company-owned stores at end of period.... 197 200
Franchised stores at end of period....... 310 303
------- -------
Total stores at end of period............ 507 503
======= =======
</TABLE>

(footnotes on following page)

25
<PAGE> 96

<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------
PRO FORMA(1)
JANUARY 31, ------------
------------------------------------------------ APRIL 30, APRIL 30,
1992 1993 1994 1995 1996 1996 1996
----- ----- ----- ------ ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents......... $ -- $ 23 $ 12 $ 45 $ 611 $ 207 $ 1,158
Videocassette rental inventory,
net............................. 67 162 388 1,464 1,509 1,693 14,317
Total assets...................... 216 360 770 3,631 16,515 18,606 104,779
Long-term debt, less current
portion......................... 328 302 332 738 7,101 7,505 4,361
Total liabilities................. 656 906 1,338 3,266 15,972 17,962 18,494
Stockholders' equity.............. (440) (546) (568) 365 543 644 86,285
</TABLE>

(2) Unaudited pro forma net income (loss) per share has been calculated for each
of the years in the five year period ended January 31, 1996 and for each of
the three month periods ended April 30, 1995 and 1996 by dividing the
respective unaudited pro forma net income (loss) amounts by the weighted
average number of shares of common stock outstanding (289,000, 418,000,
843,000, 1,693,000 and 4,756,000, as of January 31, 1992, 1993, 1994, 1995
and 1996, respectively and 4,756,000 as of April 30, 1995 and 1996).
Unaudited pro forma net income (loss) reflects an adjustment to the
consolidated statement of operations to give effect to the Merger and the
0.340-for-1 reverse stock split as if they had occurred as of February 1,
1992. Accordingly, the pro forma income tax provision (benefit) and pro
forma net income (loss) have been calculated as if each entity included in
the consolidated statement of operations had been included in the Company's
consolidated income tax returns and subject to corporate income taxation as
a C Corporation during all periods presented.

(3) Unaudited pro forma net income per share for the year ended January 31, 1996
has been calculated by dividing unaudited pro forma net income by the
weighted average number of shares of Common Stock outstanding after giving
effect to (i) the Merger, (ii) the issuance of shares upon formation of the
Company, (iii) the 0.340-for-1 reverse stock split and the shares issued in
conjunction with this offering, (iv) the shares issued in conjunction with
the Recent Acquisitions, (v) the repayment of all existing outstanding debt,
(vi) borrowings under the Credit Facility and (vii) the impact of the
Warrant, as if all activity occurred as of February 1, 1995. See Notes 1 and
7 to the Company's consolidated financial statements. The pro forma weighted
average number of common shares used to calculate pro forma net income per
share at January 31, 1996 and April 30, 1996 is 12,322,075.

(5) Same store revenue is defined as the aggregate revenues from Company-owned
stores open for the entirety of the periods being compared. Increase
(decrease) reflects change from prior fiscal year.

26
<PAGE> 97

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

27
<PAGE> 98

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------ PRO FORMA
THREE MONTHS ---------------------------
ENDED THREE MONTHS
YEAR ENDED JANUARY 31, APRIL 30, YEAR ENDED ENDED APRIL
------------------------ -------------- JANUARY 31, 30,
1994 1995 1996 1995 1996 1996 1996
----- ----- ----- ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues...................... 89.2% 86.2% 62.6% 87.9% 51.1% 78.1% 80.3%
Franchise fees....................... -- -- 21.8 -- 29.2 7.7 4.8
Merchandise and other sales.......... 10.8 13.8 15.6 12.1 19.7 14.2 14.9
----- ----- ----- ----- ----- ----- -----
Total.............................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Operating costs and expenses:
Store operating expenses(1).......... 51.7 52.7 42.3 58.5 31.1 42.7 41.8
Cost of sales........................ 1.7 5.9 9.4 4.9 14.7 9.3 8.5
Amortization of videocassette and
video game rental inventory(2)..... 31.1 22.1 13.4 19.3 8.2 17.9 17.4
General and administrative........... 17.2 13.4 24.9 9.0 33.6 15.7 14.7
Intangible amortization.............. -- -- 1.7 -- 2.8 4.7 4.7
----- ----- ----- ----- ----- ----- -----
Total.............................. 101.7 94.1 91.7 91.7 90.4 90.3 87.1
----- ----- ----- ----- ----- ----- -----
Operating income (loss).............. (1.7) 5.9 8.3 8.3 9.6 9.7 12.9
Non-operating (income) expense,
net................................ 1.7 1.8 4.4 1.4 5.9 (0.5) 1.1
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes.... (3.4) 4.1 3.9 6.9 3.7 10.2 11.8
Provision (benefit) for income
taxes.............................. (0.5) 1.0 1.6 1.9 1.6 4.6 5.2
----- ----- ----- ----- ----- ----- -----
Net income (loss).................... (2.9)% 3.1% 2.3% 5.0% 2.1% 5.6% 6.6%
===== ===== ===== ===== ===== ===== =====
OTHER DATA:
Purchases of videocassette rental
inventory.......................... 27.2% 22.0% 13.6% 20.1% 12.1% 22.2% 20.8%
STORE DATA:
Increase (decrease) in same store
revenue(3)......................... (6.1)% 14.2% 4.8% 2.3% 3.5% 1.5% 0.5%
Company-owned stores open at end of
period............................. 14 28 28 28 28 197 199
Franchised stores open at end of
period............................. -- -- 304 308 296 310 303
----- ----- ----- ----- ----- ----- -----
Total stores open at end of period... 14 28 332 336 324 507 502
===== ===== ===== ===== ===== ===== =====
</TABLE>

- ---------------
(1) Exclusive of amortization of videocassette and video game rental inventory.

PRO FORMA RESULTS OF OPERATIONS

28
<PAGE> 99

operations. Any significant acquisitions in future periods could impact the
future mix of rental revenues, franchise fees and merchandise and other sales
and (because each such component of revenues involves different types of
expenses) the future mix of expenses and the Company's operating margins. See
"Risk Factors -- Acquisition Risks."

Revenues. Rental revenues represented 78.1% and 80.3% of pro forma total
revenues for the year ended January 31, 1996 and for the three months ended
April 30, 1996, respectively, as compared with 62.6% and 51.1% of historical
total revenues for the same periods. Merchandise and other sales represented
14.2% and 14.9%, respectively, of total revenues for the year ended January 31,
1996 and for the three months ended April 30, 1996, respectively, on a pro forma
basis as compared with 15.6% and 19.7%, respectively, on a historical basis and
franchise fees represented 7.7% and 4.8% of total revenues on a pro forma basis
for the year ended January 31, 1996 and for the three months ended April 30,
1996, respectively, as compared with 21.8% and 29.2%, respectively, on a
historical basis. These differences reflect the fact that the primary revenue
source for the companies acquired in the Recent Acquisitions is rental revenue.
The Company believes that future Acquisitions, if any, of owned and operated
stores (particularly Acquisitions of existing West Coast Video(R) franchised
stores) should increase rental revenues as a percentage of total revenues.

Store Operating Expenses. Store operating expenses represented 42.7% and
41.8%, respectively, of pro forma total revenues for the year ended January 31,
1996 and for the three months ended April 30, 1996, respectively, as compared
with 42.3% and 31.1%, respectively, of historical total revenues for the same
periods. In the future, a change in the mix of the number of Company-owned and
franchised stores should result in a change in store operating expenses as a
percentage of total revenues, since franchising operations involve no store
operating expenses.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game inventory was 17.9% and
17.4% of total pro forma revenues for the year ended January 31, 1996 and for
the three months ended April 30, 1996, respectively, compared to 13.4% and 8.2%,
respectively, of historical total revenues for the same periods, because the
rental of purchased stocks of videocassettes and video games constitutes a
larger component of the Company's business on a pro forma basis than on an
historical basis. Pro forma and historical amortization of videocassette and
video game rental inventory as a percentage of rental revenue were approximately
the same within each period.

General and Administrative Expenses. General and administrative expenses
were 15.7% and 14.7% of pro forma total revenues for the year ended January 31,
1996 and for the three months ended April 30, 1996, respectively, as compared
with 24.9% and 33.6%, respectively, of total historical revenues during the same
periods. This difference was due primarily to a consolidation of the
administrative function on a pro forma basis so that the incremental increase in
revenues was greater than the incremental increase in general and administrative
costs. The Company believes that its current general and administrative
infrastructure can support additional Acquisitions without major augmentation
which should result in improving general and administrative expense margins.

Net Income. Net income was 5.6% and 6.6% of revenues on a pro forma basis
for the year ended January 31, 1996 and for the three months ended April 30,
1996, respectively, as compared with 2.3% and 2.1%, respectively, for the
Company historically during the same periods. This difference was due primarily
to the expected economies of scale on a pro forma basis compared to the
Company's current operations.

HISTORICAL RESULTS OF OPERATIONS FOR THE COMPANY

The Company's revenues constituted 17.9% and 20.8% of pro forma combined
total revenues for the fiscal year ended January 31, 1996 and for the three
months ended April 30, 1996, respectively.

THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 30,
1995

Revenues. Revenues increased $2.0 million, or 74.1%, from $2.7 million for
the three months ended April 30, 1995 to $4.7 million for the three months ended
April 30, 1996. Of this increase, approximately $1.4 million of franchise fees
and $0.5 million of associated product sales was contributed by the Company's
franchise-related operations following the acquisition on July 12, 1995 of the
operating assets of the WCEI Companies relating to the West Coast Video
franchise system (hereinafter, the "franchise business").

29
<PAGE> 100

Merchandise and other sales increased an additional $0.1 million due to a video
game store acquired from the WCEI Companies and an increase in merchandise and
other sales in existing stores.

Rental revenues increased $0.06 million or 2.6% from $2.35 million for the
three months ended April 30, 1995 to $2.41 million for the three months ended
April 30, 1996 due primarily to the rental revenues of a video game store
acquired from the WCEI Companies and an increase in same store rental revenues.
Merchandise sales and other sales increased $0.6 million or 200% from $0.3
million for the three months ended April 30, 1995 to $0.9 million for the three
months ended April 30, 1996 and franchise fee income increased from zero for
three months ended April 30, 1995 to $1.4 million for the three months ended
April 30, 1996 primarily due to the acquisition of the franchise business on
July 12, 1995.

Store Operating Expenses. Store operating expenses net of amortization of
videocassette rental inventory decreased $0.1 million, or 6.3%, from $1.6
million for the three months ended April 30, 1995 to $1.5 million for the three
months ended April 30, 1996. As a percentage of total revenues, store operating
expenses decreased 27.4 percentage points from 59.3% for the three months ended
April 30, 1995 to 31.9% for the three months ended April 30, 1996. In addition,
as a percentage of rental revenues and merchandise and other sales (excluding
franchise fees), store operating costs decreased 13.8 percentage points, from
59.3% for the three months ended April 30, 1995 to 45.5% for the three months
ended April 30, 1996. These changes are primarily the effect of the acquisition
of the franchise business which contributed $1.9 million of total revenues ($1.4
million of franchise fees and $0.5 million of merchandise and other sales)
during the period, but which involve virtually no store operating expenses.

Cost of Sales. Cost of sales increased $0.6 million, or 600%, from $0.1
million for the three months ended April 30, 1995 to $0.7 million for the three
months ended April 30, 1996, primarily as a result of the acquisition of the
franchise business (which accounted for $0.5 million or 83.3% of the increase)
and increased costs of $0.1 million or 16.7%, resulting from increased sales. As
a percentage of total revenues, cost of sales increased by 11.2 percentage
points, from 3.7% for the three months ended April 30, 1995 to 14.9% for the
three months ended April 30, 1996, due primarily to a change in the mix of total
revenues in favor of merchandise and other sales and the acquisition of the
franchise business. The franchise business had merchandise and other sales that
were 26.3% of its total revenues, which is higher than the comparable percentage
for the Company exclusive of the franchise business (12.5%) for the three months
ended April 30, 1996. As a percentage of merchandise and other sales, cost of
sales increased by 44.5 percentage points, from 33.3% for the three months ended
April 30, 1995 to 77.8% for the three months ended April 30, 1996, primarily
because sales to franchisees are made at substantially lower margins (17.6%)
than sales to customers.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
decreased $0.1 million, or 20.0%, from $0.5 million for the three months ended
April 30, 1995 to $0.4 million for the three months ended April 30, 1996. As a
percentage of rental revenues, this amortization decreased 4.1 percentage
points, from 20.8% for the quarter ended April 30, 1995 to 16.7% for the quarter
ended April 30, 1996. This reflects a change in the mix of movies purchased
during the period, from those requiring a shorter amortization period (in 1995)
to those which necessitate longer amortization (in 1996).

General and Administrative Expense. General and administrative expenses,
which include intangible amortization, increased $1.5 million, or 750%, from
$0.2 million for the three months ended April 30, 1995 to $1.7 million for the
three months ended April 30, 1996. As a percentage of total revenues, general
and administrative expenses increased 28.8 percentage points from 7.4% for the
three months ended April 30, 1995 to 36.2% for the three months ended April 30,
1996. This change resulted from increased head count and non-store operating
costs from the acquisition of the franchise business totaling $1.4 million.
General and administrative expenses of the franchise business equaled 70.0% of
its total revenues because the principal cost of its business is the
administrative cost of providing support services to franchisees.

Non-Operating Expense, Net. Non-operating expense, net increased $0.26
million to $0.3 million for the three months ended April 30, 1996, a 650%
increase from $0.04 million recorded for the three months ended April 30, 1995.
Interest expense comprises virtually all of this total. As a percentage of total
revenues, interest expense increased 4.9 percentage points from 1.5% for the
three months ended April 30, 1995 to 6.4%

30
<PAGE> 101

for the three months ended April 30, 1996. The increase is attributable to
additional interest expense incurred in connection with the acquisition of the
franchise business.

Net Income. As a result of the foregoing, net income remained unchanged at
$0.1 million for the quarter ended April 30, 1996.

YEAR ENDED JANUARY 31, 1996 COMPARED TO YEAR ENDED JANUARY 31, 1995

Revenues. Revenues increased $8.2 million, or 126.2%, from $6.5 million
for the year ended January 31, 1995 to $14.7 million for the year ended January
31, 1996. Of this increase, approximately $4.2 million was contributed by the 14
Boston-based Videosmith(R) stores, which were acquired by the Company on August
5, 1994 and were therefore included in the Company's accounts for all 12 months
of the fiscal year ended January 31, 1996 but less than six months of the fiscal
year ended January 31, 1995. An additional $3.2 million of franchise fees and
$0.7 million of associated product sales were contributed by the Company's
franchise-related operations following the acquisition on July 12, 1995 of the
franchise business. The video game store acquired from the WCEI Companies
contributed an additional $0.3 million of merchandise and other sales. Revenues
from the Company's other video stores decreased $0.2 million reflecting the
closing of one store, a delay in opening another store and changes in sources of
supply.

Rental revenues increased $3.6 million, or 64.3%, from $5.6 million for the
year ended January 31, 1995 to $9.2 million for the year ended January 31, 1996,
due primarily to having 12 months of revenues, as compared to less than six
months of revenues, from the Videosmith(R) stores and also to an increase of
$0.2 million in revenues from the Company's stores. Increases occurred primarily
in Videosmith(R) stores, principally as a result of continuing growth in two
stores, the elimination of a closely situated competitor from one market and a
change of management personnel early in 1995 in a third store. During the last
six and one half months of the year ended January 31, 1996, as a result of the
acquisition of the franchise business, franchise fees became, for the first
time, a source of revenue for the Company and generated 21.8% of total revenues
for the entire period. Merchandise and other sales increased $1.4 million, or
156.3%, from $0.9 million for the year ended January 31, 1995 to $2.3 million
for the year ended January 31, 1996. In the six and one half months following
the Company's acquisition of the franchise business, sales of supplies to
franchisees amounted to $0.7 million and retail sales at the video game store
acquired from the WCEI Companies amounted to an additional $0.3 million.
Merchandise and other sales also grew faster than rental revenues during the
period because the Company owned the Videosmith(R) stores for all 12 months of
the year (compared to less than six months of the prior year) and merchandise
and other sales accounted for a larger percentage of total revenues for the
Videosmith(R) stores (14.7%) than for the Company's other video specialty stores
(6.3%) due to Videosmith(R)'s historical emphasis on merchandise and other sales
in comparison with most other chains in the industry.

Store Operating Expenses. Store operating expenses net of amortization of
videocassette rental inventory increased $2.8 million, or 81.7%, from $3.4
million for the fiscal year ended January 31, 1995 to $6.2 million for the
fiscal year ended January 31, 1996, reflecting 12 months of operations for the
Videosmith(R) stores and the acquisition of the video game store for six and one
half months. As a percentage of total revenues, store operating expenses
decreased 10.4 percentage points from 52.7% for the fiscal year ended January
31, 1995 to 42.3% for the fiscal year ended January 31, 1996. This decrease was
primarily an effect of the acquisition of the franchise business, which
contributed $3.9 million of revenues during the period but involved no store
operating expenses. As a percentage of rental revenues and merchandise and other
sales (excluding franchise fees), store operating costs increased 1.5 percentage
points, from 52.7% for the year ended January 31, 1995 to 54.2% for the year
ended January 31, 1996, due primarily to higher occupancy and payroll costs per
store in metropolitan Boston as compared to Ohio.

Cost of Sales. Cost of sales increased $1.0 million, or 262.3%, from $0.4
million for the year ended January 31, 1995 to $1.4 million for the year ended
January 31, 1996, primarily as a result of the acquisition of the franchise
business (which accounted for $0.8 million of the increase) and the expansion of
the Company's product sales resulting from the Videosmith(R) acquisition (which
accounted for $0.1 million of the increase). As a percentage of total revenues,
cost of sales increased by 3.5 percentage points, from 5.9% for the year

31
<PAGE> 102

ended January 31, 1995 to 9.4% for the year ended January 31, 1996, due
primarily to a change in the mix of total revenues in favor of merchandise and
other sales and the acquisition of the franchise business. The franchise
business had merchandise and other sales that were 24.0% of its total revenues,
which is higher than the comparable percentage for the Company historically. As
a percentage of merchandise and other sales, cost of sales increased by 17.6
percentage points, from 42.6% for the year ended January 31, 1995 to 60.2% for
the year ended January 31, 1996, primarily because sales to franchisees (which
represent 69.0% of the total merchandise and other sales of the franchise
business) are made at substantially lower margins.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
increased $0.6 million, or 37.3%, from $1.4 million for the fiscal year ended
January 31, 1995 to $2.0 million for the fiscal year ended January 31, 1996, due
to the expansion of the Company's rental business through the Videosmith(R)
acquisition which occurred on August 5, 1994. As a percentage of total revenues,
amortization of videocassette and video game rental inventory decreased 8.7
percentage points from 22.1% for the fiscal year ended January 31, 1995 to 13.4%
for the fiscal year ended January 31, 1996 primarily as a result of a change in
the mix of total revenues in favor of franchise fees and merchandise and other
sales. As a percentage of rental revenues, amortization of videocassette and
video game rental inventory decreased 4.2 percentage points from 25.6% for the
year ended January 31, 1995 to 21.4% for the year ended January 31, 1996, due
primarily to the difference in the ratio of videocassette purchases to rental
revenues between the Videosmith(R) stores (a ratio of approximately 18%) and the
Company's other stores (a ratio of approximately 27%), which reflects the
greater than industry-average demand for the rental of film classics and other
catalog titles, as compared to new releases and video games, at Videosmith(R)
stores.

General and Administrative Expenses. General and administrative expenses,
including intangible amortization, increased $3.1 million, or 349.8%, from $0.9
million for the fiscal year ended January 31, 1995 to $4.0 million for the
fiscal year ended January 31, 1996, reflecting increased head count and
non-store operating costs acquired from the WCEI Companies of $2.8 million and
approximately $0.4 million of general and administrative expenses attributable
to including 12 months (rather than less than six months), of Videosmith(R)
operations. As a percentage of total revenues, general and administrative
expenses increased 13.2 percentage points from 13.4% for the fiscal year ended
January 31, 1995 to 26.6% for the fiscal year ended January 31, 1996, primarily
as a result of the acquisition of the franchise business, whose general and
administrative expenses equalled 65.8% of its total revenues because the
principal cost of this business is the administrative cost of providing support
services to franchisees.

Non-Operating Expense, Net. Non-operating expense, net, increased $0.5
million, or 442.4%, from $0.1 million for the fiscal year ended January 31, 1995
to $0.6 million for the fiscal year ended January 31, 1996. As a percentage of
total revenues, non-operating expense, net, increased 2.6 percentage points from
1.8% for the fiscal year ended January 31, 1995 to 4.4% for the fiscal year
ended January 31, 1996 due to approximately $0.5 million of additional interest
expense incurred in connection with the Videosmith(R) acquisition and the
acquisition of the franchise business from the WCEI Companies.

Net Income. As a result of the foregoing, particularly the acquisition of
the franchise business and the inclusion of 12 months of Videosmith(R)
operations, net income increased $0.1 million, from $0.2 million for the year
ended January 31, 1995 to $0.3 million for the year ended January 31, 1996.

YEAR ENDED JANUARY 31, 1995 COMPARED TO YEAR ENDED JANUARY 31, 1994

Revenues. Revenues increased $4.0 million, or 158.1%, from $2.5 million
for the year ended January 31, 1994 to $6.5 million for the year ended January
31, 1995. Of this increase, approximately $3.8 million was a result of the
Company's acquisition of the 14 Videosmith(R) stores on August 5, 1994. The
remaining $0.2 million is attributable to revenue increases at the Company's
Nostalgia Ventures stores.

Rental revenues accounted for 86.2%, and merchandise and other sales
accounted for 13.8%, of total revenues for the year ended January 31, 1995,
compared with 89.2% and 10.8%, respectively, for the year ended January 31,
1994. The Company had no franchise fee revenues during either year. Merchandise
and other sales increased faster than rental revenues because the Videosmith(R)
stores had a higher ratio of merchandise and other sales to rental revenues than
the Company's other stores due to Videosmith(R)'s historical emphasis on
merchandise and other sales in comparison with most other chains in the
industry.

32
<PAGE> 103

Store Operating Expenses. Store operating expenses increased $2.1 million,
or 163.4%, from $1.3 million in the year ended January 31, 1994 to $3.4 million
in the year ended January 31, 1995, reflecting the inclusion of the store
operating expenses of the 14 Videosmith(R) stores for six months in the year
ended January 31, 1995 (as compared to no portion of the year ended January 31,
1994). As a percentage of total revenues, store operating expenses increased 1.0
percentage point from 51.7% in the year ended January 31, 1994 to 52.7% in the
year ended January 31, 1995. This increase was primarily the result of higher
occupancy and payroll costs per store in metropolitan Boston as compared with
Ohio.

Cost of Sales. Cost of sales increased $0.4 million, or 768.2%, from $0.04
million for the year ended January 31, 1994 to $0.4 million for the year ended
January 31, 1995, reflecting the sales activities of the Videosmith(R) stores.
As a percentage of total revenues, cost of sales increased by 4.2 percentage
points, from 1.7% for the year ended January 31, 1994 to 5.9% for the year ended
January 31, 1995, due primarily to a change in the mix of total revenues in
favor of merchandise and other sales in accordance with Videosmith(R)'s
historical emphasis on such sales. As a percentage of merchandise and other
sales, cost of sales increased by 26.4 percentage points, from 16.2% for the
year ended January 31, 1994 to 42.6% for the year ended January 31, 1995, due
primarily to differences in product mix between the Videosmith(R) stores and the
Company's other stores.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
increased $0.6 million, or 83.2%, from $0.8 million in the year ended January
31, 1994 to $1.4 million in the year ended January 31, 1995, reflecting the
rental activities of the Videosmith(R) stores that were acquired in August 1994.
As a percentage of total revenues, amortization of videocassette and video game
rental inventory decreased 9.0 percentage points from 31.1% in the year ended
January 31, 1994 to 22.1% in the year ended January 31, 1995, and as a
percentage of rental revenues, amortization of videocassette and video game
rental inventory decreased 9.3 percentage points, from 34.9% for the year ended
January 31, 1994 to 25.6% for the year ended January 31, 1995. These decreases
were primarily due to the lower ratio of videocassette purchases to
videocassette rental revenue between the Videosmith(R) stores during such period
(a ratio of approximately 15%) and the Company's other stores (a ratio of
approximately 35%), which reflects the greater than industry-average demand for
the rental of film classics and other catalog titles, as compared to new
releases and video games, at Videosmith(R) stores.

General and Administrative Expenses. General and administrative expenses
increased $0.5 million, or 101%, from $0.4 million in the year ended January 31,
1994 to $0.9 million in the year ended January 31, 1995. As percentage of total
revenues, general and administrative expenses decreased 3.8 percentage points
from 17.2% of revenues in the year ended January 31, 1994 to 13.4% in the year
ended January 31, 1995, primarily as a result of reduced legal expenses. The
Videosmith(R) stores had general and administrative expenses of 13.8% of
revenues in the year ended January 31, 1995.

Non-Operating Expense, Net. Non-operating expense, net, increased $0.06
million from $0.04 million in the fiscal year ended January 31, 1994 to $0.1
million in the fiscal year ended January 31, 1995. As a percentage of total
revenues, non-operating expense, net, increased 0.1 percentage points from 1.7%
of revenues during the year ended January 31, 1994 to 1.8% during the year ended
January 31, 1995 as a result of the additional interest expense incurred in
connection with the Videosmith(R) acquisition.

Net Income. As a result of the foregoing, particularly the Videosmith(R)
acquisition, net income increased $0.3 million, or 300.0%, from a loss of $0.1
million in the year ended January 31, 1994 to a profit of $0.2 million in the
year ended January 31, 1995.

HISTORICAL RESULTS OF OPERATIONS FOR PALMER VIDEO

Palmer Video's revenues constituted 27.1% and 26.2% of pro forma combined
total revenues for the fiscal year ended January 31, 1996 and for the three
months ended April 30, 1996, respectively.

YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995

Revenues. Revenues increased $1.1 million, or 4.9% from $22.5 million for
the year ended March 31, 1995 to $23.6 million for the year ended March 31,
1996, primarily due to an increase in rental revenues offset by a decrease in
wholesale revenue. Rental revenue increased $1.4 million or 8.6% from $16.3
million for the

33
<PAGE> 104

year ended March 31, 1995 to $17.7 million for the year ended March 31, 1996.
This increase was due to an increase in same store rental revenues. Merchandise
sales decreased $0.4 million or 8.3% from $4.8 million for the year ended March
31, 1995 to $4.4 million for the year ended March 31, 1996. This decrease
resulted from a decrease in wholesale sales to franchisees of $0.5 million
partially offset by an increase in retail sales of $0.1 million. Royalty and
other revenue (which consists primarily of franchise royalties and advertising
revenue) increased $0.1 million or 7.1% from $1.4 million for the year ended
March 31, 1995 to $1.5 million for the year ended March 31, 1996 primarily due
to an increase in advertising revenue.

Store Operating Expenses. Store operating expenses increased $0.8 million
or 7.5% from $10.7 million for the year ended March 31, 1995 to $11.5 million
for the year ended March 31, 1996. As a percentage of total revenues, store
operating expenses increased 1.1 percentage points from 47.6% for the year ended
March 31, 1995 to 48.7% for the year ended March 31, 1996. This increase was
primarily due to payroll, advertising, supplies and other costs associated with
opening of new stores which are expensed in the period incurred.

Cost of Sales. Cost of sales increased $0.7 million or 16.7% from $4.2
million for the year ended March 31, 1995 to $4.9 million for the year ended
March 31, 1996. As a percentage of total revenues, cost of sales increased 2.1
percentage points from 18.7% for the year ended March 31, 1995 to 20.8% for the
year ended March 31, 1996. This increase was primarily due to an increase in
revenue-sharing videocassette leasing fees, which are included in cost of sales
rather than in purchases of videocassettes or the amortization of such
purchases.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
decreased $0.5 million, or 12.2% from $4.1 million for the year ended March 31,
1995 to $3.6 million for the year ended March 31, 1996. As a percentage of total
revenues, amortization of videocassette and video game rental inventory
decreased 2.9 percentage points from 18.2% for the year ended March 31, 1995 to
15.3% for the year ended March 31, 1996. This decrease in total amortization
expense was primarily a result of increased revenue-sharing videocassette
leasing fees (which increased cost of sales) and a decrease in videocassettes
purchased.

General and Administrative Expenses. General and administrative expenses
decreased $0.2 million or 6.1% from $3.3 million for the year ended March 31,
1995 to $3.1 million for the year ended March 31, 1996. As a percentage of total
revenues, general and administrative expenses decreased 1.6 percentage points
from 14.7% for the year ended March 31, 1995 to 13.1% for the year ended March
31, 1996. This decrease was primarily due to reducing general and administrative
employees head count while revenues increased.

Non-Operating Income, Net. Non-operating income, net, increased $0.8
million, from a loss of $0.2 million for the year ended March 31, 1995 to $0.6
million for the year ended March 31, 1995. This increase was primarily due to a
settlement of bank debt of $0.8 million.

Net Income. As a result of the foregoing, net income increased $0.8
million, from a loss of $0.3 million for the year ended March 31, 1995 to $0.5
million for the year ended March 31, 1996.

YEAR ENDED MARCH 31, 1995 COMPARED TO YEAR ENDED MARCH 31, 1994

Revenues. Revenues increased $0.3 million, or 1.4%, from $22.2 million for
the year ended March 31, 1994 to $22.5 million for the year ended March 31,
1995. This increase was primarily due to an increase in merchandise sales and
royalty revenue offset by a decrease in rental revenue. Rental revenue decreased
$0.4 million, or 2.4%, from $16.7 million for the year ended March 31, 1994 to
$16.3 million for the year ended March 31, 1995, reflecting a decrease in
revenues per store. Merchandise sales increased $0.5 million, or 11.6%, from
$4.3 million for the year ended March 31, 1994 to $4.8 million for the year
ended March 31, 1995. This increase was primarily due to an increase in retail
sales of $0.3 million and an increase in wholesale sales of $0.2 million.
Royalty and other revenue increased $0.2 million, or 16.7%, from $1.2 million
for the year ended March 31, 1994 to $1.4 million for the year ended March 31,
1995. This increase consisted primarily of a $0.1 million increase in royalty
revenue due to the receipt of past due royalties from franchisees.

34
<PAGE> 105

Store Operating Expenses. Store operating expenses increased $0.3 million,
or 2.9%, from $10.4 million for the year ended March 31, 1994 to $10.7 million
for the year ended March 31, 1995. As a percentage of total revenues, store
operating expenses increased 0.8 percentage points from 46.8% for the year ended
March 31, 1994 to 47.6% for the year ended March 31, 1995. This increase was
primarily due to store closings and new store start-up and operating expenses of
new stores.

Cost of Sales. Cost of sales decreased $0.4 million, or 8.7% from $4.6
million for the year ended March 31, 1994 to $4.2 million for the year ended
March 31, 1995. As a percentage of total revenues, cost of sales decreased 2.0
percentage points from 20.7% for the year ended March 31, 1994 to 18.7% for the
year ended March 31, 1995. This decrease was primarily due to a decrease in
revenue-sharing videocassette leasing fees which are included in cost of sales.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
decreased $0.3 million, or 6.8%, from $4.4 million for the year ended March 31,
1994 to $4.1 million for the year ended March 31, 1995. As a percentage of total
revenues, amortization of videocassette and video game rental inventory
decreased 1.6 percentage points from 19.8% for the year ended March 31, 1994 to
18.2% for the year ended March 31, 1995. This decrease in total amortization
expense was primarily the result in a decrease in videocassettes purchased.

General and Administrative Expenses. General and administrative expenses
decreased $0.4 million, or 10.8%, from $3.7 million for the year ended March 31,
1994 to $3.3 million for the year ended March 31, 1995. As a percentage of total
revenues, general and administrative expenses decreased 2.0 percentage points
from 16.7% for the year ended March 31, 1994 to 14.7% for the year ended March
31, 1995. This decrease was primarily due to a reduction in salaries, insurance
premiums and bad debt expenses and generally greater cost efficiencies.

Non-Operating Expense, Net. Non-operating expense, net, remained
relatively constant at $0.2 million for the year ended March 31, 1994 and for
the year ended March 31, 1995.

Net Income. As a result of the foregoing, net loss decreased $0.5 million,
from a loss of $0.8 million for the year ended March 31, 1994 to a loss of $0.3
million for the year ended March 31, 1995.

HISTORICAL RESULTS OF OPERATIONS FOR RED GIRAFFE

The consolidated pro forma revenues of American Video, Inc. and Red Giraffe
Video, Inc. (as used in this section, "Red Giraffe") constituted 11.2% and 11.4%
of pro forma combined total revenues for the year ended January 31, 1996 and for
the three months ended March 31, 1996, respectively.

THREE MONTHS ENDED APRIL 3, 1996 COMPARED TO THREE MONTHS ENDED MARCH 29,
1995.

Revenues. Rental and product sale revenues increased $0.2 million and
$0.005 million, respectively, or 9% and 2%, respectively, from $2.2 million and
$0.215 million, respectively, for the quarter ended March 29, 1995 to $2.4
million and $0.220 million, respectively, for the quarter ended April 3, 1996.
The increase in rental revenue for the quarter ended April 3, 1996 is
attributable to the opening of five new stores, one each in September, November
and December 1995 and January and February 1996. The increase in product sales
resulted from the opening of such five new stores. This increase, however, was
offset in part by a decline in same store sales (stores open the entire period
of both quarters) of 10%, 2% of which is attributable to the inclusion of New
Year's Eve and New Year's Day in the first quarter of 1995 but not 1996, and the
remainder is due to competitive factors and unusually strong revenues during the
quarter ended March 29, 1995.

Store Operating Expenses. Store operating expenses increased $0.3 million,
or 25%, from $1.2 million for the three months ended March 29, 1995 to $1.5
million for the three months ended April 3, 1996. As a percentage of total
revenues, store operating expenses increased 7.7 percentage points from 50% for
the three months ended March 29, 1995 to 57.7% for the three months ended April
3, 1996. These increases were primarily attributable to additional labor and
occupancy costs associated with new store development and to increased
participation in a revenue-sharing videocassette leasing program during 1996
when compared to 1995.

35
<PAGE> 106

Cost of Sales. Cost of sales increased $0.01 million, or 6.3%, from $0.16
million for the three months ended March 29, 1995 to $0.17 million for the three
months ended April 3, 1996. As a percentage of product sales, cost of sales
increased 4.6 percentage points, from 72.7% for the three months ended March 29,
1995 to 77.3% for the three months ended April 3, 1996. This change resulted
principally from price reductions put in place by management to increase sales
volume.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
increased $0.04 million, or 6.7%, from $0.60 million for the three months ended
March 29, 1995 to $0.64 million for the three months ended April 3, 1996. As a
percentage of total revenues, amortization of videocassette and video game
rental inventory declined 0.4 percentage from 25.0% for the three months ended
March 29, 1995 to 24.6% for the three months ended April 3 ,1996, primarily due
to increased revenues, along with an increased percentage of base stock
amortization created by new store development.

General and Administrative Expenses. General and administrative expenses
increased $0.05 million or 25% from $0.15 million for the three months ended
March 29, 1995 to $0.20 million for the three months ended April 3, 1996. As a
percentage of total revenues, general and administrative expenses increased 1.6
percentage points, from 6.2% for the three months ended March 29, 1995 to 7.8%
for the three months ended April 3, 1996. This was primarily due to
approximately $37,000 of non-recurring legal and accounting costs associated
with the proposed sale of the Company's assets to West Coast and a previously
considered acquisition.

Non-Operating Expenses, Net. Non-operating expense, comprised principally
of interest expense, increased $0.012 million or 30.8%, from $0.039 million for
the three months ended March 29, 1995 to $0.051 million for the three months
ended April 3, 1996. As a percentage of total revenues, non-operating expense
increased 0.4 percentage points, from 1.6% for the three months ended March 29,
1995 to 2.0% for the three months ended April 3, 1996, as a result of increased
borrowings to finance the acquisition of additional inventory and equipment.

Net Income. As a result of the foregoing, net income decreased $0.2
million or 66.7%, from $0.3 million for the three months ended March 29, 1995 to
$0.1 million for the three months ended April 3, 1996.

YEAR ENDED JANUARY 3, 1996 COMPARED TO YEAR ENDED DECEMBER 28, 1994

Revenues. Rental and product sale revenues increased $0.9 million and $0.3
million, respectively, or 11.7% and 55.6%, respectively, from $7.7 million and
$0.6 million, respectively, for the year ended December 28, 1994 to $8.6 million
and $0.9 million, respectively, for the year ended January 3, 1996. The increase
in rental revenues for the year ended January 3, 1996 is attributable to the
opening of five new stores, one each in October 1994 and February, September,
November and December 1995. The increase in product sales resulted from the
opening of such five new stores as well as from the continuing increased
emphasis on such sales by management. The decrease in rental revenues from 93%
of total revenues for the year ended December 28, 1994 to 90% for the year ended
January 3, 1996 resulted from the continuing initiative undertaken by management
to increase product sale revenues which caused product sale revenues to increase
more than rental revenues.

Store Operating Expenses. Store operating expenses increased $0.8 million,
or 18.3%, from $4.5 million for the year ended December 28, 1994 to $5.3 million
for the year ended January 3, 1996, due primarily to an increased participation
in a revenue-sharing videocassette leasing program during 1995. As a percentage
of total revenues, store operating expenses increased 1.4 percentage points from
53.9% for the year ended December 28, 1994 to 55.3% for the year ended January
3, 1996. Excluding the effect of participation in a revenue-sharing
videocassette leasing program, store operating costs would have declined as a
percentage of revenues from 53.6% in the fiscal year ended December 28, 1994 to
52.7% in the fiscal year ended January 3, 1996.

Cost of Sales. Cost of sales increased $0.1 million, or 61.8%, from $0.3
million for the year ended December 28, 1994 to $0.4 million for the year ended
January 3, 1996. As a percentage of product revenues,

36
<PAGE> 107

cost of sales increased 1.7 percentage points from 43.4% for the year ended
December 28, 1994 to 45.1% for the year ended January 3, 1996. The increase in
the percentage resulted principally from price reductions put in place by
management in connection with the increased emphasis on such sales as previously
discussed.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
increased $0.2 million, or 8.3%, from $2.2 million for the year ended December
28, 1994 to $2.4 million for the year ended January 31, 1996, primarily due to
the addition of four new stores in 1995. As a percentage of total revenues,
amortization of videocassette and video game rental inventory declined 1.6
percentage points from 26.6% for the year ended December 28, 1994 to 25.0% for
the year ended January 3, 1996, primarily due to increased revenues, along with
an increased percentage of base stock amortization created by new store
development.

General and Administrative Expenses. General and administrative expenses
increased $0.2 million, or 25.7%, from $0.6 million for the year ended December
28, 1994 to $0.8 million for the year ended January 3, 1996. As a percentage of
total revenues, general and administrative expenses increased 0.7 percentage
points, from 7.9% for the year ended December 28, 1994 to 8.6% for the year
ended January 3, 1996. This was due primarily to approximately $100,000 of
nonrecurring legal and accounting costs associated with the proposed sale of the
Company's assets to West Coast and a previously considered acquisition. If these
nonrecurring costs had not been incurred, general and administrative expenses
would have decreased as a percentage of revenues.

Non-Operating Expense, Net. Non-operating expense, net, remained constant
from the year ended December 28, 1994 to the year ended January 3, 1996.

Net Income. As a result of the foregoing, net income decreased $0.1
million, or 15%, from $0.6 million for the year ended December 28, 1994 to $0.5
million for the year ended January 3, 1996.

YEAR ENDED DECEMBER 28, 1994 COMPARED TO YEAR ENDED DECEMBER 29, 1993

Revenues. Rental and product sale revenues increased $0.7 million and $0.2
million, respectively, or 9.5% and 38.5%, respectively, from $7.0 million and
$0.4 million, respectively, for the year ended December 29, 1993 to $7.7 million
and $0.6 million, respectively, for the year ended December 28, 1994. The
increase in rental revenues was primarily attributable to an increase in the
average number of stores being operated by the Company and a 1.1% increase in
same store volume. The increase in product sales principally related to the
increase in the average number of stores in operation as previously discussed,
coupled with the increased emphasis on such sales by management. The decrease in
rental revenues from 94.0% of total revenues for the year ended December 29,
1993 to 92.6% for the year ended December 28, 1994 resulted from the initiative
implemented by management to increase the level of product sales.

Store Operating Expenses. Store operating expenses increased $0.3 million,
or 6.9%, from $4.2 million for the year ended December 29, 1993 to $4.5 million
for the year ended December 28, 1994. As a percentage of revenues, store
operating expenses decreased 2.2 percentage points from 56.1% for the year ended
December 29, 1993 to 53.9% for the year ended December 28, 1994. This was due
primarily to increased efficiencies from higher store volumes and a decreased
participation in a revenue-sharing videocassette leasing program as compared to
1993.

Cost of Sales. Cost of sales increased slightly in total dollars for the
year ended December 29, 1993 when compared to the year ended December 28, 1994
and increased as a percentage of total revenues from 2.9% for the fiscal year
ended December 29, 1993 to 3.2% for the fiscal year ended December 28, 1994. As
a percentage of total product sale revenues, cost of sales decreased 5.2
percentage points from 48.6% for the year ended December 29, 1993 to 43.4% for
the year ended December 28, 1994. This decrease was primarily the result of a
shift in sales mix, particularly an increased emphasis on previously viewed
movies and concessions from the fiscal year ended December 29, 1993 to the
fiscal year ended December 28, 1994 causing a corresponding shift in costs.

Amortization of Videocassette and Video Game Rental
Inventory. Amortization of videocassette and video game rental inventory
increased $0.4 million, or 19.2%, from $1.8 million for the year ended

37
<PAGE> 108

December 29, 1993 to $2.2 million for the year ended December 28, 1994. As a
percentage of revenues, amortization of videocassette and video game rental
inventory increased 2.6 percentage points from 24.8% in the year ended December
29, 1993 to 26.6% for the year ended December 28, 1994 primarily as a result of
the significant increase in the level of purchases of videocassette rental
inventory.

General and Administrative Expenses. General and administrative expenses
decreased $0.02 million, or 2.3%, from $0.7 million for the year ended December
29, 1993 to $0.6 million for the year ended December 28, 1994. As a percentage
of total revenues, general and administrative expenses decreased from 8.9% for
the year ended December 29, 1993 to 7.9% for the year ended December 28, 1994.
This occurred primarily as a result of the revenue growth previously discussed
without a corresponding increase in general and administrative expenses.

Non-Operating Expense, Net. Non-operating expense, net, remained
relatively constant during the year ended December 28, 1994 and the year ended
December 29, 1993.

Net Income. As a result of the foregoing, net income increased $0.2
million, or 52.5%, from $0.4 million for the year ended December 29, 1993 to
$0.6 million for the year ended December 28, 1994 primarily due to increased
revenues without a proportionate increase in costs.

LIQUIDITY AND CAPITAL RESOURCES

THE COMPANY

For the fiscal year ended January 31, 1996, the Company had net cash
provided by operating activities of $3.1 million, net cash used in investing
activities of $5.6 million (consisting primarily of cash used to acquire
businesses of $3.5 million and cash used to purchase videocassette rental
inventory of $2.0 million) and net cash provided by financing activities of $3.0
million, resulting in a net increase in cash and cash equivalents of $0.6
million.

For the three months ended April 30, 1996, the Company had net cash
provided by operating activities of $2.4 million, net cash used in investing
activities of $1.9 million (consisting primarily of cash used to purchase
videocassette rental inventory of $0.6 million, and $1.3 million of deferred
acquisition costs associated with the acquisitions of new stores acquired on May
17, 1996) and net cash used in financing activities of $0.9 million (consisting
of $0.4 million of net borrowings offset by $1.3 million of deferred costs
associated with the public offering which occurred on May 14, 1996) resulting in
a net decrease in cash and cash equivalents of $0.4 million.

Prior to May 1996, the Company funded its operations and acquisitions
through cash provided by operating activities, bank loans guaranteed by its
existing stockholders, loans and lines of credit from videocassette and
interactive electronic entertainment products suppliers, and financing provided
by sellers in connection with certain acquisitions. On May 17, 1996 the Company
raised net proceeds of $65.3 million in the Public Offering, refinanced its
outstanding bank debt through the Credit Facility, paid down all of its other
outstanding indebtedness, and consummated the Recent Acquisitions (see "Business
- -- Recent Acquisitions"), which it expects will increase its future net positive
cash flows provided by operating activities. The Company expects to meet its
short-term liquidity requirements through net cash provided by operations and
borrowings under the Credit Facility. Management believes that these sources of
cash will be sufficient to meet the Company's operating needs for at least the
next 12 months.

38
<PAGE> 109

either PNC Bank's base rate, as defined, to 1% above such base rate, or from the
Eurodollar rate, as defined, to 2.5% above such Eurodollar rate, in each case
depending on the ratio of the Company's total debt to operating cash flow, as
defined. Borrowings are secured by a first security interest in substantially
all of the Company's assets, including the stock of its subsidiaries. Borrowings
are subject to various conditions including compliance with certain financial
tests and ratios.

The Company may also seek additional debt financing or equity capital
through private or public offerings of securities. The availability of debt
financing or equity capital will depend upon prevailing market conditions, the
market price of the Common Stock and other factors over which the Company has no
control, as well as the Company's financial condition and results of operations.
There can be no assurance that funds will be available in sufficient amounts to
finance the acquisition or opening of enough video specialty stores to sustain
the Company's recent rates of growth.

PALMER VIDEO

RED GIRAFFE

GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY

The Company's results of operations are generally affected by economic
trends in its market area but results to date have not been impacted by
inflation. If a period of high inflation is encountered, the Company believes
that it will be able to pass on its higher costs to its customers.

A concentration of new store openings and the related pre-opening costs in
any particular fiscal quarter could have an adverse impact on the financial
results for that quarter, leading to fluctuating quarterly financial results,
which could adversely impact the Company's Common Stock price.

39
<PAGE> 110

The videocassette and interactive electronic entertainment products rental
business is somewhat seasonal, with revenues in early Spring generally being
lower due in part to the change in Daylight Savings Time and improved weather,
and revenues in early Fall generally being lower due in part to the start of
school, the football season and the new television season.

40
<PAGE> 111

VIDEO INDUSTRY OVERVIEW

According to Kagan Associates, domestic video retail industry revenues
exceeded $14 billion in 1994, with industry revenues projected to grow to
approximately $22 billion by 2005. Of the total domestic revenues in 1994, video
rental revenues were approximately $9.4 billion and video sales revenues were
approximately $4.6 billion.

The industry is characterized by a high degree of fragmentation, with only
nine chains in 1995, including the Company, reported to be operating in excess
of 100 video specialty stores, and the average chain operating fewer than 50
stores. In recent years the video retail industry has begun to consolidate as
regional chains and smaller video specialty store operations are acquired by
operators with greater access to capital. The Company believes that although
video specialty store revenues will continue to grow as consumers rent and
purchase prerecorded videos, a greater rate of growth will occur among video
specialty store operators engaged in a program of acquiring competitors.

According to Kagan Associates, the home video market was the largest single
source of revenue to movie distributors, accounting for approximately 48.6% of
movie distributors' total domestic revenues and approximately 46.1% of movie
distributors' worldwide revenues in 1994. Due to the high production cost of
films today, the Company believes that without home video revenues, most films
would have been unprofitable. Furthermore, in order to quickly recoup the large
theatrical marketing budgets that often exceed a film's production cost, most
films are released simultaneously in a large number of theaters. This broad
exposure usually results in most theaters playing the film only for a few weeks
before replacing it with another release.

Movie studios seek to maximize their revenues by releasing movies in
sequential release date windows to various movie distribution channels. These
distribution channels currently include, in release date order (with approximate
1994 revenues to the motion picture distributors shown in parentheses), movie
theaters ($5.7 billion), video specialty stores ($8.1 billion) and other media
including Pay-Per-View and similar services ($0.2 billion), pay television ($1.7
billion), domestic basic cable television ($0.4 billion) and domestic network
and syndicated television ($0.5 billion).

Sales of prerecorded videos have grown at a cumulative annual growth rate
of 12.9% for the three-year period ending December 31, 1994, but in 1994 still
only represented approximately 33% of video retail industry revenues from all
distribution channels. Movie studios influence the relative levels of video
rentals versus sales by setting wholesale video prices. The movie studios
typically set the initial wholesale price of prerecorded videos at between $50
and $65, which encourages rental rather than sale. In order to maximize revenues
to the studios, after approximately six to twelve months the studios will often
lower the price of these same videos to between $15 and $20, which encourages
their purchase. In addition, a relatively small number of titles that are
believed to have broader consumer appeal, such as Cinderella, The Lion King and
Batman Forever, are wholesaled initially by the studios at between $12 and $17,
which also encourages their purchase rather than rental. While much of this type
of product is heavily promoted as "sell-through" titles by all types of mass
market retailers, the video specialty stores offer this product both for sale
and rental and thus also attract the customer who prefers to rent rather than
buy despite a title's relatively low purchase price.

The Company believes, based on its own practices and information provided
by the sellers in the Recent Acquisitions, that video specialty stores typically
purchase a majority of the films that were released in the box office regardless
of their success in attracting theatre viewers. The Company believes that many
of its customers are predisposed to view a specific film as a result of its
marketing campaign, but due to its short playing time at a local theater, they
will often rent or purchase the prerecorded home video version of that film. In
addition, the Company believes consumers are more apt to view films that were
not box office hits on rented videos than on any other medium because video
specialty stores provide the opportunity to browse and make an impulse choice
among a very broad selection of film titles at a low price. Therefore, video
specialty stores represent a reliable revenue source for a majority of the film
output of the major movie studios.

The Company believes that it will become increasingly likely that certain
major studios will begin to release their films on new digital video discs
("DVD") within the next 9 to 15 months. Video discs and video disc players
function like videocassettes and VCRs but provide a higher quality video image
by using digital technology. To the extent that this format becomes popular with
consumers, the video retail industry could also carry film titles in this format
for both rental and sale, thereby creating an additional revenue base.

41
<PAGE> 112

BUSINESS

GENERAL

Immediately following consummation of the Recent Acquisitions, West Coast
owned and operated 200 video specialty stores and franchised 303 video specialty
stores located in 25 states, principally in the Northeast and Midwest, and two
foreign countries. The Company believes that it is among the largest video
specialty retailers in the United States in terms of pro forma system-wide
revenues, number of franchised stores and total franchised store revenues. The
Company competes directly against major regional and national video rental
stores in most of its markets and believes it is a leading video rental
operator, in terms of number of stores, in all of the major markets in which
Company-owned stores operate. In addition, the Company believes it is one of
only two domestic video specialty franchisors that has existing franchised
stores outside North America. Immediately prior to the Recent Acquisitions, the
Company owned and operated 28 stores and was the franchisor of another 296
stores; the Recent Acquisitions involved an additional 172 owned and operated
stores (including 13 stores which were theretofore owned by franchisees of the
Company) plus the rights of one of the acquired companies as franchisor of 20
franchised stores. See "-- Recent Acquisitions and Other Recent Transactions."
System-wide, approximately 60% of the Company's stores, exclusive of stores to
be acquired in the Prospective Acquisitions, are currently operated under the
West Coast Video(R) name and the remainder are operated under such names as
Videosmith(R) and Palmer Video(TM). The Company intends to extend the West Coast
Video(R) name and logo and its registered trademark The Movie Buff's Movie
Store(R), as soon as practicable, to those stores which currently operate under
other trade names. For the fiscal year ended January 31, 1996, the Company's pro
forma revenues were $82.2 million and pro forma net income was $4.6 million. For
the three months ended April 30, 1996, the Company's pro forma revenues were
$22.6 million and pro forma net income was $1.5 million. See "Selected
Historical and Pro Forma Combined Financial Data."

The Company's stores are designed and managed to create an atmosphere that
enhances the appreciation of movies, children's video programming and
interactive electronic entertainment products. To achieve this, the Company has
developed several store format templates in order to appeal to the varying
demographic preferences of its customers. These formats take into account the
population density and demographic profile of each store's targeted geographic
region. Each of the Company's stores rents and sells videocassettes and
interactive electronic game products and also sells certain popular electronic
accessories and a variety of confectionery items. Sites for the Company's stores
within each designated trade area are selected on the basis of such factors as
visibility, ready accessibility (particularly for evening drivetime parking),
signage and adaptability of existing structures to the Company's requirements,
as well as cost considerations.

The Company has grown to its present size primarily through the
acquisitions of the Premiere Video/Nostalgia Ventures and Videosmith(R)
specialty store chains in April 1993 and August 1994, respectively, through the
acquisition of its West Coast Video(R) operating assets and franchising
capability in July 1995 and through the Recent Acquisitions in May 1996. See "--
Development of the Company," and "-- Recent Acquisitions and Other Recent
Transactions." Although single stores and small chains, as a whole, currently
have the largest share of the video retail market, the Company believes that
large regional and national chains will substantially increase their market
share and account for the majority of future industry growth due to their
greater capital resources, their ability to achieve economies of scale in areas
such as purchasing, advertising and administration and their announced expansion
plans.

The Company believes that there are a significant number of attractive
acquisition targets, including West Coast Video(R) franchisees, and/or store
sites available in its selected markets. The Company also believes that the net
proceeds of the Public Offering have enabled it to accelerate its planned
expansion, enhance its ability to complete acquisitions and permit it to
negotiate favorable terms for store acquisitions and new store openings. The key
factors that the Company considers in determining its rate of expansion include
store location and historical or projected profitability of stores as well as
the availability of adequate financing.

On June 19, 1996, the Company announced that it had reached agreements in
principle with the owners of a total of 72 video retail stores, subject to
completion of due diligence and other closing conditions and

42
<PAGE> 113

regulatory approvals. Except as described in the Supplements, the Company has
not entered into definitive agreements in regard to the acquisition of any of
such stores or any other stores, and there can be no assurance that it will do
so.

RECENT ACQUISITIONS

On May 17, 1996, the Company acquired from seven selling groups and four
West Coast Video(R) franchisees a total of 172 video specialty stores (including
13 stores owned by franchisees of the Company), plus franchisor's rights in
regard to 20 franchised stores.

The Company intends to extend the West Coast Video(R) name and logo and its
registered trademark The Movie Buff's Movie Store(R), as soon as practicable, to
the acquired stores (other than the 13 West Coast Video(R) franchised stores,
which already operate under the West Coast Video(R) trade name).

The Company also intends to integrate the acquired stores into the
Company's management information, telecommunications, management, marketing,
finance and accounting, entertainment purchasing, distribution, retail
operations and merchandising systems as soon as is feasible, at an estimated
cost of $0.9 million over an 18 month period following closing of the Recent
Acquisitions. The Company expects the aggregate costs of converting the acquired
stores to West Coast signage and format to be approximately $2.3 million over an
18-month period following consummation of the Recent Acquisitions.

The terms of the Recent Acquisitions were negotiated at arm's length. In
connection with the Recent Acquisitions, certain of the Sellers and their
affiliates entered into consulting and/or employment agreements with the
Company. These include one person who has become Executive Vice
President -- Corporate Retail Operations and Development and a director of the
Company and nine other persons who have become Vice Presidents or Regional Vice
Presidents, but have not become executive officers or directors, at annual
salaries ranging from $82,500 to $210,000.

Set forth below is a brief description of each of the Recent Acquisitions:

<TABLE>
<CAPTION>
NUMBER OF OWNED
NAME OF SELLER(S) AND OPERATED STORES LOCATIONS
- --------------------------------------- ------------------- ----------------------------------
<S> <C> <C>
Palmer Corporation and certain
affiliates ("Palmer Video").......... 43(1) New York and New Jersey
American Video, Inc. and certain
affiliates (collectively, "Red
Giraffe")............................ 31 Indiana, Kentucky and Ohio
4 unaffiliated West Coast Video(R)
franchisees (the "Massachusetts
Franchisees")........................ 13(2)(3) Massachusetts
5 other unaffiliated selling groups.... 85(4) Pennsylvania, Ohio, New Jersey,
Virginia, Arkansas, Oklahoma,
Texas, Louisiana and Florida
---
Total........................ 172
===
</TABLE>

- ---------------
(1) Includes (a) one store owned by 142nd Retail Associates, a partnership in
which the Company acquired the 51% partnership interest theretofore owned by
a subsidiary of Palmer Corporation while the remaining 49% partnership
interests continue to be owned by their present owners, William J. Krasny
and Cosmo Robles, neither of whom is affiliated with Palmer Corporation or
the Company, and (b) one store owned by 38th Retail Associates Limited
Partnership, in which the Company acquired the 50% general partnership
interest theretofore owned by a subsidiary of Palmer Corporation while the
remaining 50% limited partnership interest continues to be owned by the
estate of Abraham Stelnik, which is not affiliated with Palmer Corporation
or the Company.

(2) Includes four stores owned by HB Associates, Inc., two stores owned by Best
Entertainment, Inc., six stores owned by New Age Entertainment, Inc. and one
store owned by Video Innovators, Inc.

43
<PAGE> 114

(3) Excludes four Massachusetts Franchisee stores which the Company has an
option to purchase in or before August 1996, January 1997, March 1997 and
July 1997, respectively.

(4) Consists of 46 stores owned by Vidko, Inc., Kobie-Co Movie Outlet and
Anthony Cocca's Videoland, Inc. (collectively, "Videoland"), 12 stores owned
by Video Giant, Inc. ("Video Giant"), 12 stores owned by A-Z Video Systems,
Inc. ("A-Z Video"), 12 stores owned by Showtime, Inc. ("Showtime Video") and
three stores owned by certain corporations under common control ("Video
Video").

Financial statements for certain of the Sellers are contained in this
Prospectus.

Consideration Paid. In connection with the Recent Acquisitions, the
Company paid aggregate consideration (excluding related costs) of $76.4 million,
consisting of $52.4 million paid in cash and $24.0 million paid in shares of
Common Stock (1,843,720 shares valued for this purpose at the Public Offering
price of $13.00 per share).

The following table sets forth the consideration paid for the stores
acquired in connection with the Recent Acquisitions and the related indebtedness
for borrowed money of the Sellers that was assumed and repaid by the Company
concurrently with the closing of the Recent Acquisitions:

<TABLE>
<CAPTION>
CASH COMMON STOCK
-------------------- -------------------- TYPE OF
AMOUNT %(1) AMOUNT %(1) TOTAL(2) ACQUISITION
----------- ---- ----------- ---- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Palmer Video......................... $10,039,444 50 % $10,039,484 50% $20,078,928(3) Merger
Red Giraffe.......................... 11,486,250(4) 70 4,838,886 30 16,325,136(4)(5) Asset Purchase
4 Massachusetts Franchisees.......... 11,675,000(6) 100 11,675,000(6) Asset Purchase
5 Other Unaffiliated Selling Groups:
A-Z Video(7)....................... 4,300,000 100 4,300,000 Asset Purchase
Showtime Video..................... 3,500,000 100 3,500,000(5) Stock Purchase
Video Giant........................ 1,710,016 19 7,289,984 81 9,000,000(5) Merger
Video Video........................ 2,500,000 100 2,500,000 Asset Purchase
Videoland.......................... 7,200,000 80 1,800,006 20 9,000,006(5) Asset Purchase
----------- ----------- -----------
Total............................ $52,410,710 $23,968,360 $76,379,070
=========== =========== ===========
</TABLE>

- ---------------
(1) Percentage of total consideration for each of the Recent Acquisitions
represented by the cash component and by the stock component (if any),
respectively.

(2) Subject to subsequent post-closing adjustment based upon the amount by which
each Seller's working capital, as defined, or cash available at closing, or
the amount of sick pay and vacation pay then accrued, exceeded or was less
than a specified amount and the amount of certain prepaid rentals, insurance
premiums and other prepaid expenses. Management believes that these
adjustments will not be material. A portion of the total purchase price was
used to pay certain outstanding accounts payable of certain Sellers.

(3) Excludes approximately $921,000 of liabilities of this Seller paid at
closing by the Company in accordance with the terms of the Merger Agreement.

(4) Includes $2.7 million of indebtedness for borrowed money of the Red Giraffe
group which was assumed and repaid by the Company.

(5) Excludes payments of cash and/or Common Stock to be made to these Sellers at
specified times following the respective opening dates of certain newly
opened stores included in the Recent Acquisitions (four Red Giraffe stores,
two Showtime Video stores, one Video Giant store and 12 Videoland stores) in
an amount determined on the basis of certain financial measurements for such
stores for specified 12-month or other periods. The amount to be paid for
the Video Giant store has been determined to be $570,620, consisting of
$28,531 paid in cash and $542,089 payable in June 1996 in shares of Common
Stock (41,699 shares valued for this purpose at the initial public offering
price in the Public Offering of $13.00 per share). In preparing the pro
forma financial statements contained in the registration statement for the
Public Offering, the Company estimated the total of all such contingent
payments for the 19 stores at $3.4 million. Upon consummation of the Recent
Acquisition of Showtime Video, the Company

44
<PAGE> 115

advanced $250,000 to such Seller to defray certain build-out and operating
expenses of these stores; such advances will be applied as an offset against
payments, if any, made in respect of newly opened stores.

(6) Excludes $1,295,925 (11.1% of the purchase price payable to the Sellers in
these Recent Acquisitions) paid to the former owner of the WCEI Companies
and Jules E. Gardner and Kenneth R. Graffeo, two former executive officers
of the WCEI Companies (who are now executive officers of the Company),
pursuant to the terms of the acquisition by the Company of the
franchise-related operating assets of the WCEI Companies in July 1995.

(7) An executive officer of the Company, Donald R. Thomas, was an executive of,
and had a 2% equity interest in, this seller.

A portion of the net proceeds of the Public Offering, together with $1.7
million of borrowings under the Credit Facility, was used to finance the cash
portion of the purchase price of the Recent Acquisitions ($52.4 million, subject
to adjustment as described in the notes to the above table) and approximately
$3.5 million of acquisition costs and $0.3 million relating to the acceleration
of obligations to the former owners of the WCEI Companies (including the amounts
described in note (6) to the above table).

BUSINESS STRATEGY

The key elements of the Company's business strategy are as follows:

Achieve or Maintain Market Dominance. Immediately following the Recent
Acquisitions, the Company operated or franchised 503 video specialty stores
located principally in the Northeast and Midwest. The Company intends to
initially focus its acquisition, store expansion and franchising efforts
primarily in those areas where its stores are currently located so as to
maximize market share. The Company believes that by achieving or maintaining
market leadership positions or positions of significant concentration within the
regions in which it presently competes, the Company will be able to maximize
operating efficiencies in inventory management, marketing, distribution,
training and store supervision.

Realize Cost Savings By Integrating Stores Using Proven Management
Operating Systems. The Company intends to realize greater cost savings and
efficiencies by integrating the stores acquired, developed or franchised using
proven management systems. The Company has developed advanced software systems
for the purposes of monitoring and managing store inventory, sales, purchases
and customer membership. These proven systems allow the Company to facilitate
the integration of stores the Company acquired in the Recent Acquisitions and
additional stores it acquires, builds or franchises. In addition, such systems
allow the Company to monitor rental trends and manage sales and rental turnover
so as to satisfy customer demand for an extensive selection of new releases as
well as catalog titles while maximizing store profitability. By centralizing all
buying decisions through its software systems, the Company obtains volume
discounts and cooperative advertising credits that would otherwise be
unavailable to its individual stores. To maximize customer satisfaction and
store profitability, rentals are then monitored on a regular basis utilizing the
Company's point-of-sale ("POS") management information system which enables the
Company to reallocate videocassettes and interactive electronic entertainment
products among stores. See "Risk Factors -- Acquisition Risks -- Integration."

Operate Differentiated Store Formats. The Company has developed several
store formats designed to appeal to the varying demographic preferences of its
customers and to meet varying real estate market conditions. These formats vary
in terms of square footage, store design and lay-out. While several of its
competitors have chosen uniform, chain-wide store formats and locations, the
Company believes that having available store formats that take into account
population density and other demographic characteristics is critical in allowing
penetration into market areas that do not conform to uniform, chain-wide
standards. Most of the Company's stores are superstores with over 4,000 square
feet per store, although some are smaller, custom-designed stores, including
some which are formatted as urban boutiques containing a wide variety of catalog
titles. The Company's stores carry between 7,000 and 17,000 videocassettes.

The Company has developed an innovative template and proprietary support
system that operates as a store within a store under the Game Power
HeadquartersSM trade name. These interactive electronic

45
<PAGE> 116

departments range from 400 square feet to 1,800 square feet and allow the stores
to rent, sell, buy and trade interactive electronic entertainment software for
various game cartridge platforms and personal computers. The departments also
have kiosks providing a "Try Before You Buy" entertainment environment while
promoting new game hardware formats and software introductions.

Provide Superior Customer Service. The Company believes its salesforce's
appreciation and understanding of movies, children's video programming and
interactive electronic entertainment products can result in a higher level of
service than most of its competitors. One criterion used in the Company's
recruitment and selection of employees is their general knowledge in regard to
movies and electronic games. In addition, employees undergo continuous training
to increase their knowledge about the store's video titles and about cinema and
electronic games in general. The Company believes that the implementation of
this strategy in the stores which it acquires can result in higher sales per
customer, higher overall customer satisfaction, higher customer loyalty, lower
employee turnover levels and higher catalog title inventory turnover.

GROWTH STRATEGY

Historically, the Company's growth has resulted from the acquisition of
existing video retail store chains and the opening and franchising of new
stores, as well as increases in existing store sales. The key elements of the
Company's growth strategy are as follows:

Pursue Acquisitions in Highly Fragmented Industry. The Company acquired
two video specialty store chains in 1993 and 1994, the operating assets of the
nation's second-largest franchisor of video specialty stores in 1995 and 172
additional owned and operated stores and franchisor's rights with respect to 20
franchised stores in 1996. It believes that its most significant opportunity for
growth over the next several years will continue to be the acquisition of
existing video retailers. The industry remains highly fragmented with
approximately 28,000 video retailers in the United States, approximately half of
which are operated by operators of one or two stores. Existing video retailers
typically have an established customer base and favorable location. The criteria
for acquisition candidates includes store location and demographics,
profitability, store sales volume, store size and store management personnel. In
addition, the Company seeks acquisition candidates that can realize expense
reductions and more efficient store management through integration into the
Company's information and inventory management systems and marketing and
advertising programs. The Company has already had preliminary discussions with
numerous video retail store owners at various times regarding the potential
acquisition of their stores. Management expects that some of these discussions
will result in new Acquisitions, although the Company has no agreements or
commitments to acquire stores other than as described herein. On June 19, 1996,
the Company announced that it had reached agreements in principle with the
owners of a total of 72 video retail stores, subject to completion of due
diligence and other closing conditions and regulatory approvals. Except as
described in the Supplements, the Company has not entered into definitive
agreements in regard to the acquisition of any of such stores or any other
stores, and there can be no assurance that it will do so.

Continue to Acquire West Coast Franchisee Stores. The Company intends to
pursue the acquisition of individual or small chains of video specialty stores
within the West Coast Video(R) franchising system. As franchisor, the Company
maintains a right of first refusal to purchase these stores and intends to
selectively acquire these stores in the future at prices which it considers to
be reasonable where it believes that it can increase store revenues by deploying
its own capital, human and other resources and can achieve a higher return to
the Company on store operations by fully integrating the stores into the
Company's operating systems, thereby managing costs and generating operating
profits that exceed the Company's franchise royalty fees from such stores. West
Coast Video(R) franchisee-owned stores are typically of high quality and conform
with the Company's own video retail strategy. Consistent with this strategy, as
part of the Recent Acquisitions, the Company acquired 13 video retail stores
located in Massachusetts which had theretofore been owned and operated by the
four unaffiliated Massachusetts Franchisees.

Selectively Develop New Stores. The Company plans to open new video retail
stores in locations where acquisition of existing stores is impracticable but
favorable store location studies indicate a substantial probability of success
for a new store. In addition, the Company plans to grow in certain geographic
areas,

46
<PAGE> 117

including internationally, through franchising and believes that its existing
operating systems can be successfully applied to numerous other franchisees. The
Company currently has 10 franchised stores in Canada, one in Curacao and two in
Peru and has another store under development out of a planned 20 additional
stores in Peru and certain neighboring countries pursuant to an area development
agreement.

See "Risk Factors -- Acquisition Risks."

MANAGEMENT OPERATING SYSTEMS

The Company's management operating systems have been developed and tested
over years of franchise experience. Management believes that these systems,
whose costs are already being met by franchise royalty payments, will allow the
Company to grow at considerably less incremental general and administrative
expense than would otherwise ordinarily be incurred. At September 1, 1996 the
West Coast corporate staff included 66 professionals working in the following
capacities:

<TABLE>
<CAPTION>
NUMBER OF
DEPARTMENT EMPLOYEES
-------------------------------------------------------------------------- ---------
<S> <C>
Marketing/Movie Management................................................ 15
Purchasing/Materials Management........................................... 4
M.I.S./Telecommunications................................................. 6
Retail Operations/Store Development....................................... 10
Accounting................................................................ 18
Distribution Services..................................................... 5
Executive Administration.................................................. 6
Corporate Office Services................................................. 2
--
Total........................................................... 66
==
</TABLE>

Marketing/Movie Management. The Company currently has in place a
centralized professional marketing department supporting all of the Company's
video specialty stores. The Company's in-house art department provides the
resources of a full service agency and utilizes an integrated computerized
system for in-house scanning, page layout and mechanical production,
illustrations and color printing. Management believes this in-house creative
development has resulted in substantial cost savings and enhanced production
efficiencies for the Company's owned and operated stores and franchised stores.

The Company develops an extensive semi-annual marketing campaign several
months in advance of its six-month implementation period. The store managers'
kits for these campaigns provide national and regional promotions and media
flight schedules in a format that is designed to facilitate local store
customization. The campaigns have earned a wide variety of national awards from
the Video Software Dealers Association in the past five years, including "Best
Overall Campaign," "Best Community Service" and "Best Special Media/Special
Events." These campaigns have increased the familiarity of existing and
potential customers with the Company and are also intended to increase customer
rental and purchase transactions and frequency of visits.

The Company uses radio and newspaper advertising and direct mail
solicitation to promote its business in the markets in which the Company
competes and uses television advertising in those metropolitan areas where the
Company is a dominant player. The marketing department has a dedicated staff
that publishes and distributes a proprietary, full color monthly consumer
magazine, "Spotlight on Video(TM)," which promotes new releases and special
offers exclusive to the Company.

The costs of the Company's marketing department are funded in part by a
contribution from West Coast's franchisees that is earmarked for advertising and
marketing. Such contribution is equal to 1% of the franchisees' gross revenues.
Another 1% contribution is spent on local advertising. In addition to these
contributions, the Company offsets the costs of its advertising with cooperative
advertising funds and market development funds made available by movie studios
and suppliers to promote certain videocassettes. The Company expects that it
will receive increased amounts of these third-party funds as the Company grows.

47
<PAGE> 118

Purchasing. The Company believes that the consistent selection of movies
that appeal to the consumer is a significant feature of its operations. The
Company's movie and electronic entertainment purchasers each have, on average,
eight years of industry experience, including Videosmith's purchaser of
"sell-through" video titles who has five years of experience in that capacity.
The rental entertainment purchasers use computerized purchasing models that
analyze data in regard to the sales and rental performance of individual titles
from the Company's stores on-line through the Company's POS systems. The Company
also publishes a proprietary monthly publication, "The Projector(TM)," for owned
and operated stores and franchised stores that projects suggested purchase
quantities on a title-by-title basis for stores of varying demographic profiles
and rental volume levels. The Company believes its purchasing department has
considerable specific expertise in evaluating, finding distribution sources for
and purchasing independent, arthouse, foreign and other highly entertaining
films that are frequently not noticed or are ignored by other video specialty
chains.

M.I.S./Telecommunications. The Company has developed, at considerable
expense, proprietary POS software with continuous inventory and customer
database and extensive management reporting capabilities. Nearly all of its
franchisees utilize such POS software. In addition, the Management Information
Systems department provides a broad range of services to management as well as
to owned and operated stores and franchised stores. Such services include:
management of various relational databases which aid in movie and interactive
electronic entertainment products purchasing, store site evaluation and
selection and customer profiling and targeting; on-line POS and other store and
corporate software maintenance, service and repair; technical support for the
installation of store computer hardware and software; maintenance of hardware
support agreements; on-line verification of franchisee revenues for royalty
audit purposes; franchisee POS system training; and enhancement and upgrading of
POS software.

Retail Operations. The Company has developed, at considerable time and
expense, comprehensive retail operations policy and procedure manuals to achieve
standardization among its Company-owned stores, as well as its franchisees. In
addition, the Company's retail operations group works directly with both
corporate and franchisee stores to provide assistance on a broad range of
operational issues including competitive strategies, product pricing, revenue
enhancement, expense management, new site analysis and selection and
remerchandising and renovation plans and analysis. The retail operations group
provides training and orientation to new franchisees as well as ongoing training
programs. The retail operations group has also developed a detailed timetable
and manual and provides direct assistance in the opening of new franchised
stores as well as owned and operated stores, including obtaining
permits/licenses, financing equipment, providing opening checklists and store
configuration options, formulating construction guidelines, initiating vendor
contacts, helping to manage and meet exterior signage specifications and wage
and hiring guidelines, and developing professional service and vendor contacts.

STORE LOCATIONS

The following table lists the number of stores owned and franchised by the
Company in each state or foreign country at September 1, 1996, including the
stores acquired through the Recent Acquisitions but excluding the stores to be
acquired in the Prospective Acquisitions. More than 80% of the Company's owned
and operated stores, and more than 80% of its franchised stores, are located in
the Northeast and Midwest.

<TABLE>
<CAPTION>
NUMBER OF
OWNED AND NUMBER OF TOTAL
STATE OR FOREIGN COUNTRY OPERATED STORES FRANCHISED STORES STORES
- ------------------------------------------------------ --------------- ----------------- ------
<S> <C> <C> <C>
Ohio.................................................. 38 13 51
Pennsylvania.......................................... 36 108 144
New Jersey............................................ 34 72 106
Massachusetts......................................... 27 14 41
Kentucky.............................................. 17 -- 17
New York.............................................. 16 5 21
Indiana............................................... 14 1 15
Virginia.............................................. 12 2 14
Arkansas.............................................. 4 -- 4
Oklahoma.............................................. 3 -- 3
Texas................................................. 2 3 5
</TABLE>

48
<PAGE> 119

<TABLE>
<CAPTION>
NUMBER OF
OWNED AND NUMBER OF TOTAL
STATE OR FOREIGN COUNTRY OPERATED STORES FRANCHISED STORES STORES
- ------------------------------------------------------ --- --- ---
<S> <C> <C> <C>
Louisiana............................................. 2 3 5
Florida............................................... 1 13 14
Illinois.............................................. -- 15 15
Maryland.............................................. -- 13 13
California............................................ -- 5 5
Delaware.............................................. -- 4 4
Minnesota............................................. -- 3 3
Arizona............................................... -- 2 2
Oregon................................................ -- 2 2
Connecticut........................................... -- 1 1
Maine................................................. -- 1 1
Michigan.............................................. -- 1 1
Tennessee............................................. -- 1 1
Canada................................................ -- 10 10
Curacao............................................... -- 1 1
Peru.................................................. -- 2 2
--- --- ---
Total....................................... 206 296 501
=== === ===
</TABLE>

PRODUCTS

The Company's primary source of revenue is the rental of videocassettes.
The Company's stores feature between 7,000 and 17,000 videocassettes. At
present, the Company generally rents new release titles for $2.00 to $3.00 for
one day, depending on the age and popularity of the title, while catalog titles
rent for $1.00 to $2.00 for one day. Video games generally rent for $3.00 for
one day. The Company regularly reviews and determines its rental prices for
titles based on the length of time each title has been available on
videocassette and the frequency of rentals for each title. Movie titles are
classified into a variety of thematic categories, including certain categories
which are custom tailored to local tastes and demographic profiles, and are
displayed alphabetically within those categories. The Company attempts to keep
available within each store sufficient numbers of current popular titles, as
well as a significant selection of catalog titles, to satisfy customer demand.

West Coast also offers videocassettes for sale. Generally, previously
viewed videocassettes are sold for $7.99 to $11.99 beginning 12 weeks after a
new title is released to video specialty stores. Sales of new videocassettes
consist primarily of children's and family titles generally priced at $15.99 to
$20.99. Based on anticipated growth in the overall market for videocassette
sales, planned improvements in the Company's videocassette sales merchandising
and the reported revenue mix of other video retailers, the Company expects its
per store sales of new (and, to a lesser extent, used) videocassettes to
increase.

In addition to video rentals and sales, West Coast also rents and sells
interactive electronic entertainment products compatible with various game
hardware platforms and personal computers. Kagan Associates estimates that
domestic interactive electronic entertainment software revenue will increase
from approximately $5.7 billion in 1995 to approximately $8.8 billion in 2002.
The Company expects per store rental revenue of interactive electronic
entertainment products to increase because of an overall rise in the popularity
of CD-ROM and new hardware formats. As a result, the Company believes that its
Game Power HeadquartersSM format will experience significant growth in the next
several years.

SUPPLIERS

The Company's suppliers of rental videocassette and interactive electronic
entertainment products include Ingram Entertainment, Inc. ("Ingram"), Waxworks,
Inc., Rentrak Corporation, Star Video Entertainment, Inc. and Baker and Taylor
Information and Entertainment Services. Prior to consummation of

49
<PAGE> 120

the Recent Acquisitions, West Coast purchased approximately 50% of its rental
videocassette products from Ingram under a contract that expires in July 2002.
Under this contract, following the Recent Acquisitions the Company must purchase
at least 50% of its annual requirements for such products during each of the
first two years of the contract, the lesser of 30% of its annual requirements or
$25 million during the third through fifth years of the contract and the lesser
of 25% of its annual requirements or $25 million during the last two years of
the contract.

The Company currently receives marketing funds and an advertising allowance
from Ingram based upon a percentage of its videocassette and interactive
electronic entertainment products purchases. In addition, the Company currently
has an unsecured open account with outstanding amounts due 60 days from invoice
for all rental, sell-through and game product purchases and 90 days from invoice
for all sell-through product intended for new store openings and Christmas
catalog product. If the relationship with Ingram were terminated, the Company
believes that it could readily obtain its required inventory of videocassette
and interactive electronic entertainment products from alternative suppliers at
prices and on terms comparable to those with Ingram.

FRANCHISING

The Company currently receives franchise fees from West Coast Video(R)
franchisees equal to approximately 7% of each franchisee's monthly gross
revenues, subject to stated monthly minimum royalties. Of this amount, the
Company has devoted an amount equal to 2% of such monthly gross revenues to
direct and indirect advertising and marketing programs. The Company also
receives a one-time fee upon execution of the franchise agreement. Franchisees
are not required to purchase their initial inventory or supplies from the
Company, although they sometimes do so. Thereafter, franchisees purchase
virtually all of their movie and interactive game product from unaffiliated
suppliers.

Franchisees are entitled to develop West Coast Video(R) stores at approved
locations within a specified geographic area under the terms of a standard
franchise agreement. The exclusivity accorded to a franchisee generally does not
extend beyond a radius of three miles from each franchised location, with
franchisees in urban locations often being limited to a one-half to one mile
radius. Franchises are typically awarded for a term of ten years, subject to the
franchisee's right to renew for additional ten-year periods.

The Company provides training for the franchisee's managers and other store
personnel. Franchisees are required to meet the Company's quality control
standards in regard to store appearance and size of videocassette inventory,
among other things. The Company provides advice about title selection, initial
promotional advertising, posters and brochures.

Each franchise owner has sole responsibility for all operational decisions
and financing commitments relating to the store, including monthly rent,
utilities and payroll. Franchisees are required to indemnify West Coast against
claims arising from the franchisee's operations and to provide specified amounts
of insurance coverage. The Company does not currently provide any form of credit
enhancement for any of its franchisees' operations.

The franchise agreement requires the Company's express written agreement to
any transfer of a franchise or any sale of a controlling interest in a
franchisee. The agreement also authorizes the Company at any time to inspect and
monitor the franchisee's operations and audit its books and records. The Company
is entitled to terminate a franchise for a material breach of the terms of the
franchise agreement, subject to compliance with certain state laws regarding
termination for cause, prior notice and similar matters. Between acquiring the
assets of WC Franchise in July 1995 and August 31, 1996, the Company terminated
31 franchisees.

Under the terms of an area development agreement with respect to Peru and
certain contiguous South American countries, the area developer will pay the
Company a development fee of up to $175,000 over a five-year period, based on
the achievement of certain specified milestones, as well as license fees equal
to 3% of the revenues of each of its franchised stores.

See "Risk Factors -- Risks Associated with Franchise Operations."

50
<PAGE> 121

COMPETITION

The video retail industry is highly competitive. The Company competes with
other video specialty stores, including stores operated by regional and national
chains, such as Blockbuster, and with other businesses, such as supermarkets,
pharmacies, convenience stores, bookstores, mass merchants, mail order
operations and other retailers, that offer videos and interactive electronic
entertainment products. Certain of the Company's competitors, including
Blockbuster, have significantly greater financial and marketing resources,
market share and name recognition than the Company. The Company believes that,
apart from Blockbuster, neither the Company nor any other video specialty store
chain accounts for 2% or more of industry-wide revenues. In addition, the
Company's stores compete with other leisure-time activities, including movie
theaters, network and cable television, live theater, sporting events and family
entertainment centers. However, many of these have a higher per person cost than
the rental of a video.

The Company believes the principal competitive factors among participants
in the video retail industry are store location and visibility, title selection,
the number of copies of each new release available and customer service. While
the Company does not believe that price is a significant competitive factor
among video retailers, it is a significant factor relative to competition with
movie theaters and other forms of entertainment. The Company's goal is to offer
a higher level of service, greater title selection and more copies of new
releases than its competitors to foster more frequent visits and video rentals
by customers.

The Company's stores also compete with Pay-Per-View cable television
systems, in which home subscribers pay a fee to see programming selected by the
subscriber. Existing Pay-Per-View services offer a limited number of channels
and programming and are generally available only to households with a converter
to unscramble incoming signals. While recently developed technologies permit
certain telecommunications companies to transmit a much greater number of movies
to homes in more markets as frequently as every five minutes, the Company
believes that substantial technological developments will be necessary to allow
such alternatives to match the low price, viewing convenience (in terms of
stopping, restarting and rerunning the programs) and selection available through
video rental. Furthermore, the Company believes that movie studios have a
significant interest in maintaining the movie rental business because the sale
of video rental units typically represents the studios' largest source of
revenues. According to Kagan Associates, the home video market was the largest
single source of revenue to movie distributors, accounting for approximately
48.6% of movie distributors' total domestic revenues and approximately 46.1% of
movie distributors' worldwide revenues in 1994. For further information
concerning competition within the industry, see "Video Industry Overview."

EMPLOYEES

At September 1, 1996, the Company had 2,188 employees, including 2,075 in
retail stores and the remainder in corporate administrative and warehousing
operations. Of such employees, 602 were full-time and 1,586 were part-time.
Staffing requirements for West Coast stores range from six to 12 employees,
depending on size, and typically include one store manager and one or two
assistant managers. Store managers report directly either to a Regional Vice
President (of which the Company currently has seven) or, in regions with many
stores, to a district manager who, in turn, reports to a Regional Vice
President. The Company believes that its employee relations are good. None of
the Company's employees is represented by a labor union.

PROPERTIES

The Company's corporate headquarters is located at 9990 Global Road,
Philadelphia, Pennsylvania and consists of approximately 18,200 square feet of
office space. Approximately 11,000 square feet of warehouse space is located in
an adjacent building at 490 Red Lion Road. Currently, annual rentals for these
facilities are $63,098 and $28,176, respectively, plus taxes, insurance and
utilities. These facilities are leased pursuant to an agreement which expires on
December 31, 1996, with an option to renew for an additional three month period.

The Company also rents 1,250 square feet of office space at 685 Delaware
Avenue, Suite 115, Marion, Ohio for its Ohio operations, under a lease for the
period ending December 31, 1996 for an annual rental of $12,000, plus taxes,
insurance and utilities, and 2,400 square feet of office space at 1266
Commonwealth

51
<PAGE> 122

Avenue, Boston, Massachusetts for its Massachusetts operations, with a lease for
the period ending August 31, 1997, for an annual rental of $31,500, plus taxes,
insurance and utilities, with two five-year renewal options. Office and
warehouse facilities for Regional Vice Presidents' operations is typically
located in premises leased by a conveniently located store within each region.
The Company believes that such facilities are adequate for current and future
operations.

The Company leases all of its video specialty stores. The leases for the
Company's 14 Videosmith(R) stores generally have an initial term of five to ten
years and seven of such leases provide options to renew for additional terms.
The leases with respect to the remaining stores generally have an initial term
of five years and provide one or two options to renew for an additional term of
three to five years. Rents for the renewal terms are typically at pre-negotiated
rates. The majority of the leases contain percentage rental provisions which
only apply based upon high thresholds of in-store gross sales revenues. The
Company has not to date paid material amounts of percentage rentals. The Company
is responsible for taxes, insurance and utilities under most leases. The Company
expects that future stores will also occupy leased premises.

INTELLECTUAL PROPERTY

The Company owns a number of trademarks, trade names and service marks
including West Coast Video(R), The Movie Buff's Movie Store(R), Game Power
HeadquartersSM, The ProjectorTM, Spotlight on VideoTM and Videosmith(R), as well
as Palmer Video, Red Giraffe and other trade names under which certain recently
acquired stores are currently conducting business pending their transition to
the West Coast Video(R) name and signage. The Company also owns its own IRIS
version and source code of the West Coast Video(R) and Game Power HeadquartersSM
software. The Company considers its intellectual property rights to be an
important part of its business.

LEGAL PROCEEDINGS

The Company was served with a Demand for Arbitration (the "Demand") by a
Game Power Headquarters(SM) franchisee on January 22, 1996 (Interactive
Associates, L.C., Inter Active Electronics Corporation, BSMS Acquisitions, Inc.
and RKT Acquisitions Company, American Arbitration Association, Case No. 54 114
000 33 96). The Demand alleges that one of the WCEI Companies, as predecessor
franchisor of video game stores, engaged in acts of fraud and misrepresentation,
breach of contract and unfair and deceptive trade practices, first by misstating
its intentions in regard to developing and supporting a network of stand-alone
video game stores, thereby inducing the franchisee to incur substantial
development expenses, and then by failing to deliver promised support, including
design plans and specifications, opening inventory and computer hardware and
software. The Demand seeks compensatory damages in excess of $355,000. The
Company has denied the material allegations of the Demand and intends to
vigorously defend against this action.

On March 20, 1996, a Complaint was filed against the Company in the
Superior Court of the State of California in and for the City and County of
Santa Clara, Anderson & Wells, Sundance Venture Partners, L.P., and Murphy's
Express v. R.K.T. Acquisition Co., West Coast Entertainment Corporation, and
Does 1 through 10 (Case No. CV756743). Plaintiffs claim that the Company failed
to close an $800,000 bridge financing loan from Sundance Venture Partners, L.P.
("Sundance") which plaintiffs allege would have entitled Sundance, as lender, to
warrants for Company common stock worth $420,000 (valued at a share price
equivalent to the price at which the Company subsequently offered its stock in a
public offering) and Anderson & Wells to a $60,000 placement fee. Based on these
assertions, the Complaint alleges breach of contract, breach of the covenant of
good faith and fair dealing and interference with economic relations against the
Company due to its purported failure to close the loan. The Company has denied
the material allegations in the Complaint and plans to defend vigorously against
plaintiffs' claims.

The Company is a defendant, together with Ralph W. Standley III and T. Kyle
Standley, in a lawsuit brought in the United States District Court for the
Eastern District of Pennsylvania on July 3, 1995 entitled Salvador v. R.K.T.
Acquisitions, Inc. (No. 95-6241). The plaintiff claims that he was offered
employment by the Company and is entitled to a salary and various types of
finder's fees and other incentives. On the basis of

52
<PAGE> 123

discovery to date, the suit seeks to recover employee compensation in excess of
$750,000, finder's fees in excess of $1,250,000, and punitive damages in an
unspecified amount. The matter has been set for trial in September or October
1996. The Company has denied the material allegations in this matter and plans
to defend vigorously against plaintiff's claims.

DEVELOPMENT OF THE COMPANY

West Coast Entertainment Corporation is a Delaware corporation established
by Ralph W. Standley III and T. Kyle Standley in February 1995 (originally under
the name RKT Acquisition Co.) for two purposes: (i) to combine four corporations
(the "Predecessor Corporations") through which the Standley family had
theretofore conducted their video store business and (ii) to acquire
substantially all of the operating assets relating to franchise operations of
West Coast Video Entertainment, Inc., an unrelated third party, and its four
affiliated corporations. In July 1995 each of the four Predecessor Corporations,
Giant Video Corporation ("GVC"), Nostalgia Ventures, Inc. ("NVI"), G.V.
Management Corp. ("GVMC") and Videosmith (DE) Incorporated ("VDI"), merged with
and into the Company in the Merger. As a result of the Merger, the former
stockholders of the four Predecessor Corporations became stockholders of the
Company. Simultaneously, the Company, through its wholly-owned subsidiary WC
Franchise, a Delaware corporation, acquired substantially all of the
franchise-related operating assets of the WCEI Companies for $4.0 million in
cash and $4.4 million principal amount of promissory notes and also agreed to
make $500,000 of noncompetition payments and pay certain subsequent fees as
described under "-- Recent Acquisitions."

The Company's growth since 1995 is described under "-- Recent
Acquisitions."

The four Predecessor Corporations that were merged into the Company had
previously conducted their respective operations under substantially common
ownership. See Notes 1 and 11 to the Company's consolidated financial
statements. GVC, an Ohio corporation, was incorporated in 1989 and opened its
first video specialty store in Dayton, Ohio in June 1989. In April 1993 all of
the outstanding stock of NVI, an Ohio corporation with seven stores in the
Greater Dayton area, was acquired by the controlling stockholders of GVC from
unrelated third parties for $100,000 in cash and $108,000 principal amount of
promissory notes accompanied by a $256,000 noncompetition payment. In August
1994 the controlling stockholders of NVI, together with certain other investors,
acquired from an unrelated third party through VS Acquisition Corp., a newly
formed Delaware corporation ("VSAC"), all of the outstanding stock of VDI, the
parent of Videosmith Incorporated, a Massachusetts corporation with 14 stores in
Massachusetts, for $1.9 million in cash. Shortly thereafter, VSAC merged with
and into VDI. In May 1992 the controlling stockholders of GVC formed an Ohio
corporation, GVMC, which provided management services to certain of the other
corporations. In February 1992 over three years prior to the acquisition of its
franchise-related operating assets by the Company, one of the WCEI Companies
filed for protection under Chapter 11 of the Federal Bankruptcy Code due to the
financial condition of its owned and operated video specialty stores, as
distinct from its franchising operations.

53
<PAGE> 124

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers, other key executives and directors of the Company
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ---- ------------------------------------------
<S> <C> <C>
Ralph W. Standley III..................... 58 Chairman of the Board of Directors
T. Kyle Standley.......................... 33 President, Chief Executive Officer and
Director
Donald R. Thomas.......................... 52 Chief Operating Officer and Director
Kenneth R. Graffeo........................ 38 Executive Vice President-Marketing
Peter Balner.............................. 49 Executive Vice President-Corporate Retail
Operations and Development and Director
Jules E. Gardner.......................... 35 Executive Vice President-Franchise
Operations
Richard G. Kelly.......................... 42 Vice President, Chief Financial Officer
Jerry L. Misterman........................ 50 Vice President, Chief Accounting Officer
M. Trent Standley......................... 31 Vice President, Secretary and Director
James B. Dinneen, Jr.(1).................. 34 Director
C. Stewart Forbes(2)...................... 56 Director
Wesley F. Hoag(1)(2)...................... 39 Director
</TABLE>

- ---------------
(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Ralph W. Standley III has served as the Chairman of the Board of West Coast
and its principal predecessors for the past five years. He also served as
President of two such predecessors, NVI and VDI, and as Secretary of two other
predecessors, GVI and GVMC, from the date of their inception or acquisition by
West Coast through July 1995. Ralph W. Standley III is the father of T. Kyle
Standley and M. Trent Standley.

T. Kyle Standley has served as the President and Chief Executive Officer
and a Director of West Coast and its predecessors since its inception in
February 1995. Previously, he served as an executive officer of two of West
Coast's predecessors, GVC and GVMC, commencing in 1991. Mr. Standley was
director of research at Colliers International Property Consultants from 1989 to
1991, and prior thereto was a financial analyst at Paine Webber Incorporated.

Mr. Thomas has served as Chief Operating Officer since he joined the
Company in May 1995. Mr. Thomas has also served as Chairman of the Board of
Directors and Executive Consultant since 1985 to A-Z Video, a chain of 12
company-owned and 21 licensed video specialty stores; Chairman of the Board of
Directors, President and Chief Executive Officer of Club Donatello Owners
Association, a hotel-condominium owners association in San Francisco, since
early 1994; and as President of D.R. Thomas Enterprises, Ltd., a management
consulting firm, since 1991. From 1990 through 1992, Mr. Thomas also served as
Senior Vice President of Creative Strategies Research International, Inc., a
high-technology market research and management consulting firm.

Mr. Graffeo has served as Executive Vice President-Marketing since he
joined the Company in July 1995 in connection with the acquisition by WC
Franchise of certain franchise-related operating assets. Prior thereto, Mr.
Graffeo served West Coast Entertainment, Inc. as its Executive Vice President
from December 1993 until July 1995 and as Vice President-Marketing from December
1992 through December 1993. From July 1990 through December 1992, Mr. Graffeo
served as Director of Marketing for West Coast Video Enterprises, Inc. Both West
Coast Entertainment, Inc. and West Coast Video Enterprises, Inc. were WCEI
Companies previously engaged in the franchising and ownership and operation of
video specialty stores. From 1986 to 1990, Mr. Graffeo served as a
Vice-President of Marketing Services for Geographic Marketing Group, a
BBDO/Tracy Locke Company, a domestic marketing group, with direct responsibility
for the marketing campaigns of brands such as Kraft General Foods and
Pepsi-Cola. From 1980 to 1986, Mr. Graffeo was employed by Coca-Cola Co. Inc.,
where he served in various marketing and brand management positions.

54
<PAGE> 125

Mr. Balner has served as President and Chief Executive Officer of Palmer
Video, a rental video retailer, since December 1981. Mr. Balner has received
numerous awards, including "Retailer of the Year" in 1989 and 1993 and "Video
Man of the Year" in 1989, and was inducted into the "Video Hall of Fame" in
1992. Mr. Balner has served on the Board of Directors of the Video Software
Dealers Association since 1993.

Mr. Gardner has served as Executive Vice President-Franchise Operations
since he joined the Company in July 1995 in connection with the acquisition by
WC Franchise of certain franchise-related operating assets, and has served as
President of WC Franchise Company since July, 1995. Prior to July 1995, Mr.
Gardner served as Chief Operating Officer for West Coast Entertainment, Inc.
from November 1992. From July 1990 through November 1992, Mr. Gardner was a Vice
President of West Coast Video Enterprises, Inc. with responsibility for
marketing video specialty store franchises. On February 25, 1992, West Coast
Video Enterprises, Inc., of which Mr. Gardner was an executive officer, filed
for protection under Chapter 11 of the Federal Bankruptcy Code. Prior to 1990,
Mr. Gardner also coordinated the national sales and distribution efforts of
Sorbee International, a manufacturer of sugar-free candies.

Mr. Kelly joined the Company in July, 1996. Previously he was a director of
Moore, Stephens, Reilly, P.C. for the past three years, and, since 1990, a
director of Gillis & Kelly, P.C. which was merged with Moore, Stephens, Reilly,
P.C. Mr. Kelly is a Certified Public Accountant whose responsibilities at such
firms included the direction of the mergers and acquisitions group.

Mr. Misterman has served as Vice President-Finance of the Company since
mid-July 1995 and as Chief Financial Officer of WC Franchise, a wholly owned
subsidiary of the Company, since the acquisition by WC Franchise of certain
franchise-related operating assets in July 1995. Prior to and until July 1995,
Mr. Misterman served as Chief Financial Officer of each of the WCEI Companies,
of Sorbee International, a manufacturer of sugar-free candies, from March 1989,
and of Medical Products Labs, a manufacturer and distributor of fluoride-related
sugar-free dental products, from March 1990. Prior to 1990, Mr. Misterman's
experience included serving as the Chief Financial Officer of the Seven-Up
Bottling Group of Philadelphia Inc., Corporate Controller and Assistant
Treasurer of Aydin Corporation, a manufacturer of electronic communications
systems and equipment, and also as Chief Financial Officer of Providers Benefit
Company, a manager and operator of several primary health care facilities and a
finance company. On February 25, 1992, West Coast Video Enterprises, Inc., of
which Mr. Misterman was an executive officer, filed for protection under Chapter
11 of the Federal Bankruptcy Code.

M. Trent Standley has served as a Vice President, Secretary and a Director
of West Coast since May 1995. He also served as President of one of West Coast's
predecessors, GVI, from 1989 to 1995, as Vice President of two other
predecessors, VDI from 1994 to 1995 and GVMC from 1992 to 1995, and as Secretary
of a fourth predecessor, NVI, from 1993 to 1995.

Mr. Dinneen has served the Company as a Director since August 1995. Since
January 1995, Mr. Dinneen has served as Managing Director of Merion Capital
Management, LLC, an investment management company. From 1991 to 1994, Mr.
Dinneen served as Assistant to the President of WSR Corporation, an auto parts
retailer, with responsibility for general management and strategic planning
functions. Prior to 1991, Mr. Dinneen served as a financial analyst for Merrill
Lynch Capital Partners, Inc.

Mr. Forbes has served as President of Colliers International Property
Consultants since 1979.

Mr. Hoag has served as General Counsel and Chief Operating Officer of R.
Meeder & Associates, Inc., a registered investment adviser ("Meeder"), since
July 1993, and since April 1994 has served as Vice President of The Flex-Funds
and The Flex-Partners, investment companies sponsored by Meeder. From 1984 to
1993, Mr. Hoag was an attorney at the law firm of Porter, Wright, Morris &
Arthur.

Executive officers of the Company are generally elected by the Board of
Directors on an annual basis and serve at the discretion of the Board of
Directors. Directors serve for one-year terms, until the next Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified.

Mr. Dinneen has been elected as a director of the Company pursuant to an
agreement with the former stockholders (other than members of the Standley
Family) of VDI and NVI (the "Non-Standley Investors") in connection with the
merger of each of VDI and NVI with and into the Company in July 1995. The

55
<PAGE> 126

agreement will terminate when the Non-Standley Investors own less than 475,469
shares, which equals one half of the shares of Common Stock acquired by them in
the merger.

DIRECTOR COMPENSATION

Non-employee directors of the Company receive an annual stipend of $10,000
and all directors are reimbursed for their out-of-pocket expenses incurred in
connection with their attendance at Board and committee meetings.

Under the Company's 1995 Director Stock Option Plan (the "Director Option
Plan"), upon the consummation of the Public Offering, each of Messrs. Dinneen,
Forbes and Hoag, the Company's non-employee directors, was granted an option to
purchase 3,000 shares of Common Stock at an exercise price per share equal to
the public offering price. In addition, each non-employee director initially
elected to the Board of Directors in the future will be granted an option, upon
his or her initial election as a director, to purchase 3,000 shares of Common
Stock. Each non-employee director will also receive a subsequent grant of an
option for 1,000 shares on the date of each Annual Meeting of Stockholders at
which such director is reelected as a director of the Company, beginning with
the Annual Meeting for the year ending January 31, 1997. All options granted
under the Director Option Plan have or will have an exercise price equal to the
fair market value of the Common Stock on the date of grant, will vest over a
three-year period, provided the optionholder continues to serve as a director of
the Company, and will expire ten years from the date of grant (subject to
earlier termination in the event the optionee ceases to serve as a director of
the Company). The total number of shares of Common Stock that may be issued
under the Director Option Plan is 50,000 shares.

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth certain information concerning the annual
and long-term remuneration paid to or accrued for the Chief Executive Officer
and each of the other four most highly compensated executive officers of the
Company whose salaries and bonuses exceeded $100,000 for services rendered
during the year ended January 31, 1996 (the "Named Executives") together with
similar information in regard to such remuneration paid to or accrued for the
Named Executives for services rendered during the year ended January 31, 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
FISCAL YEAR ENDED ---------------------
NAME AND PRINCIPAL POSITION JANUARY 31, SALARY BONUS
- ------------------------------------------------ ----------------- -------- --------
<S> <C> <C> <C>
Ralph W. Standley III 1996 $117,923
Chairman of the Board......................... 1995 $ 52,000 $ 34,000
T. Kyle Standley 1996 $ 43,795
President and Chief Executive Officer......... 1995 $ 26,000 $ 30,000
Kenneth R. Graffeo(2)
Executive Vice President...................... 1996 $200,000
Jules E. Gardner(2)
Executive Vice President...................... 1996 $200,000
Jerry L. Misterman(2)
Vice President-Finance........................ 1996 $118,750
</TABLE>

- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where such perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total of annual salary and bonuses for the executive officer for the fiscal
year.

(2) This executive officer joined the Company in July 1995.

The Company expects to pay higher amounts of executive compensation to
Ralph W. Standley III and T. Kyle Standley in the year ending January 31, 1997
and subsequent years as its operations expand. Estimates

56
<PAGE> 127

of such amounts have been reflected in the pro forma combined financial data set
forth elsewhere in this Prospectus.

Option Grants and Year-End Option Values

To date, the Company has not granted any employee stock options. Future
grants will be made at the discretion of the Compensation Committee.

Employment Agreements

In connection with the purchase by WC Franchise of substantially all the
operating assets pertaining to franchising operations of the WCEI Companies, WC
Franchise entered into employment agreements with each of Messrs. Gardner,
Graffeo and Misterman. Each of these agreements has a two-year term which
expires in July 1997. Under such agreements, these employees serve WC Franchise
as its President, Executive Vice President-Marketing and Vice President-Finance,
respectively. Messrs. Gardner, Graffeo and Misterman are also executive officers
of the Company.

These agreements provide for annual salaries of $200,000 to each of Messrs.
Gardner and Graffeo, and $118,750 to Mr. Misterman. All reasonable travel,
entertainment and other expenses incurred in connection with the performance of
their employment duties are reimbursable by the Company.

Under each agreement, the employee's employment may be terminated by the
Company in the event that the employee fails to perform his respective duties
for a certain period of time, for cause, upon the death or disability of the
employee or at the election of the employee upon two months' written notice
provided to the Company. In the event that the Company moves the employee's
primary place of employment to a location beyond a 40 mile radius of its present
Philadelphia site and the employee elects to terminate his employment for such
reason, then the Company is obligated to pay each such terminating employee the
balance of any salary and benefits which he would have been entitled to receive
had he remained employed for the remainder of the term of the respective
agreement.

The Company has entered into a one-year employment agreement with Mr.
Balner which became effective upon consummation of the Acquisition of Palmer
Video, pursuant to which Mr. Balner serves as Executive Vice President-Corporate
Retail Operations and Development at an annual salary of $210,000. Except that
Mr. Balner's agreement does not provide for termination benefits if his primary
place of employment is moved, such agreement is substantially similar in all
other material respects to those of Messrs. Gardner, Graffeo and Misterman.

The agreements generally prohibit each employee from competing with the
Company during his term of employment by the Company and for two years
thereafter, and contain customary confidentiality and invention assignment
provisions in favor of the Company. The agreements require the Company to
indemnify each employee to the fullest extent permitted under the Delaware
General Corporation Law for liabilities incurred by each employee in the
performance of his duties.

EMPLOYEE STOCK PLANS

1995 Equity Incentive Plan. The Company's 1995 Equity Incentive Plan (the
"Equity Plan") was adopted by the Board of Directors and approved by the
stockholders of the Company in July 1995. The Equity Plan enables the Company to
grant options to purchase Common Stock, to make awards of restricted Common
Stock, and to issue certain other equity-related securities of the Company to
employees of and consultants to the Company. The total number of shares of
Common Stock which may be issued under the Equity Plan is 350,000 shares. Stock
options entitle the optionee to purchase Common Stock from the Company for a
specified exercise price as determined by the Board of Directors, during a
period specified in the applicable option agreement. Restricted stock awards
entitle the recipient to purchase Common Stock from the Company under terms
which provide for vesting over a period of time and a right of repurchase in
favor of the Company with respect to the unvested portion of the Common Stock
subject to the award upon the termination of the recipient's employment or other
relationship with the Company. The maximum number

57
<PAGE> 128

of shares with respect to which options or awards may be granted to any employee
under the Equity Plan may not exceed 90,000 shares of Common Stock during any
calendar year.

Under the Equity Plan, the Company may grant options that are intended to
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock
options"), or options not intended to qualify as incentive stock options
("nonstatutory options"). Incentive stock options may only be granted to
employees of the Company. Stock options granted under the Equity Plan will be
nontransferable, and it is expected that they will generally become exercisable
over a four-year period and expire ten years after the date of grant (subject to
earlier termination in the event of the termination of the optionee's employment
with the Company).

The Equity Plan is administered by the Compensation Committee of the Board
of Directors, which selects the persons to whom stock options and restricted
stock awards are granted and determines the number of shares of Common Stock
covered by the option or award, its exercise price or purchase price, its
vesting schedule and (in the case of stock options) its expiration date. To
date, no stock options, restricted stock or other equity incentives have been
granted under the Equity Plan.

1995 Employee Stock Purchase Plan. The Company's 1995 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and
approved by the stockholders of the Company in November 1995. The Purchase Plan
authorizes the issuance of up to a total of 125,000 shares of Common Stock to
participating employees through a series of semiannual offerings. Offering
periods will commence on each November 1, beginning November 1, 1996, and May 1
and terminate on the following April 30 and October 31, respectively. The
maximum number of shares available in each offering is 25,000 shares. The
Purchase Plan will terminate when the maximum number of shares issuable under
the Purchase Plan has been purchased by participating employees. Any employee,
including an employee who is a director, of the Company or a participating
subsidiary is eligible to participate in an offering if, on the first day of the
applicable offering, he or she is regularly employed by the Company or the
subsidiary for more than 20 hours a week and has been so employed for more than
five months in a calendar year. The price at which employees may purchase Common
Stock in an offering is 85% of the closing price of the Common Stock on the
Nasdaq National Market on the day the offering commences or on the day the
offering terminates, whichever is lower. An employee may elect to have up to 10%
of his or her qualifying compensation withheld for the purpose of purchasing
stock under the Purchase Plan. On the date an offering commences, each
participating employee is deemed to have been granted an option to purchase up
to the number of whole shares determined by dividing 12% of such employee's
compensation for the immediately prior six-month period by 85% of the fair
market value of the Common Stock on the date the offering commences. Unless the
participant elects to withdraw from the offering, each participant who continues
to be employed by the Company on the date such offering terminates is deemed to
have exercised the option and purchased on such date such number of shares
(subject to the maximum number covered by his or her option) as may be purchased
with the amount of his or her payroll deductions at the offering price. If the
total number of shares of Common Stock that would otherwise be purchased in the
offering with the accumulated payroll deductions exceeds the number of shares
available during the offering, the available shares will be allocated on a pro
rata basis to participating employees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Immediately following the completion of the Public Offering, the Company
established a Compensation Committee consisting of Messrs. Forbes and Hoag. The
Board of Directors did not previously have a Compensation Committee; instead,
the functions of the Compensation Committee were performed by the Board of
Directors as a whole. For information concerning certain transactions and
relationships among the Company and the members of the Board of Directors, see
"Certain Transactions."

58
<PAGE> 129

CERTAIN TRANSACTIONS

In July 1994, in connection with its formation, VSAC, one of the Company's
predecessors, issued 13 shares of its Common Stock to each of Ralph W. Standley
III, T. Kyle Standley and M. Trent Standley for cash payments of $2,000 each. In
August 1994, in connection with the acquisition by VSAC of all of the capital
stock of VDI, VSAC issued (i) an additional 414 shares of its Common Stock to
Ralph W. Standley III and an additional 402 shares of its Common Stock to each
of T. Kyle Standley and M. Trent Standley for an aggregate cash payment of
$194,000 each and (ii) 279 shares of its Series A Convertible Preferred Stock to
James B. Dinneen, Jr. for a cash payment of $100,000. In September 1994, VSAC
was merged with and into VDI and VDI issued shares of its Common Stock and
Series A Convertible Preferred Stock to the stockholders of VSAC in
consideration for the cancellation of their capital stock of VSAC.

In February 1995, in connection with its formation and initial
capitalization, the Company issued a total of 1,028,460 shares of Common Stock
to Ralph W. Standley III (342,840 of which shares Mr. Standley subsequently
transferred to the Ralph W. Standley III Irrevocable Trust), 1,028,460 shares of
Common Stock to T. Kyle Standley and 228,547 shares of Common Stock to M. Trent
Standley for cash payments of $4,500, $4,500 and $1,000, respectively.

In July 1995, in connection with the merger of NVI, GVC, GVMC and VDI into
the Company, the Company issued a total of 611,379 shares of Common Stock to
Ralph W. Standley III, 64,304 shares of Common Stock to Ralph W. Standley III's
wife, 407,465 shares of Common Stock to T. Kyle Standley, 436,411 shares of
Common Stock to M. Trent Standley and 172,956 shares of Common Stock to Mr.
Dinneen, reflecting the value of each such person's stockholdings in such four
entities, in consideration for cancellation of their capital stock in such four
entities.

The Company has entered into employment agreements with Messrs. Graffeo,
Gardner, Misterman and Balner. See "Management -- Employment Agreements."

Two corporations, 51% of whose outstanding stock was owned by Mr. Gardner
and 40% by Mr. Graffeo, operated two West Coast Video(R) stores from July 1991
through October 1993 and October 1995, respectively, under royalty-free license
agreements from the WCEI Companies (prior to July 1995) and WC Franchise
(thereafter). Had standard royalties and advertising fees not been waived, such
stores would have paid the franchisors approximately $59,800 during fiscal 1992,
approximately $64,480 during fiscal 1993, approximately $34,800 during fiscal
1994 and $33,280 during fiscal 1995. The two stores were sold to unrelated third
parties which had already become West Coast Video(R) franchisees.

For a description of the agreement with the Non-Standley Investors,
pursuant to which Mr. Dinneen has been elected a director of the Company, see
"Management -- Executive Officers and Directors." For a description of a
registration rights agreement to which Mr. Dinneen is a party, see "Description
of Capital Stock -- Registration Rights."

In May 1996, the Company granted certain stock options to Messrs. Dinneen,
Forbes and Hoag under the Director Option Plan. See "Management -- Director
Compensation."

The Company paid an aggregate purchase price of $9,156,781, consisting of
$4,578,391 in cash and 352,184 shares of Common Stock, to Peter Balner in
connection with the Recent Acquisition by the Company of all outstanding stock
of Palmer Video owned by him, together with an additional $2,289,196, consisting
of $436,686 in cash and 142,501 shares of Common Stock, payable to two family
trusts of which Mr. Balner is trustee.

The Company paid an aggregate purchase price of $4,300,000 in cash to A-Z
Video in connection with the Recent Acquisition of 12 video specialty stores.
Mr. Thomas, the Chief Operating Officer of the Company, was Chairman of the
Board of A-Z Video and owned 2% of its outstanding capital stock.

In May 1996, the Company repaid approximately $3.1 million of indebtedness
to a financial institution, all of which had been guaranteed by Ralph W.
Standley III, T. Kyle Standley and M. Trent Standley.

59
<PAGE> 130

In May 1996, the Company repaid $216,781 of principal of and accrued
interest on a convertible note to Mr. Gardner. Mr. Graffeo elected to convert an
additional $216,781 of principal and accrued interest into 20,844 shares of
Common Stock. Each of Messrs. Graffeo and Gardner had a 10% interest in such
note, which was issued to West Coast Video Enterprises, Inc. in July 1995 as
part of the purchase price for the franchise-related assets of that corporation
which were acquired by the Company's wholly owned subsidiary, WC Franchise.

In July 1995, the Company also agreed to pay to each of Messrs. Graffeo and
Gardner 1.11% (and the WCEI Companies 8.88%) of the total purchase price paid by
the Company to the seller in connection with the acquisition of the stock or
assets of any company which was a West Coast Video(R) franchisee as of July 12,
1995. Under this agreement, the Recent Acquisition of stores from the
Massachusetts Franchisees resulted in a payment of approximately $130,000 to
each such individual. Information about any such fees payable in connection with
the Prospective Acquisitions is set forth in the Supplements.

The Company has adopted a policy requiring all future transactions between
the Company and its officers, directors and affiliates to be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
to be approved by a majority of the disinterested members of the Company's Board
of Directors.

PRICE RANGE OF COMMON STOCK; DIVIDENDS

There were approximately 51 record owners of the Company's Common Stock as
of September 9, 1996. The last reported sales price for the Common Stock on
Nasdaq on September 20, 1996 was $9.25 per share.

60
<PAGE> 131

PLAN OF DISTRIBUTION

Shares of common stock will be offered in connection with West Coast's (or
a subsidiary's) acquisition of businesses, properties or equity and/or debt
securities in business combination transactions from time to time. A maximum of
5,000,000 shares of common stock may be issued and sold pursuant to this
prospectus. These shares will ordinarily represent consideration paid directly
upon the acquisition of businesses, properties or securities, in some cases
together with additional consideration consisting of cash, debt or other
securities (which may be convertible into shares covered by this Prospectus) or
assumption by the Company of liabilities of the businesses being acquired, or a
combination thereof. The shares may also include shares to be delivered upon the
exercise or satisfaction of conversion or purchase rights which are created in
connection with acquisitions or which were previously created or assumed by the
companies whose businesses or properties are acquired by West Coast (or a
subsidiary).

For a description of the businesses and assets to be acquired in the
Prospective Acquisitions, see the Supplements.

RESALES

Shares offered hereby may generally be resold by the persons acquiring them
without further registration under the Securities Act of 1933 (the "Act"),
unless such persons are "affiliates" or "underwriters" within the meaning of the
Act. Such transfer restrictions are distinct from and in addition to any
transfer restrictions which may be contained in the acquisition agreements for
all or some future acquisitions. The Company intends to seek the agreement of
recipients of shares of Common Stock in Acquisitions to restrictions on their
transfer of such shares for periods ranging from six to 18 months or to
structure such transactions to provide for issuance of shares on a deferred
basis over periods of six to 18 months.

Any person receiving shares offered hereby who is an "affiliate" of West
Coast may be subject to certain limitations on resale. An "affiliate" is a
person who directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with the Company. In the absence
of a special relationship between West Coast and a person who receives shares
from West Coast in an acquisition transaction (such as election of such person
to West Coast's board of directors or ownership by such person of a significant
percentage of West Coast's outstanding common stock), such a person generally
would not be considered an "affiliate" of West Coast within the meaning of the
Act. Therefore, the limitations on resale applicable to affiliates would not
apply to such person.

Any person receiving shares offered hereby who is an "underwriter" of West
Coast may also be subject to certain limitations upon resale. An "underwriter"
includes a person who purchases West Coast shares with a view to the
distribution of such shares, or an affiliate of a company or business acquired
by West Coast. Although an "underwriter" may otherwise be subject to certain
resale limitations, if such person complies with the "safe harbor" provisions of
Rule 145(d), he or she may freely resell shares so long as certain conditions
are met. For example, a person who receives common shares from West Coast in a
typical acquisition transaction is deemed to be an "underwriter" as defined by
the Act, but such person is generally free under the Securities Act to sell such
shares at any time by complying with Rule 145(d), which requires that the amount
of common shares which may be sold by such person in any three-month period may
not exceed the greater of (i) 1% of the West Coast common shares outstanding as
shown by the most recent report or statement published by West Coast, or (ii)
the average weekly trading volume in West Coast common shares reported on Nasdaq
during the four calendar weeks preceding the order to sell. Such sales must also
be made in "brokers' transactions," which are ordinary sales through a broker
acting as agent without special commission arrangements or selling efforts.
Persons receiving shares in connection with acquisitions may also be subject to
contractual restrictions on resale entered into in connection with such
acquisitions.

In order for affiliates or underwriters not protected by Rule 145(d) to
resell shares offered hereby, West Coast would have to agree (i) to provide an
opinion to the effect that an exemption applies to such resale, (ii) to amend
the registration statement of which this prospectus is a part to permit such
resales, or (iii) to file a new registration statement which includes the shares
proposed to be resold. Unless a written agreement obligates West Coast to do so,
it does not expect that it will agree to provide such opinion, amendment or
registration.

61
<PAGE> 132

USE OF PROCEEDS

The proceeds of the sale of shares offered hereby, to the extent such
proceeds consist of the assets of acquired businesses, will be added to the
assets of West Coast. Cash proceeds, if any, will be added to the general funds
of West Coast and may be used for general corporate purposes, including capital
expenditures and working capital requirements.

For a description of the businesses and assets to be acquired in the
Prospective Acquisitions, see the Supplements.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 1, 1996 by (i) each
person who is known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and nominee, (iii) each
Named Executive and (iv) all directors and executive officers as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
NAME AND ADDRESS OF ------------------------
BENEFICIAL OWNER NUMBER PERCENT(2)
- -------------------------------------------------------------------- --------- ----------
<S> <C> <C>
5% STOCKHOLDERS:
Ralph W. Standley III(3)(4)(5).................................... 1,361,323 11.3%
Ralph W. Standley III Irrevocable Trust(3)(5)..................... 342,820 2.9
T. Kyle Standley(3)(5)............................................ 1,435,935 11.9
M. Trent Standley(3).............................................. 664,958 5.5
OTHER EXECUTIVE OFFICERS:
Peter Balner(6)................................................... 352,184 2.9
Palmer Corporation
1767 Morris Avenue
Union, NJ 07083-3598
Jules E. Gardner(3)............................................... -- --
Kenneth R. Graffeo(3)............................................. 20,844 *
Donald R. Thomas(3)............................................... -- --
OTHER DIRECTORS:
James B. Dinneen, Jr.(7).......................................... 172,956 1.4
Merion Capital Management
767 Third Avenue, 27th Floor
New York, NY 10017
C. Stewart Forbes................................................. -- --
Colliers International
84 State Street, 5th Floor
Boston, MA 02109
Wesley F. Hoag.................................................... -- --
R. Meeder & Associates
P.O. Box 7177
Dublin, OH 43017
All directors and executive officers as a group
(11 persons)(4)(5)(6)............................................. 4,351,020 36.2
</TABLE>

- ---------------
* Less than 1%

62
<PAGE> 133

(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise indicated. In accordance with the
rules of the Securities and Exchange Commission, each stockholder is deemed
to beneficially own any shares subject to stock options or warrants which
are currently exercisable or which become exercisable, or convertible
securities which are currently exercisable or which become exercisable,
within 60 days after September 1, 1996, and any reference in these footnotes
to shares subject to stock options held by the person or entity in question
refers to stock options which are currently exercisable or which become
exercisable within 60 days after September 1, 1996. The inclusion herein of
shares listed as beneficially owned does not constitute an admission of
beneficial ownership. The number and percentage of outstanding shares owned
after this offering assumes none of the listed stockholders will purchase
additional shares in this offering.

(2) Number of shares deemed outstanding includes shares outstanding as of
September 1, 1996 and any shares subject to stock options held by the person
or entity in question that are currently exercisable or exercisable within
60 days following September 1, 1996.

(3) These holders have an address c/o the Company, 9990 Global Road,
Philadelphia, Pennsylvania 19115.

(4) Includes 64,304 shares owned by this stockholder's wife; this stockholder
disclaims beneficial ownership of all such 64,304 shares.

(5) Voting and dispositive power over 342,820 shares owned by this trust is
shared by T. Kyle Standley and John H. Chory, Esq., as co-trustees. The
beneficiaries of the trust are Ralph W. Standley III's issue, who include T.
Kyle Standley and M. Trent Standley. The number of shares in the column next
to Ralph W. Standley III's name excludes these shares.

(6) Excludes 142,501 shares of Common Stock to be acquired by two family trusts,
over which Mr. Balner has no voting or dispositive power, in connection with
the Acquisition of Palmer Video by the Company.

(7) All of these shares are held by a charitable remainder trust, over which Mr.
Dinneen shares voting power, and is the sole income beneficiary.

63
<PAGE> 134

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock and 2,000,000 shares of Preferred Stock. As of September 1,
1996, there were outstanding (i) 12,020,844 shares of Common Stock held by
approximately 95 stockholders of record, (ii) the Warrant, which provides for
the purchase of 192,308 shares of Common Stock and (iii) options issued pursuant
to the Director Option Plan to purchase a total of 9,000 shares of Common Stock.

The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Certificate of Incorporation, as amended (the "Certificate of
Incorporation") and Restated By-laws (the "By-Laws") is believed to be complete
in all material respects. For further details, see the Company's Certificate of
Incorporation and By-laws included as exhibits to the Registration Statement of
which this Prospectus is a part. See "Additional Information."

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to preferential dividend rights, if
any, of any outstanding series of Preferred Stock. Upon the liquidation,
dissolution or winding-up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available for distribution
after the payment of all debts and other liabilities of the Company. Holders of
Common Stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of Common Stock are, and the shares offered hereby will
be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of holders of shares of any series of
Preferred Stock that the Company may designate and issue in the future.

PREFERRED STOCK

The Board of Directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 2,000,000 shares of Preferred Stock, in one or more
series. Each such series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights.

The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject to
the rights of holders of any Preferred Stock issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue any shares of
Preferred Stock.

WARRANT

In July 1995, the Company issued the Warrant to Resource Holdings, Inc., a
subsidiary of Ingram. The Warrant entitles its holder to purchase a number of
shares equal to $1,750,000 divided by 70% of the initial public offering price
per share in the Public Offering (192,308 shares). The exercise price of the
Warrant is 70% of such initial public offering price. The exercise price may be
paid (i) in cash or by certified check,

64
<PAGE> 135

(ii) upon the surrender of the documents evidencing certain indebtedness owed by
the Company to Resource Holdings Inc. or (iii) by a combination of methods (i)
and (ii). The Warrant expires on July 12, 2000. See Note 7 to the Company's
consolidated financial statements. The Company has granted certain registration
rights relating to the shares of Common Stock issuable upon exercise of the
Warrant. See "-- Registration Rights."

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to approve the sale or exchange of all or substantially all of a
corporation's assets or the merger or consolidation of a corporation with or
into any other corporation, or to amend a corporation's certificate of
incorporation or by-laws, unless a corporation's certificate of incorporation or
by-laws, as the case may be, requires a greater percentage. The Company's
Certificate of Incorporation and By-laws require the affirmative vote of the
holders of at least two-thirds of the shares of capital stock of the Company
issued and outstanding and entitled to vote to approve the sale or exchange of
all or substantially all of the Company's assets or the merger or consolidation
of the Company with or into any other corporation (except for mergers or
consolidations which do not result in a substantial change in ownership of the
Company's outstanding capital stock). The Company's Certificate of Incorporation
and By-laws also require the affirmative vote of the holders of at least 75% of
the shares of capital stock of the Company issued and outstanding and entitled
to vote to amend or repeal such provision and certain of the provisions
described in the next two paragraphs.

The Company's By-laws also provide that any action required or permitted to
be taken by the stockholders of the Company may be taken without a meeting only
by the unanimous written consent of stockholders, and that special meetings of
stockholders may be called only by the Board of Directors or the President of
the Company. In addition, stockholders wishing to nominate a candidate for
election as a director or bring other business before a meeting of stockholders
must comply with certain advance notice and informational requirements in the
Company's By-laws. The foregoing provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of the outstanding voting securities of the Company.
These provisions may also discourage another person or entity from making a
tender offer for the Common Stock, because such person or entity, even if it
acquired a majority of the outstanding voting securities of the Company, would
be able to take unilateral action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent unless it had acquired 100% of the Company's outstanding
voting stock.

The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability to the
Company or its stockholders for monetary damages for a breach of fiduciary duty,
except in circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Company's Certificate of
Incorporation also contains provisions obligating the Company to indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.

65
<PAGE> 136

REGISTRATION RIGHTS

Certain securityholders of the Company (collectively the "Rightsholders"),
who together own or have the right to acquire a total of 2,987,273 shares of
Common Stock (the "Registrable Shares") are parties to agreements with the
Company under which they have certain rights with respect to the registration of
the Registrable Shares under the Securities Act for resale to the public. These
agreements provide that in the event the Company proposes to register any of its
Common Stock under the Securities Act for its own account or otherwise, the
Rightsholders are entitled to include their Registrable Shares in such
registration, subject to certain conditions and limitations, which include the
right of the managing underwriter of any such offering to exclude some or all of
the Registrable Shares from such registration. In addition, certain of the
Rightsholders have demand registration rights under which, beginning in May
1997, they may require the Company to register all or part of their Registrable
Shares for resale to the public under the Securities Act, subject to certain
conditions and limitations. The Company is required to bear the expenses of
certain registrations (except underwriting discounts and commissions).

The Company is prohibited, pursuant to this agreement, from subsequently
granting registration rights to a third party which are more favorable to such
party than those rights enjoyed by the Rightsholders, unless approved by
Rightsholders who own more than 50% of the Registrable Shares.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

66
<PAGE> 137

SHARES ELIGIBLE FOR FUTURE SALE

At September 1, 1996, the Company had outstanding 12,213,152 shares of
Common Stock (assuming exercise of the Warrant). Of these shares, the 5,400,000
shares sold in the Public Offering are freely tradeable without restriction
under the Securities Act except that shares owned by "affiliates" of the Company
are subject to certain restrictions. None of the remaining 6,813,152 outstanding
shares of Common Stock (collectively, the "Restricted Shares"), including
Restricted Shares to be issued in connection with the exercise of the Warrant,
have been registered under the Securities Act, and they may be resold publicly
only upon registration under the Securities Act or in compliance with an
exemption from the registration requirements of the Securities Act.

SALES OF RESTRICTED SECURITIES

At present, Rule 144 provides generally that if two years have elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. If three years
have elapsed since the later of the date of acquisition of restricted shares of
Common Stock from the Company or from any affiliate of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale, such person would
be entitled to sell such shares without regard to the limitations described
above. Holders of 2,285,466 Restricted Shares will be eligible to sell such
shares pursuant to Rule 144 under the Securities Act, subject to the manner of
sale, volume, notice and information requirements of Rule 144, beginning in
February 1997, holders of 2,470,826 Restricted Shares will be eligible to sell
such shares pursuant to Rule 144 beginning in July 1997 and holders of 2,056,860
Restricted Shares will be eligible to sell such shares pursuant to Rule 144
beginning in May 1998. The Commission has recently sought public comment on the
advisability of shortening the applicable holding periods under Rule 144 by one
year. If such a change in Rule 144 were to be effected, the respective dates
referred to above would be February 1996 and July 1996 (subject to the lock-up
agreements referred to below) and May 1997.

LOCK-UP AGREEMENTS

Pursuant to the terms of lock-up agreements with the Underwriters, the
Company, executive officers, directors and certain stockholders of the Company,
who hold in the aggregate approximately 4,618,000 shares of Common Stock, have
agreed not to offer, sell, offer to sell, contract to sell, assign, pledge,
grant any option to purchase or otherwise dispose of or transfer any Common
Stock of the Company, or any other security of the Company, convertible into, or
exchangeable or exercisable for, Common Stock until November 1996 (the "Lock-up
Period"), without the prior written consent of Jefferies & Company, Inc.
("Jefferies"), except that (a) the Company may issue (i) Common Stock or options
to purchase Common Stock under the 1995 Equity Incentive Plan, the 1995 Director
Option Plan or the 1995 Employee Stock Purchase Plan, (ii) Common Stock upon the
exercise of presently outstanding warrants and (iii) Common Stock in connection
with the Company's express strategy of growth through acquisitions provided that
such Common Stock is restricted and is not tradeable prior to the expiration of
the Lock-up Period and (b) the executive officers, directors and certain
stockholders of the Company may make bona fide gifts to donees who agree to be
bound by the foregoing restrictions. See "Underwriting."

REGISTRATION RIGHTS

The Company intends to file registration statements under the Securities
Act later in 1996 registering the shares of Common Stock reserved for issuance
under the Company's 1995 Equity Incentive Plan, 1995 Director Stock Option Plan
and 1995 Employee Stock Purchase Plan. See "Management -- Director Compensation"
and "-- Employee Stock Plans." The Company has granted demand and piggyback

67
<PAGE> 138

registration rights to certain holders of certain Restricted Shares and to the
holder of the Warrant in connection with certain offerings of securities made by
the Company or its affiliates. See "Description of Capital Stock -- Registration
Rights." Shares registered under registration statements will be available for
sale in the open market, unless such shares are subject to vesting restrictions
imposed by the Company.

LEGAL MATTERS

The validity of the Common Stock offered hereby has been passed upon for
the Company by Hale and Dorr, Boston, Massachusetts. John H. Chory, a partner of
Hale and Dorr, shares voting and dispositive power, as a co-trustee of the Ralph
W. Standley III Irrevocable Trust, with respect to 342,820 shares of Common
Stock owned by such trust.

EXPERTS

The financial statements of each of West Coast Entertainment Corporation;
New Age Entertainment, Inc. (one of the Massachusetts Franchisees); HB
Associates, Inc. (one of the Massachusetts Franchisees); Video Innovators, Inc.
(one of the Massachusetts Franchisees); Best Entertainment, Inc. (one of the
Massachusetts Franchisees); Showtime, Inc.; Video Giant, Inc.; Anthony Cocca's
Videoland, Inc.; Vidko, Inc.; Kobie-Co Movie Outlet; and Videosmith Incorporated
have been included herein and in the Registration Statement in reliance on the
reports of Price Waterhouse LLP, independent accountants, as of the dates and
for the periods indicated in their reports appearing elsewhere herein, except as
they relate to the unaudited twelve month period ended December 31, 1995 of
Vidko, Inc., and on the authority of said firm as experts in auditing and
accounting.

The financial statements of each of Lancaster Group, Inc. (a member of the
Red Giraffe group), Palmer Corporation and subsidiaries and Videosmith
Incorporated have been included herein and in the Registration Statement in
reliance on the reports of KPMG Peat Marwick LLP, independent certified public
accountants, as of the dates and for the periods indicated in their reports
appearing elsewhere herein, and on the authority of said firm as experts in
auditing and accounting.

The combined financial statements of American Video, Inc. (a member of the
Red Giraffe group) and Red Giraffe Video, Inc. have been included herein and in
the Registration Statement in reliance on the report of Carpenter & Mountjoy,
PSC, independent certified public accountants, as of the dates and for the
periods indicated in their report appearing elsewhere herein, and on the
authority of said firm as experts in auditing and accounting.

The combined financial statements of West Coast Entertainment, Inc., and
affiliates have been included herein and in the Registration Statement in
reliance on the report of Miller, Glusman, Footer & Magarick, P.C., independent
certified public accountants, as of the dates and for the periods indicated in
their report appearing elsewhere herein, and on the authority of said firm as
experts in auditing and accounting.